As expected, Chinese Vice President Xi Jinping has been chosen to head the new group of leaders that will rule China for the next 10 years. At a CCP congress held in November, Xi was named as both party leader and chairman of the Central Military Commission, and he will replace Hu Jintao as national president in March 2013. Li Keqiang will take over as prime minister, replacing Wen Jiabao.

Unlike Hu, the new president belongs to a CCP dynasty, and so will benefit from his knowledge of the informal power networks within the party system. Moreover, Hu’s unexpected resignation as head of the Central Military Commission—a position Jiang Zemin retained for two years after stepping aside as president in 2003—gives Xi full control of both the party and the army, and the reduction in the size of the Politburo Standing Committee (PSC) from nine members to seven will facilitate the process of achieving policy consensus.

Li is aligned with the pro-reform (or liberal) faction of the CCP, but the exclusion of Wang Yang, who supports limited political reform as a means of dealing with the social problems arising from market-based economic reforms, was not included in the slimmed-down PSC. That decision suggests that Xi’s administration will maintain a steady policy course, but that any change of direction necessitated by political or social instability will be in the direction of less aggressive reform.

The government is currently moving forward on a further opening of China’s stock and bond markets to foreign investors. Earlier this year, regulators raised the ceiling on total investment under the QFII program from $30 billion to $80 billion, and another increase is planned once the higher ceiling is reached. In addition, the conditions to qualify for access under the QFII program will be significantly relaxed, creating openings for investors managing smaller international funds.

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