China’s Red October
China’s Red October by Jim Rickards – Daily Reckoning
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The 19th National Congress of the Communist Party of China, CCP, will be held in the fall of 2017. The exact date has not yet been announced, but late October is a reasonable estimate. This will be the most important CCP meeting since the death of Mao Zedong and the rise of Deng Xiaoping in the late 1970s.
Communist societies such as China have a dual or parallel government structure. On one side is a normal government with a president, vice premier, cabinet ministers and other subordinate posts. On the other side is the CCP leadership consisting of a General Secretary, Politburo Standing Committee, Politburo, and Central Committee.
The seven-member Politburo Standing Committee runs the CCP. The General Secretary is the single most powerful person in the leadership. The conventional government is controlled by the CCP, which holds the real power.
In recent decades, the General Secretary serves two five-year terms, and is then succeeded by another member of the Standing Committee. At the end of the first five-year term, the Standing Committee elevates one or two candidates who are most likely to succeed the General Secretary at the end of his second term.
The process is carried out in secrecy and decisions are arrived at by consensus. The process is designed to insure smooth transitions and to avoid the cult of the individual that surrounded Mao Zedong.
General Secretary Xi Jinping is trying to upend these traditions. He will certainly be reappointed to a second five-year term this fall. But, the standing committee may not elevate likely successors. This would pave the way for Xi to become the new “big man” and the most powerful General Secretary since Mao Zedong.
Since China itself is far richer and more powerful than at any time during Mao’s reign from 1949 to 1976, Xi would be the most powerful Chinese ruler since the early Qing Dynasty, and the Manchu emperor Shunzhi in 1644.
With so much at stake for Xi, investors can be sure that no one in China will be allowed to “rock the boat” before October. The currency should remain stable against the U.S. dollar at least until then in order to avoid acrimony with the United States.
Also, a war in North Korea is unlikely before 2018 because of the military and diplomatic groundwork that needs to be laid before fighting breaks out.