Business

Chinese 'new dawn'

Chinese President Xi Jinping (front row centre) stands with his cadres during the Communist song at the closing ceremony for the 19th Party Congress at the Great Hall of the People in Beijing

SOMEONE told me once to avoid politics when looking at investments. I get that. Not if it's a Chinese Congress though.

The Congress last week might be seen as a political roadmap, another boring budget or a talk shop. It's not. It counts.

I can read many studies on China and the views couldn't contradict each other more. Invariably we will believe what we want to believe.

Indeed a well-made point about the Economist magazine, was to look at its historic views of the Congress and believe the opposite. Analysis going back many years cements that view, and perhaps the confirmation bias of its editors is now a little old hat.

China is a global powerhouse now, and that has been concreted by the re-appointment of president Xi Jinping. Furthermore, Xi has had the greatest honour bestowed, by having his name inserted into the party's constitution.

That means he no longer will have any opposition, as it will come at a very high cost. Resistance is inconceivable. He now has a free hand.

China's economy is second only to the US and its demand and supply for western products is paramount to markets. Whether it's Apple iPhones, the base use of minerals or steel, its demand drives prices.

This is a country with a target growth of 6.5 per cent a year which it is beating. Movements either way will have considerable effects on your money and funds.

Party members made a point of detailing that certain foreign powers had sought to use financial measures to bring China down, yet China's implied credit risk on its coming bond sale is comparable to Goldman Sachs and less than Apple.

One hedge fund manager suggests there could be a 30 per cent drop in the currency given its debt, but it's possible that Western thought doesn't follow how the Chinese can control their economy, and indeed China has surprised this year with its debt burden falling.

Indeed Asia boast a new billionaire every other day and China has the largest share of them with 101 new billionaires in 2016 according to the FT. Virtually all billionaires in China are self-made as opposed to inherited.

Make somewhere ‘great again', or ‘strong and stable' are soon forgotten about with the next showing of the X factor, but Xi's plan is not of that ilk.

He has made it clear he wants no trouble with another country and that China will not ‘swallow anything that undermines its interest”.

This is echoed deep in the “China United Front Course Book” which states that many enemy forces do not want to see China succeed and see them as a threat (Bannon and others) and that they use a “thousand ploys … to frustrate and repress” China.

Indeed 135, Fuyou Street (the 200 m wide building in Beijing) is the headquarters of the United Front Work Department of the Chinese Communist Party – the colossal hub behind the drive for Chinese greatness in political, economic and environmental issues. No surprise Tesla have moved quickly to build a factory in Shanghai.

Whilst China forbids fully foreign owned car manufacturers, Tesla will be allowed to partner up with a local to share technology and profits, or operate in the free trade zone subject to a 25 per cent import tariff. China wants eventually to be all electric in automobile use.

Neo liberalism has been a disaster, and served no-one but the corporate elite and when Mr Trump, who has changed his tune (and tweeted congratulations to Xi). visits, he may now realise he is up against a society and economy that is not only working and organised, but is a future potential threat to the US dollar.

China is now the biggest importer of oil and will compel Saudi Arabia to trade in Yuan. When they do, others will follow suit, putting the US dollar as the reserve currency under threat. China can no longer be held hostage via the international payment system (SWIFT) as it has its own clearance system (CIPS) now.

The balance of power is not where Trump's folk think it is, so a respectful meeting would be good for markets - but the number one and two in the world at odds with each other? Eeek.

:: Peter McGahan is the owner of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a question on investments or pensions call Darren McKeever on 028 6863 2692, email dmckeever@wwfp.net or click on www.wwfp.net.

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