Xi Jinping and Li Keqiang, China’s next president and premier, respectively, took the Standing Committee’s top spots. Joining them will be Shanghai party chief Yu Zhengsheng, Chongqing chief Zhang Dejiang (the disgraced Bo Xilai’s successor), media controller Liu Yunshan, Tianjin chief Zhang Gaoli and economist Wang Qishan—who, bizarrely, received the anti-corruption brief instead of the economic portfolio.
Xi, Zhang Dejiang, Yu Zhengsheng and Zhang Gaoli rose from Jiang’s Shanghai/New Left faction—the party’s conservative hardliners—while Li, Wang and Liu are more aligned with Hu’s reform-oriented wing. However, Liu skews more conservative while Zhang Gaoli is more reform-minded than most of Jiang’s disciples. Xi, too, has strong reform credentials despite his close relationship with Jiang, thanks to his time spent in Fujian and Zhejiang provinces—testing grounds for many of China’s market-oriented reforms.
Thus, even without Li Yuanchao and Wang Yang, economic reform will have a voice on the Standing Committee. But so will the hardliners, who still favor China’s state-owned enterprises and state-controlled economic model above all else, and the decision to relegate Wang Qishan to anti-graft duties despite his strong economic record suggests reform isn’t high on the agenda. Plus, the fact that the Standing Committee governs by consensus makes it difficult to imagine reform accelerating under the new regime. The seven men may be able to agree on incremental changes in targeted areas—like, perhaps, slowly increasing foreign investment caps or occasionally allowing new financial products. But bigger reforms are likely far out of reach.
What will be interesting to watch is how the new regime deals with corporate financing. Despite looser loan quotas, bank lending hasn’t quite met officials’ expectations this year—but instead of funneling more money into the economy through state-run banks, officials expanded corporate bond issuance and adjusted policy to support private lenders. Thus, while lending softened, total financing—“social financing,” in party speak—held up ok. And, in a notable shift, social financing seems to have replaced bank lending as the party’s preferred lending metric—the outgoing regime understood its economic importance. But broader social financing, though positive for China’s small businesses, means the government has less control over the economy. Will the conservative members of the new Standing Committee yield to economic necessity and allow further financial deregulation to expand total lending?
Time will tell.