As Xi Jinping tightens his grip on power, 'major risks' loom, experts say

Key Points
  • China's proposal to scrap two-term presidential limit will ensure political continuity for economic reforms under President Xi Jinping, analysts said.
  • However, there are medium term risks associated with the consolidation of power in one man.
  • Chinese state media stepped up propaganda amid a backlash on social media.
Changes to China's leadership succession have 'long-term implications'

China's proposal to scrap a two-term limit for presidential service will ensure political continuity for its economic reforms, but could contribute to major risks in the medium term, experts said on Monday.

Investors and economic watchers were mulling the future of the world's second-largest economy after China's ruling Communist Party set the stage for 64-year-old President Xi Jinping to stay in office indefinitely. The proposal for the constitutional change also covers the vice president position.

Xi was set to step down as president in about five years when his second term ends, but many were expecting him to continue his run after a successor was not anointed during a major leadership congress in October.

The expectation has been "that there was no way that the economic reform and the changeover of China from that investment-led, export-led economy to the internal domestic consumption economy was going to take place within a 10-year block of time," said Rodger Baker, vice president of strategic analysis at geopolitical intelligence firm Stratfor.

Callum Henderson, managing director of global markets—Asia Pacific at the Eurasia Group, added: "Having a central power base will allow China to evolve from a country solely focused on growth, to one that extends its attention to issues such as poverty elimination, the environment and strategic industries."

Xi's administration is also up against a seemingly inward-looking U.S. under President Donald Trump that has been dialing up the pressure on Beijing on the issue of trade.

As Xi consolidates power, China's response to such external pressures will require less political jostling.

China is 'moving into an entirely new space'

"Whereas If he doesn't have this kind of power, there might have been balancing lobbies and a more balanced approach to trade policy. That's now not going to be the case," said Bryan Goh, chief investment officer at Bordier & Cie, a private bank.

Already, China has been taking a more heavy-handed approach to its economy in recent years, as Xi's administration cracks down not just on debt-laden state-owned enterprises but also on private companies that are seen to be threatening domestic economic stability.

This centralization of power, however, carries major risks ahead, Eurasia Group's Henderson said.

"If anything goes wrong, there's only one person to blame. He owns both the success and the problems, so there are significant medium-term risks to this strategy," Henderson added.

Social risks 

Despite the upsides, the proposal to scrap presidential term limits rolls back China's institutional credibility, said Tony Nash, chief executive of data analytics firm Complete Intelligence.

"It's putting personalities above institutions and I think it's actually quite dangerous. China was taken into the WTO (World Trade Organization), they had a lot of foreign investment...really in the hopes of many that China will become more democratic and more responsive and more consensual," Nash added.

There may also be social disquiet as China scraps the two-term presidential limit put in place by former Chinese leader Deng Xiaoping to prevent some of the excesses and missteps of the Mao Zedong era.

"As people get wealthier, they want more of a say in their government. I think that contradiction will bear out over the next five to ten years in China, and I think you will start to see some real institutional issues and real cynicism about the government," Nash said.

Proposed term changes are a 'rollback of Chinese institutional credibility'

Chinese social media was abuzz with the possibility of Xi staying on as president indefinitely, as censors raced to block critical posts and memes such those with Winnie the Pooh — whom Xi is said to resemble — with the description "Find the thing you love and stick with it."

The state propaganda machine kicked into gear, drumming up positivity for the proposed constitutional changes.

Some observers say Xi could plan for a successor during his time in power — turning it into a positive spin.

"I think it's possible for him to really have a very positive outcome here and pass the baton with the view that he's actually turning away from power and turning that onto the next generation," Nash concluded.