The Chinese Leadership Election And Its Effect On Investment

There is an ancient wisdom concerning the rise and decline of Chinese dynasties. It follows that the old dynasty has lost its Mandate of Heaven. It taxes the people too much. It no longer protects them and infrastructure has also decayed. Subsequently, floods and earthquakes wreak havoc. Invaders attack and robbers blight the countryside. Then, a new dynasty claims the Mandate of Heaven. This in turn, brings peace, improves infrastructure, grants land to peasants and protects the people. Eventually, as generations pass, the new dynasty slowly evolves into an old dynasty and loses its Mandate of Heaven…and so the wheel turns. The wheel has turned once more in China and is set to change the fortunes of billions of people worldwide.

There are many analogies that spring to mind when describing Chinese politics.  The cicada, for example, has the longest lifespan of any insect and can live up to 17 years, shedding its skin in a regular metamorphosis. It is greatly revered in China as a symbol of rebirth and regeneration. Jade cicadas were placed in the mouths of the deceased to slow decay and speed up rebirth. China’s leadership election is best judged in these transitional terms. The Party Congress has shed its skin for the 18th time.

The Party Congress has 2270 members who elect a central committee comprised of 204 members. The central committee put forward a 25 member politburo and a seven member Politburo Standing Committee. There are no fast gear changes in this mechanism of government. The Chinese political cicada slowly sheds its skin, shrugging off undesirable layers of scandal, corruption or deviation from the party line.

The Chinese mastered the art of paper production. They are credited with being the first country to utilise paper money. Wallpaper is also said to have originated in China, along with the first recorded use of toilet paper. Manipulation of the multi-faceted properties of paper did not stop in the water closet.

Metal armour had its undoubted uses in ancient China. However, it was seen to rust and was heavy to wear after long periods. This is why the Chinese turned their attention to paper armour in the Tang Dynasty (618-906).  Paper armour, layered and interwoven with cloth and silk, was widely used by naval personnel and foot soldiers because it was light, durable and extremely cheap. At certain distances, with remarkable craftsmanship, it was even found to be bullet-proof. Under wet conditions the material would toughen, so it was preferred in the south where rivers and forests abound. Paper armour endured for over a thousand years, until the nineteenth century. Modern bullet-proof vests make use of similar concepts.

If the same analogy was applied to contemporary Chinese politics, the question remains: does the Central Politburo Committee currently wear armour of metal or paper? Is the Chinese government a cumbersome institution prone to corrosion, or flexible and durable as paper?

At the opening of Congress, retiring President, Hu Jintao stressed the importance, withinone party rule, of vigilance over corruption, demonstrated by Bo Xilai’s fall from grace. The cicada neatly shed its skin.  Hu Jintao also stated that Chinese development should be “much more balanced, coordinated and sustainable.”

In China, state owned enterprise accounts for over one half of output and employment. Of the 70 mainland companies on the 2012 Fortune Global 500 list, 65 are state owned. Departing Premier Wen JiaBao suggested: “We must move ahead with reform of the railway, power and other industries and promote the development of non-state economies.” Once again, we see a desire to embrace change, a socialist government willing to negotiate with private sector companies. This multi-layered approach suggests paper armour politics.

In a changing world market investors must be flexible with their money. They need their accounts to be as durable as paper, not as rigid as metal. Is there an opportunity to be more flexible and invest how, when and where they want, rather than entrusting their pension pot to inflexible pension trustees?

To suit these changing markets, investors can opt for schemes that offer control. Schemes like Fidelity UK’s SIPP, Standard Life’s or JP Morgan’s SIPP,  are worth consideration. The SIPP, as it referred to, is specifically designed to encourage freedom to create a better income in later life.Remember, with pension products you will need to be aged 55 before you are able to withdraw money.

1)      SIPs are a logical way of amalgamating pensions from different jobs and other holdings.

2)      Investments in a SIPP grow tax efficiently.

3)      There is greater scope for investment flexibility and diversification from a wider choice of investments.

4)      Once seen as the preserve of the wealthy, contributions start at £50, or a £5000 deposit from another pension plan.

5)      SIPPs tend to be fee based arrangements, so the cost has the ability to decrease as the fund increases.

6)      They offer the investor the opportunity to hold on to commercial property after retirement.

7)      There are substantial tax breaks. For every pound, the government will refund tax up to your marginal rate.

There are many ways of looking after your investments and the value of tax savings and your eligibility to invest in a SIPP depends on individual circumstances and all tax rules may change. The value of investments can go down as well as up and you may get back less than you invest.There are also many ways to govern a country. You might prefer a democratic system of a first-past-the-post-billion dollar-cash-splash or the slow and secretive purge by an unquestionable leadership. The question remains, does the investor wear armour of metal or paper?

The value of tax savings and eligibility to invest in an ISA (OR SIPP OR Junior ISA) will depend on individual circumstances and all tax rules may change in the future.

Charles Roberts is a UK based IFA of over twenty years standing who, as well as offering financial advice to personal investment and pension clients, also writes for various journals and publications.  He recommends choosing the best ISA to all of his clients, whatever their age as it is perfect for putting away a lump sum, tax free, while also attracting interest.


  1. Georgina says:

    Well, you learn something new every day- today I found out that The Chinese were the first to produce use paper money, wallpaper and toilet paper.

    All-in-all I believe that there’s still a lot of potential when it comes to investing in China. They certainly have come a long way since the Dynasty years. Thanks for the insightful & intriguing post, Charles!

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