Expectations high as Party leaders hold key meeting
- By Wang Yanlin
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E-mail Shanghai Daily, November 7, 2013
3. Fiscal reform
Fiscal reform is aimed at striking a better balance between revenue and spending at both central and local levels. It encompasses reforms in the tax system and measures to deal with local government debt loads.
Since the beginning of this year, China’s new leadership has stepped up efforts to crack down extravagance and public expenditure. In July, the National Auditing Office started a survey of local government debt, and the country has expanded the value-added tax reform nationwide in transport and some services sectors. The fiscal authority estimates that it will lower the tax burden by about 120 billion yuan (US$19.5 billion) in 2013.
The issue of the how revenue is allocated by the central government to local governments may also be addressed, along with further expansion of the VAT reform. Also, the property tax, now in trial programs, may be expanded, and the nation’s administrative system may be pared down from the current five tiers.
Burgeoning local government debt may draw tougher budget constraints on local jurisdictions.
4. Land reform and the household registration system
Land reform is aimed at increasing the ease of transferring agricultural property and protecting the interests of farmers.
In June, the State Council proposed to fully open the household registration system in small towns and small cities and an orderly easing of registration in bigger cities. Easing the registration system would allow a freer flow of people. Pilot programs have been implemented in some provinces.
5. Resource pricing reform
Resource pricing reform aims to establish market-based pricing in commodities such coal, oil, electricity and natural gas.
Since January, the National Development and Reform Commission has eased controls on prices for many energy-related products. That process is expected to continue.
Analysts note that many important pro-reform officials, such as People’s Bank of China Governor Zhou Xiaochuan and National Development and Reform Commission Deputy Chief Liu He, are occupying important positions in the new administration.
A recent report from the National Development and Reform Commission, popularly dubbed the “3-8-3” plan, was a hot topic on the Internet in China mainly because its chief author was Liu. He is expected to play an equally central role on the drafting team for the plenary session report.
“3-8-3” plan
Much of the “3-8-3” plan overlaps JPMorgan’s talking points, with eight key areas of reform: public administration, the financial sector, the fiscal system, land management, state asset management, innovation promotion, monopoly breakups and a more open economy.
Zhang Zhiwei, an economist at Nomura, said the “3-8-3” plan seems to be a step in the right direction.
“It is a long list of structural reforms,” Zhang said. “This report provides a good preview of what may be released during the upcoming meeting.”
Still, Chinese authorities have cautioned that there is no dominant plan heading into the meeting, which will look at an array of proposals.
Certainly, the state of the economy will hang over the session’s deliberations.
In the third quarter, China’s economy grew 7.8 percent from a year earlier, the fastest pace this year, in a rebound fueled largely by investment. But authorities have called for greater efforts in restructuring the economy, fearing that the rebound doesn’t sit on firm enough ground. Some analysts have even predicted a slower rate of growth for the fourth quarter.
The nation’s leaders are trying to steer the world’s second-largest economy from reliance on investment to a more balanced model driven by consumption, development of the services industry and technological innovation.
“Many of the expected reforms are just repetitions of the 12th Five-Year Plan released in 2011,” Nomura’s Zhang said. “To be frank, the progress on these reforms has not been significant, so it remains to be seen how effective the new government will be in implementing these reforms.”
JPMorgan’s Zhu said it would take time for reforms to have a positive, observable effect on the economy.
Chang Jian, an economist at Barclays, said he fears that hopes raised too high risk disappointment.
“We expect a broad reform agenda,” Chang said. “But given China’s size and population, it is only realistic to expect that most reforms will be implemented gradually to avoid destabilization.”
Chang said he expects the outcome of the session to be less aggressive than many people are expecting.
Indeed, China’s economy has yet to show any sustainable rebound since the new leadership took office. President Xi and Premier Li exhibited their commitment to reform when they adopted a “no stimulus” policy during a recent liquidity squeeze.
It seems the authorities are now stepping back from using dramatic monetary measures, such as lower interest rates and reserve requirement ratios, as economic levers.
Instead, they seem to be focused on measures with longer-lasting effects.
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