What will the Chinese congress mean for the world economy?

Posted by Peter McGahan

Peter McGahan examines what 'Socialism with Chinese characteristics' means and how OBOR will shake up world trade.

Chinese flags

In reality, very little other than the significance of where China is pointed. That has significance, unlike our more western economies where the pointer may as well be the scarecrow in the Wizard of Oz.

China is a one party system and this seven-day ‘closed door election’, which ends on October 24th, is simply about personnel selection. Roughly 70% of the 350-member committee will turn over. Reportedly five of the seven standing community who effectively run China are expected to change.

We’ve had three decades of mental growth in China, and, as the second largest economy in the world, its health is vital, both in terms of its manufacturing and its consumption of western products.

Key items to look out for? Will Wang Qishan keep his place on the committee? He is the Chinese president Xi Jinping's right-hand man in his anti-corruption drive and this will be a sign of Xi’s ongoing power versus the many Chinese factions that exist.

A leader with power can do what they wish and Trump’s ‘advisers’ will be all too aware of that, especially as he was recently easily outplayed by China.

Trump’s concerns over China have been well documented, and the greater the power Xi maintains, the more difficult Trump will find to leverage him globally. He may find he is out of his league.

Understanding world economics and seeing through noise is like playing draughts, whilst blindfolded, on a trampoline. Wars are fought very differently these days.

For example, most stabilisation and bailout loans since World War II via the International Monetary Fund (IMF) have been via the United States or its banks. 

This, has them handcuffed to the US dollar, and many would argue, was on purpose. 

Well, now China lends money. The response? Change the IMF rules. 

If countries owe each other money, they enforce repayment through a system of which the World Bank and IMF are a part. 

Now they are saying, “you don’t have to repay China and Russia” yet prior to that, the IMF only made loans to countries, not in default to other governments. 

This new rule and US power to veto creates a two-tier system of those who operate within the dollar circle, and those who do not and will not be controlled by the United States. 

As was seen in many other countries, forced austerity meant those countries had to effectively follow the US neo liberalistic policy and privatise, thereby handing their ports, roads, bridges et al to the corporations who now feudally control them.

 History doesn’t repeat itself, it often rhymes.

Similarly, George Soros said he expects the Chinese currency to fail, which encourages the speculators to force that to happen, hence China freeing itself from the ‘green handcuffs’ remains their necessity. 

What’s the big deal? Well, it’s twofold: This flies headlong into a fight with the social policies of China (reaffirmed in day one of this Congress); these feudal landlords often do not circulate the money they are making in the country they make it, and you don’t benefit. That’s not how capitalism is supposed to work.

You have far right policies, meeting far left.

Take some time to have a look at the Chinese ‘one belt one road’ (OBOR) plan. This interlinking trade deal and infrastructure project (which the Chinese have already invested $1 trillion into) throughout Eurasia is potentially very significant given the dollar trade above. (1) Look who is in it and who is not.

Xi has again made it clear in the Congress, they don’t want to start a fight with anyone but that they are indeed focused on being a mighty force to lead the world again. 

He added…those who wished to take on a political system of “socialism with Chinese characteristics” is “a new choice” for developing nations.

How will Trump respond to that? 

If you want to see shifts in the stock market, diarise to watch for President Xi (assuming a strong team is appointed) greeting Trump for his first visit in November. The message will be clear. 

Similarly, watch for the central economic work conference in December where concrete policy changes will emerge; the national people’s congress in March and the third Plenum (communist party’s central committee) next year.  

That’s where your chewy bits will emerge.

Have a question on investments or pensions, please call Worldwide Financial Planning on 0800 011 2825, email info@wwfp.net or visit us on www.wwfp.net.

Peter McGahan is the owner of Independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority.  

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