In our recent roadshow, many customers asked us about the process of local election before the 20th CPC National Congress and the possible impact on steady growth. In this paper, we sort out the basic situation of this round of local election. In view of the fact that there are still 17 provincial administrative regions that will usher in the election in the second quarter, and these 17 provincial administrative regions have a more significant pull on China's economic growth, the coordinated development of steady growth from the central to local governments will wait until the local election is completed. We still believe that 5% is the bottom line of annual economic growth, and the impulse rebound of the economy in the third and fourth quarters will lay the foundation for this.
Let's first review the basic situation of this round of local elections:
In order to ensure the successful convening of the National Party Congress every five years, the change of local level needs to be completed in advance. Among them, at the level of the most important provincial administrative regions (provinces, autonomous regions and municipalities directly under the central government), the provincial Party committee usually adopts the "14 + 17" model, that is, the provincial Party committee of 14 provincial administrative regions will be replaced in the year before the National Party Congress, and then the provincial Party committee of the remaining 17 provincial administrative regions will be replaced in the same year. Under the two-stage model of "14 + 17", the division of provincial administrative regions is basically fixed. As shown in, the corresponding provincial administrative regions of "14 + 17" have remained basically unchanged since the 18th CPC National Congress. Most of the 14 provincial administrative regions changed in the previous year were located in the central and western regions, while the 17 provincial administrative regions changed in the following year included more eastern provinces and cities. It is also worth paying attention to Guizhou Province, because whether it is the 18th or 19th National Congress of the Communist Party of China, it opened the prelude to the change of 17 provincial administrative regions in the year when the Congress was held.
The 20th CPC National Congress will be held in 2022. As shown in, from October to December 2021, 14 provincial administrative regions have successively held party congresses to elect a new member of the Standing Committee of the provincial Party committee; The Party congresses of the remaining 17 provincial-level administrative regions will be held from April to July 2022, especially those provincial-level administrative regions with members of the political bureaus of Beijing, Shanghai, Guangdong, Tianjin and Chongqing serving as local Party committee secretaries.
From the perspective of steady growth, the impact of the provincial administrative regions that have not been replaced on China's economy is more significant. As shown in, the current 17 provincial administrative regions that have not been replaced account for 55% of the national GDP, and the GDP growth rate in 2021 is 8.1%, which are significantly higher than the 14 provincial administrative regions that have been replaced. Therefore, in the second quarter, with the successive completion of the term change of these 17 provincial administrative regions, the uncertainty of steady growth at the local implementation level is expected to decline significantly.
Taking history as a mirror, how big is the impact of local change on the economy? Due to the low frequency and few samples of the general election itself, we mainly review the economic performance of the 19th National Congress of the Communist Party of China (2017) and the 18th National Congress of the Communist Party of China (2012).
In 2017, as China's economy coincided with the upward cycle, the impact of local change on the economy was not significant. In 2017, China's economy benefited from the global economic recovery and the emergence of the early stimulus effect. Until the 19th National Congress of the Communist Party of China, it was in an upward cycle. Therefore, there was no pressure for steady growth from the central government to the local government. Instead, it took advantage of this upward window period to open a round of de leveraging. The annual increase of leverage ratio was 10.9 percentage points lower than the average annual increase of leverage ratio from 2012 to 2016.
The local change of office in 2012 has a significant impact on the steady growth of that year, and it is also worth learning from at present. In the fourth quarter of 2011, as the downward pressure on China's economy increased significantly, the macro policy shifted to steady growth again. Then it is shown that the effect of this round of steady growth is not obvious in the initial stage. The economic growth did not start to stabilize and recover until the change of office of the above 17 provincial administrative regions was completed on July 17, 2012. It is also noteworthy that in 2012, infrastructure investment rebounded first after the change of 14 provincial administrative regions, realizing a good start in that year, but the stabilization of real estate investment did not appear until after the change of 17 provincial administrative regions.
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