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The State of the Global Markets 2015

China's New Leadership: Progressive, Not Conservative

Politics / China Nov 15, 2012 - 12:38 PM GMT

By: Axel_Merk

Politics

Hu's defeat vs. Jiang's victory

We disagree with media reports that China's new Politburo Standing Committee is dominated by relatively conservative members. What we see is a complete defeat of current President Hu's CCLY clique and a victory of retired President Jiang's Shanghai clique. In recent days, Jiang's unusually frequent and high-profile public appearances suggest he is still highly influencing policy making and senior official appointments.


As a result, except for new President Xi Jinping (not necessarily associated with any clique) and new Premier Li Keqiang (Hu's CCYL clique), all of the other five new committee members are considered associated with Jiang's Shanghai clique or favored by Jiang. In addition, current President Hu will unexpectedly no longer serve as military leader after stepping down from the position of Party leader.

Not necessarily a conservative committee

We believe the reasons why some may consider the new committee as conservative are: 1) Zhang Dejiang, who was educated in North Korea, was appointed the 3rd on the committee, and 2) Candidates like Wang Yang, who has been outspoken and aggressively called for political reform and grassroots democracy, were not selected. We don't think it's necessarily the case that the new committee is so conservative. Newly appointed President Xi Jinping is known for his support for market-oriented reform. Unlike outgoing President Hu, who came from a humble family, Xi's princeling background and political resources will enable him to push ahead reform.

In addition, the stances that China's leaders hold are not necessarily the same on political and economic issues. Hu's CCYL clique, especially outgoing Premier Wen, firmly supports further political reform, but in terms of economic policies, they focus more on reducing regional imbalances and income disparity than on market reform. In contrast, Jiang's Shanghai clique tends to focus more on economic reform but they're more politically conservative.

Another possible reshuffle in 2017

According to current rule, Politburo Standing Committee members have to retire after turning 70. If the "retire-at-70" rule doesn't change, five of the seven members on the new committee will retire after the first five-year term. In 2017, there is likely to be another reshuffle on the committee; only President Xi and Premier Li will remain on the committee. Because retired President Jiang is already 86, he is very unlikely to maintain his current influence after five years. In addition, all of the five members who will not be eligible after 2017 are considered associated with Jiang. It's very likely, at that time, that outgoing President Hu plays a major role in appointing the next committee, and the policy priority may be changed accordingly.

The following table shows the composition and ranking of the new Politburo Standing Committee as well as their eligibility for reappointment according to current rule. The other three people were potential candidates but they were not selected this time.

Also sign up to our newsletter to be informed as we discuss global dynamics and their impact on gold and currencies.

Axel Merk

Manager of the Merk Hard, Asian and Absolute Return Currency Funds, www.merkfunds.com

Rick Reece is a Financial Analyst at Merk Investments and a member of the portfolio management

Axel Merk, President & CIO of Merk Investments, LLC, is an expert on hard money, macro trends and international investing. He is considered an authority on currencies. Axel Merk wrote the book on Sustainable Wealth; order your copy today.

The Merk Absolute Return Currency Fund seeks to generate positive absolute returns by investing in currencies. The Fund is a pure-play on currencies, aiming to profit regardless of the direction of the U.S. dollar or traditional asset classes.

The Merk Asian Currency Fund seeks to profit from a rise in Asian currencies versus the U.S. dollar. The Fund typically invests in a basket of Asian currencies that may include, but are not limited to, the currencies of China, Hong Kong, Japan, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.

The Merk Hard Currency Fund seeks to profit from a rise in hard currencies versus the U.S. dollar. Hard currencies are currencies backed by sound monetary policy; sound monetary policy focuses on price stability.

The Funds may be appropriate for you if you are pursuing a long-term goal with a currency component to your portfolio; are willing to tolerate the risks associated with investments in foreign currencies; or are looking for a way to potentially mitigate downside risk in or profit from a secular bear market. For more information on the Funds and to download a prospectus, please visit www.merkfunds.com.

Investors should consider the investment objectives, risks and charges and expenses of the Merk Funds carefully before investing. This and other information is in the prospectus, a copy of which may be obtained by visiting the Funds' website at www.merkfunds.com or calling 866-MERK FUND. Please read the prospectus carefully before you invest.

The Funds primarily invest in foreign currencies and as such, changes in currency exchange rates will affect the value of what the Funds own and the price of the Funds' shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Funds are subject to interest rate risk which is the risk that debt securities in the Funds' portfolio will decline in value because of increases in market interest rates. The Funds may also invest in derivative securities which can be volatile and involve various types and degrees of risk. As a non-diversified fund, the Merk Hard Currency Fund will be subject to more investment risk and potential for volatility than a diversified fund because its portfolio may, at times, focus on a limited number of issuers. For a more complete discussion of these and other Fund risks please refer to the Funds' prospectuses.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advice. Foreside Fund Services, LLC, distributor.

Axel Merk Archive

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