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Expectations high as Party leaders hold key meeting

By Wang Yanlin: 0 Comment(s)Print E-mail Shanghai Daily, November 7, 2013

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Expectations are running high that the third plenary session of the 18th Central Committee of the Chinese Communist Party, which starts on Saturday, will shed new light on the pace and direction of reforms.The four-day meeting will map out “unprecedented” economic and social plans that will push forward profound transformations, according to Yu Zhengsheng, a member of the Standing Committee of the Political Bureau of the Party’s Central Committee.Yu’s remarks, the pro-reform stances of President Xi Jinping and Premier Li Keqiang, and the third plenary sessions in the Party’s history as a groundbreaker have heightened expectations among investors anxious to see economic and market reforms move faster and deeper.

Will steps be taken to deal with a mountain of local government debt? Will government ease its regulatory grip and give the market greater voice in determining currency flows, interest rates and energy prices? Will foreign investors be given greater access to China’s capital markets?

This meeting, according to Zhu Haibin, chief economist for China at JPMorgan, will be the most important of the year — perhaps even of the decade.

“The communiqué of the meeting, or the ‘dissertation paper’ of the new leadership, is expected to be a roadmap of China’s economic reform in the next five to 10 years,” he said.

History shows us that the meetings of the 200-member Central Committee can be important milestones. Third plenary sessions usually focus on economic issues after the first and second meetings set Party and government leadership changes.In 1978, the third plenum initiated China’s policy of opening itself to the outside world. The one in 1993 endorsed the concept of a socialist market economy.

So what will we expect in the next week? JPMorgan suggests five issues worth watching:

1. Administrative reform

Redefining the relationship between the government and the market could reduce bureaucratic intervention in the economy and increase the role of markets in the allocation of resources.

In recent months, the central government has announced the scrapping of administrative approvals for hundreds of items, and more are expected.

Administrative reform is considered crucial if economic deregulation is to proceed. The China (Shanghai) Pilot Free Trade Zone, which has recently been unveiled, is a testing ground for that acceleration. The adoption of the “negative list,” system in the zone, which sets forth only what can’t be done, has been viewed as a bold step forward.

2. Financial reform

Financial reform generally refers to the removal of price distortions in the market, especially those created by regulation of interest and money exchange rates. Removing tight controls would improve the efficiency of capital flows, both across China and beyond its borders.

In July, the central bank dropped its restrictions on lending rates and increased the quotas for the Qualified Foreign Institutional Investor program. In August, the State Council, China’s cabinet, approved the Shanghai Free Trade Zone.

As next steps, the deregulation of deposit rates, the introduction of an explicit deposit insurance program, the widening of the band restricting movements in the yuan and further currency convertibility are likely to occur — but gradually.

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