Onshore Energy Conference — London Onshore Energy Conference — London | Page 45
THE P H REPORT
• In response, Xi’s strategy has been to
focus on the appointments to the 25- man
Politburo, which in turn appoints the PSC.
This currently has a 14 – 11 Populist majority.
But many will retire next year – giving Xi the
opportunity to replace them with loyalists,
and hence control the PSC appointments
US housing and auto
have historically been
critical to the economy
and chemical industry
• Another sign of the battles underway is that
Xi has not yet made any moves to anoint
a successor. This has led to suggestions
that he may be aiming to remain in office
beyond than the standard two-term ten
years. But it may instead be that, as yet, he
lacks the Politburo votes to impose his will
US retail sales and GDP head
for slowdown as autos peak
US auto and housing markets have historically
been critically important to the US economy,
as well as to the chemical industry. They
have gone through 4 distinct phases over
the past 40 years, as chart 6 highlights:
• 1973–84, very volatile, purple. Housing starts
and auto sales saw strong volumes in 1973,
1976–9, but crisis levels in 1974-5 and 1980-2
• 1985–98, very stable, green. Auto
sales were generally rising, whilst
housing starts were plateauing
• 1999–2007, Y2K and sub-prime mania,
red. Easy money pushed auto and housing
volumes to unsustainable levels
Chart 6: US auto
sales are following
housing into a
downturn
• 2008–16, slowing demand, blue. Low interest
rates initially supported a slw recovery in
housing and auto sales, but housing starts
stalled after 2014 at half the peak subprime
level, although auto sales continued to rise.
US NEW AUTO SALES v NEW HOME STARTS
1973 – 2016
2,500
HOME STARTS THOUSAND
In turn, this suggests that the likely
intensification of political infighting over
the next year will almost certainly slow
down progress on reform, and creates
the potential for at least 3 quite different
Scenarios to develop for the period to 2020:
Populists regain control of the PSC. As
we have argued in the past, there is no
guarantee that Xi will be successful. The
Populists’ star is certainly in recovery mode
at the moment, with the excitement of the
property bubble in full flow in the Tier 1 cities.
So it may be that they will return to power
in 2017, leading to another major change
of course in China’s economic direction
Xi wins the battle for the Politburo
and PSC. This is probably the most
likely scenario, although certainly not
guaranteed. Under it, reform will be
largely put on hold in 2017, in order to avoid
upsetting critical vested interests in the
run-up to the Congress, and will then be
reinvigorated as Xi’s mandate is reinforced
Stimulus policies lead to popular
unrest. There is, however, a 3rd option. The
Populists are playing a dangerous game
with the new round of stimulus. Events
in Shenzhen highlight the mania that has
developed, with around 45% of homes
being bought by couples who had divorced
in order to get round the city’s decision
to restrict families to just 2 homes. If this
bubble were to collapse, the consequences
could be painful in the extreme, and farreaching for the survival of the Party itself.
3
2008 – 2016
1999 – 2007
2,000 1985 – 1998
1973 – 1984
1979 1984
1983
1976
1,500
1974
1975
1982
1,000
1993
1980
1991
1981
1992
1990
2005
2004
2003
2006
2002
2001
1999
1985
1987 19981986
1994
1996 1988
1989 1997
2007
2000
1995
2014
2008
2010
2012
2016
2015
2013
2011
2009
500
0
7,500
1977 1978
1973
9,500
11,500
13,500
15,500
AUTO SALES THOUSAND
17,500
19,500
SOURCE: IeC ANALYSIS: DATA US CENSUS BUREAU, US DEPT OF TRANSPORT
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