China Changes Leaders

China's 18th Communist Party Congress opens tomorrow and will feature a once-in-a-decade change in the top leadership of the ruling Communist party. Vice President Xi Jinping will become Secretary-general of the Communist party and President of China, succeeding Hu Jintao. Vice-Premier Li Keqiang is expected to succeed the current premier, Wen Jiabao.

China's top leadership changes every ten years in an opaque process hidden from public view. The power struggle surrounding the current transfer of power was particularly contentious, resulting in the ouster of Bo Xilai, considered a hardliner who might make trouble for the more moderate technocrats heading today's Communist party. Xilai is accused of murdering a British businessman with ties to the U.K.'s spy agency, MI6. Bo's wife, Gu Kailai, has already been convicted of complicity in the murder and was given a suspended death sentence.

According to analysis in the Financial Times, political reform in China is the next big thing.

China's spectacular economic growth has not been matched by moves to a more representative form of government. Now that economic growth is slowing, the authority of the Communist party is declining. There is a growing sentiment among the elite and also among ordinary people that China's government must become less authoritarian in order to survive.

Democracy is not only a system of government, but also a way of life which meets people's needs, opined the People's Daily. Admittedly, as public awareness of the rights to know and participate as well as the rule of law increases, democracy in China has not reached the level many people expect. However, the country is making steady progress in improving its democracy.

Investors should be aware of these underlying issues before taking positions in U.S.-listed Chinese companies or China ETFs, including the iShares China 25 (NYSE:FXI).

It is highly unlikely that there will be another uprising against the Communist party along the lines of what happened in 1989 anytime soon. But it does pay to be aware of the choices China's new leaders may have to make to ensure that the Chinese economic miracle continues to unfold.