A New Agenda for China’s New Leaders?

STANFORD – Political leadership transitions typically signal either a change in direction or continuity. But the mere prospect of such a transition usually postpones some important political decisions and freezes some economic activity, pending the resolution of the accompanying uncertainty.

China’s decennial leadership transition, culminating at the Chinese Communist Party’s 18th Congress, is a case in point. And, while many will remember when a Chinese leadership transition was a political and cultural curiosity that had few direct economic implications for the world’s major powers, those days are long gone.

China is now the world’s second-largest economy, and, despite a recent slowdown to 7% annual GDP growth, it is outperforming all other major players. It remains the vital assembly center of the global supply chain for many manufactured goods, such as computers and cell phones, enabling lower prices for the world’s consumers. That has made China a key trade partner for the United States, most European countries, and many other economies, in addition to placing it at the center of intra-Asian trade and supply-chain dynamics.

Moreover, China sits on roughly $3.3 trillion in foreign-exchange reserves – much of it in dollars, but also in other major currencies – owing to its large trade surplus in recent decades. It helps to finance other countries’ trade deficits and domestic investment (many of its beneficiaries have large budget deficits that decrease national saving below domestic investment).