China's counterpart to the US election is taking place this very same week, and could really be more important in the long run. MoneyShow's Jim Jubak explains why.
For the week ahead it’s politics, politics, politics, and power transitions in one of the world’s top economies, but I don’t mean in the US. The one you need to be watching is China. We’ve got a ten-year turnover of the top leadership in the standing committee of the Politburo determining who’s going to run China for the next ten years.
This doesn’t mean just who’s going to get to be the top guy that we all talk about being president or Prime Minister or whatever, but the composition of this group really means whether China will pursue anything resembling economic and political reforms or whether it’s going to be business as usual. I would bet for business as usual, looking at the candidates here and their vested economic interests, but the real crucial thing is that this transition happens as scheduled; it’s set to sort of take place on November 8, 2012.
There’s been a lot of jockeying for position. They’re cutting the Standing Committee from nine people down to seven; who’s going to be on it, who’s going to lose out. Their efforts to take some of the security people, heads of security off the committee because that’s gotten too powerful...there’s a lot going on here behind the scenes, and it is all behind the scenes.
But if we get to the 8th and there’s this ceremony where everything looks, on the surface, hunky dory, that will be a huge issue. China doesn’t have a long history of peaceful transitions of power, and this will be an important transition that took place without any violence anywhere in the country. That would be really, really important for getting China’s economy rolling, and there are signs that China’s economy is ready to recover.
So what we’re really talking about is if the politics gets out of the way, the trends that we’re seeing, which indicate that Chinese growth bottomed at 7.4% in the third quarter—and actually September was the turning point; September was a better month than August or July, and it looks like that’s continued into October.
What we would look for here is if China gets rolling, GDP forecasts are starting to move up from outside economists at Bank of America, for example, or Nomura for the fourth quarter. So if that all happens and you get a burst of confidence in the Chinese financial markets, which then extends as what’s been seen to commodity stocks and commodity prices around the world, then really we’ve made a major transition from worry about China going lower to hope with some basis in fact that China will indeed show more growth going forward.
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