February 26, 2018 / 3:22 AM / 7 months ago

Breakingviews - Xi’s open-ended rule bodes ill for governance

WASHINGTON (Reuters Breakingviews) - A potential president for life in Beijing bodes ill for governance. China’s rubber-stamp legislature is set to scrap term limits for leaders, meaning President Xi Jinping could stay around well beyond 2023, when his second term finishes. For foreign executives and investors, this further consolidation of power makes government even less predictable and raises the risk of poor decisions taken in an information vacuum.

China's President Xi Jinping claps after his speech as he and other new Politburo Standing Committee members meet with the press at the Great Hall of the People in Beijing, China October 25, 2017. REUTERS/Jason Lee

Xi was already set to wield enduring influence. He was designated the “core” of the Chinese Communist Party, and last year his comrades conspicuously failed to name a successor-in-waiting. However, this move makes the new state of affairs more explicit - and removes a key constraint established after the misrule of Mao Zedong.

Gauging the financial impact is difficult. But China is evidently moving away from technocratic government based around compromises struck between the political elite. That will, at the least, make it harder to forecast what comes next.

Indeed, the past year has already brought some of the most unexpected policy shifts in recent memory, including a “regulatory storm” of new rules for lenders and a crackdown on the country’s most acquisitive companies and tycoons. Last week regulators seized control of Anbang, one of the biggest insurers, and prosecuted its former chairman.

In addition, there could be pushback and confusion as companies and political rivals test the rapidly shifting boundaries. Meanwhile, competing ideas are less likely to win any airtime.

What this means for economic reform is hard to predict. The president announced more relaxed rules for investment in banks, brokers and insurers last year, and the somewhat reform-minded Liu He may soon take on a greater role in economic policy. But progress in many areas has disappointed. Foreign businesses reckon it has become harder to operate; progress to internationalise the yuan has stalled, and mergers of state-owned enterprises have focused on creating national giants rather than improving efficiency. 

Opaque as it is, international companies and investment firms had grown accustomed to the rules of the Chinese political game as it has been played for two decades. It is rapidly evolving into something new. They should not brush this aside as mere politics.

Breakingviews

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