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from Thinking Global:
Historic stakes are higher in China than in U.S.
Now that all the high-cost, mud-slinging drama of the U.S. presidential campaign is over, the world can focus on another political transition of potentially greater consequence: China’s 18th Communist Party Congress, which began today.
Don’t be misled by the choreographed orderliness of the moment when China’s new leaders parade on stage in order of seniority; the selection process this time has been marred by the murder of a British businessman and the purge of the provincial party boss Bo Xilai, punctuated by a blind political dissident seeking refuge in the U.S. embassy, and soiled by corruption charges and a New York Times report on the estimated $2.7 billion wealth of Premier Wen Jiabao’s family.
Beyond the unusually public Chinese drama, the ripples from China’s congress, known as Shí Bā Dà — or “the 18th Big” — could be of much greater historical significance even than the re-election of America’s first African-American President. This is because this new generation of Chinese leadership, following the almost certain transition from President Hu Jintao to Vice President Xi Jinping, will be unable to avoid fundamental and structural decisions about the direction of China’s economy, foreign policy and political structure.
It would seem coincidence that two most important global powers of their day — the United States and China — are choosing their leaders only days apart, leaders who will define the world’s most decisive bilateral relationship for the next generation. In truth, the Chinese have controlled the calendar and opted to go second, after toying for some time with the possibility of an early congress. They only announced the date of the congress at end-September.
from Compass:
Uncertainty is not going away
This week, within the space of 48 hours, the United States elected its next president and the Chinese Communist Party will convene in Beijing to begin the formal handover of power to the next generation of its leadership. To many, this pivotal transition point for the world’s two largest economies holds out the promise of deliverance from the specter that’s been haunting decision-making ever since the collapse of Lehman Brothers four years ago: the specter of “uncertainty.” If there is a phrase that CEOs, politicians and investors use more often to explain everything from poor performance to halting growth to lack of investment and a reluctance to boost hiring, it might just be its near-cousin, “volatility.”
The reality, however, is that the long-awaited, much-desired “certainty” is a mirage. Uncertainty and volatility, in economics and politics, are now as permanent to the macro landscape as competition, resource scarcity, disruptive technology and the race for talent. Leave aside the false nostalgia for a certainty of outlook that never quite was – or, rather, for a kind of uncertainty that only seemed to surprise on the upside during the years of the great moderation. Ignore as well the fact that uncertainty and volatility too often are used as synonyms for the structural challenge of the long period of deleveraging still facing major Western economies. No election in the United States, and no leadership change in China – however orderly, pro-growth, or politically decisive they may be – can reverse the structural shift towards uncertainty in the global macro environment.
from Global Investing:
Weekly Radar: Cliff dodging and Euro recessions
Most everything got swept up in the US election over the past week but, for all the last minute nail biting and psephology, it was pretty much the result most people had been expecting all year. So, is there anything really to read into the market noise around the event? The rule of thumb in the runup was a pretty crude -- Obama good for bonds (Fed friendly, cliff brinkmanship, growth risk) and Romney good for stocks (tax cuts, friend to capital/wealth, a cliff dodger thanks to GOP House backing and hence pro growth). And so it played out Wednesday. But in truth, it’s been fairly marginal so far. Stocks were down about 2 pct yesteray, but they’d been up 1 pct on election day for no obvious reason at all. But can anyone truly be surprised by an outcome they’d supposedly been betting on all along. (Just look at Intrade favouring Obama all the way through the runup). Maybe it’s all just risk hedging at the margins. What’s more, like all crude rules of thumb, they’re not always 100 pct accurate anyway. Many overseas investors just could not fathom a coherent Romney economic plan anyway apart from radical political surgery on the government budget that many saw as ambiguous for growth and social stability anyhow. Domestic investors may more understandably wring their hands about hits on dividend and income taxes, but it wasn’t clear to everyone outside that that a Romney plan was automatically going to lift national growth over time anyhow.
