2017 is going to be stacked for China, and Trump isn't even the half of it

Aly Song/Reuters

2017 is a big year for the Communist Party of China.

Next autumn, the party will host the 19th National Congress, which will likely determine the top leadership and set up the country's political future.

At the same time, China could be looking at an increasingly uncertain international situation in light of Donald Trump's election in November.

And this two-pronged political environment could have implications for the party's economic policy in the near term.

"The Chinese leadership will likely face significant political uncertainty both internally and externally, and in response they will likely place social and economic stability as a top priority throughout 2017," a Credit Suisse research team led by Vincent Chan wrote in a note. "We believe the government will adopt pro-growth measures to boost economic growth ahead of the political transition."

In other words, as both the domestic and international political situations grow more uncertain, the party might try to push forward some short-term growth initiatives.

Aly Song/Reuters

Politics, politics, politics

On the domestic front, 11 seats of the 25-member Politburo will open up at the 19th National Congress. Five of those seats will be from the seven-member Politburo Standing Committee, which is essentially the party's top leadership. The only two not retiring in that group are President Xi Jinping and Premier Li Keqiang.

The National Congress "goes a long way in deciding the top leadership around President Xi Jinping and how far he could consolidate his power, and potentially creates conditions for him to extend his rule in China beyond 2022 (his scheduled retirement date)," Chan wrote. "This meeting could decide China's political landscape during the next decade."

Notably, Xi was named the "core" leader of the party in late October. Analysts at BMI Research argued at the time that this increases the chances that he would appoint "his own people" to the standing committee. They added that Xi's stronger political posture also suggests he will become more accountable for the economy's performance.

Aly Song/ReutersAs for Trump, the president-elect has increased the uncertainty about the US-China relationship since speaking with Taiwan's president by phone in early December.

That was the first time in over 30 years that a US president directly spoke with Taiwan's leadership.

The call "indicates to us that the new president may not follow the bipartisan consensus in last few decades in dealing with China," Chan and his team wrote. And that "means that apart from internal politics, the Chinese leadership will likely also need to deal with a highly uncertain external political environment in 2017."

As for China's economic landscape...

Against this backdrop, China is facing a plethora of structural obstacles as it aims to transition its economy into one that is based on consumers from one that depends on exports and investment.

The team at BMI Research argued in a note on Tuesday that these reforms could "proceed at a smoother pace" because Xi's new position as the core of the party "will be positive for the centralization of power in Beijing as the president strengthens his grip over the party."

"That said, reforms to reduce the dominance of state-owned enterprises (SOEs) are still likely to remain slow," the team added. "The central government will still need to take the social impact (notably unemployment) of these reforms into account, and it also is keen to maintain its control over these SOEs, and as such, their full scale privatization is unlikely."

In any case, China's politics and economics will be something to watch going into the new year.

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