That said, it was striking on Wednesday that even though global funds were mostly relieved the Fed won’t now be shackled after 2014, nearly everyone still expects the fiscal cliff to be resolved by compromise. Whether that’s wishful thinking or the smartest guess remains to be seen. But, just like in Europe, it means they are at the very least going to have endure a barrage of political noise in headlines and endless scaremongering before any deal is ultimately forthcoming. Some say the nature of the GOP defeat, even with an incumbent saddled with an 8 pct unemployment rate, will force enough moderate Republicans to seek distance from Tea Party and seek compromise. But others point out that post-Sandy relief spending may also bring the dreaded debt ceiling issue forward sooner than expected now too. All in all, the overwhelming consensus still betting on an eventual cliff dodge may be the most worrying aspect of market positioning and may be the best explanation the slightly outsize and sudden stock market reaction.
from Breakingviews:
How to make sense of China’s leadership line-up
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
China’s big reveal of its top party leadership deserves careful reading. A day after the Communist Party congress ends on Nov. 14, a group of suited officials will take the stage, and China-watchers will try to make sense of who’s there and who isn’t. Xi Jinping is virtually assured the top spot; the rest are less certain. Here are five clues that the new line-up of the Politburo Standing Committee might offer about China’s direction in the next decade.
from Mark Leonard:
China and U.S. face mirror-image leadership challenges
By a twist of fate, the world’s two most powerful countries will select their new leaders in the same week. On the surface, they are almost perfect mirrors of each other.
While the U.S. election promises a nail-biting finish, the results are likely to be predictable. In Beijing, the next leader – Xi Jinping – was ordained several years ago to be appointed General Secretary of the Chinese Communist Party at the Party Congress this week.
from Ian Bremmer:
Rocking the vote may not rock the boat
This week -- chads willing -- Americans will finally put an end to four years’ worth of electoral Sturm und Drang. Only then can the country begin to ask the question that matters much more than who will win: Will anything change? On foreign policy, it’s increasingly clear that the answer is, for the most part, no.
Likewise, this week -- politburo willing -- the Chinese will finally put an end to a year of bureaucratic angst. The powers that be hope that once a new president is installed, the Communist Party can put months of scandal behind it (Bo Xilai’s trial and Wen Jiabao’s family fortune, to name just a couple) and start to answer the question they’re most eager to put to bed: Will anything change in a new regime? On foreign policy, it’s increasingly clear that the answer is -- you guessed it -- for the most part, no.
from Breakingviews:
Chinese reforms could trigger domino effect
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
What does China want? Sustained growth, and happier citizens. How will it get there? Through economic reform. It sounds simple enough.
from Breakingviews:
China “hard landing” talk abates, but not for long
By John Foley
The author is a Breakingviews columnist. The opinions expressed are his own.
China’s hard landing is the catastrophe that wasn’t. A return to expansion in the closely watched official survey of purchasing managers released on Nov. 1 leaves the Chinese economy on track for GDP growth of around 7.5 percent for 2012. The Breakingviews Tea Leaf Index, which combines a more eclectic group of indicators, also showed that conditions are improving. But talk of a punishing downturn will recur, because China’s economy remains unbalanced.
Breakingviews China Tea Leaf Index
The big threat to China’s growth remains real estate, which contributes roughly 15 percent of GDP, and in reality much more, through its effects on consumer goods sales, wages and confidence.
from Breakingviews:
Europe, China holding back Asian export recovery
By Wayne Arnold
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Asia’s export engine could remain stuck in neutral as long as Europe and China are slowing. An uptick in September exports has buoyed hopes for a U.S.-led rebound in regional trade. But in the past decade, Asian economies have shifted focus to Europe and responded to China’s rise by supplying the manufacturing juggernaut. A U.S. upturn alone won’t be enough.
from Breakingviews:
Three reasons China’s banks deserve their derating
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
China’s banks enjoy valuations most Western rivals would kill for. But compared with the earnings they are throwing off, their share prices look miserly. The country’s seven biggest banks trade at an average of 1.2 times their most recently reported book value, according to Reuters Eikon, despite aggregate returns on equity above 20 percent. Five years ago, lesser returns allowed them to command multiples above 4.5 times book. Though the derating is harsh, it’s justified.
