China reforms

By Jon Harrison and Trey McArver of Trusted Sources

The prospects for structural economic reform in developing Asian nations is being significantly constrained by the problems political leaders are experiencing in implementing their agendas. Conversations over the past month with policymakers and analysts in China, India, Indonesia, the Philippines and Thailand have brought out common themes on the progress towards sustainable growth and structural improvement.

Governments across the region have had mixed success in boosting growth. All five countries have seen growth decline to levels below that of 2010. External factors have been a major driver of the economic slowdown but domestic conditions have played a part as well. China is slowing due to unavoidable economic rebalancing and is likely to remain a major drag on regional economies for at least the next two years. Read more

As the Chinese economy posts its slowest growth in six years, major reforms to China’s state-owned enterprises are now in the final planning stages. The Xi Jinping administration has pledged to overhaul and consolidate the state-owned economy to tackle widespread inefficiency and corruption.

A wave of mega-mergers among state-owned firms has already been announced in railways, nuclear power and other industries. Consolidation may be easier politically than market reforms, but it’s not the right way forward. China’s crown jewel firms don’t need to be bigger; they need to be better. Read more

By Jonathan Fenby of Trusted Sources

Tuesday’s announcement that former Politburo Standing Committee member Zhou Yongkang is to be investigated for corruption shows just how important the drive launched by Xi Jinping at the end of 2012 has become, with implications that stretch beyond the political power play into the economy. It is an important weapon in the simultaneous and wider reform programme with potential positive impact on the huge state sector and the investibility of its big listed companies. Read more

The 14th in our series of guest posts on the outlook for 2014 is by Andy Xie

The third plenum of the 18th Party Congress issued an ambitious reform program to transform China’s economy by 2020 into one that relies on market forces rather than government to allocate resources. Launching the program, however, is hampered by the fragile nature of the economy today. Since 2008 China has depended on a vast property bubble to fund fixed asset investment that leads the economy. Ambitious structural reforms usually involve a period of economic slowdown. Doing so amidst a bubble economy may trigger a deep downturn. This is why financial markets have been focusing on the downside from bursting of the bubble rather than the upside from successful implementation of the reform program. Read more

Michael PettisThe 6th in our series of guest posts on the outlook for 2014 is by Michael Pettis

November’s Third Plenum proposed significant economic reforms to rebalance China’s economy and reduce its addiction to debt, in large part by reversing many of the processes that drove growth in the past three decades. Of course this potentially radical shift in China’s development model will make predicting economic performance in 2014 more difficult than ever.

And we have already seen how difficult reform is likely to be. The past four years were characterised by a stop-and-go process of decelerating growth, in which periodic attempts by the regulators to constrain credit caused the economy to slow sharply but, as policy makers backed off each time, both GDP and credit growth subsequently reignited, although at gradually declining paces. We will see this even more sharply in 2014, with a continued unstable balance between attempts to constrain credit growth and attempts to keep the economy from slowing too quickly. Read more

Over the past year, Chinese state media has aired a string of critical reports targeting foreign companies’ business practices in China. The reports allege that Samsung and Apple’s warranties are too short, Starbucks is too expensive, and ice cubes served at a Beijing KFC are dirtier than toilet water.

As Chinese president Xi Jinping seeks to steady the ship of state amidst slowing GDP growth and growing disillusionment – and as foreign multinationals increasingly rely on the Chinese market for profits – some observers are questioning whether China remains as friendly to foreign business at it once was. Read more

China’s reform plan released after the Communist Party’s Third Plenum has been hailed as ambitious and bold. It certainly has far more in it than just the one-child policy reform and abolishment of labour camps. Here is beyondbrics’ summary of the plan, grouped by category. Read more

Markets rallied on China’s latest reform proposals. But Robin Wigglesworth, capital markets correspondent, warns that while the country’s potential may be enhanced, stock markets will not be and growth could slip below 7 per cent.

The FT’s Beijing correspondents look at the reforms announced at the conclusion of the third plenum of the 18th CPC Central Committee.

By Anthony Chan of AllianceBernstein

Expectations are high that President Xi Jinping and Premier Li Keqiang, nearly one year into their likely 10-year reign,will unveil reform policies that will define China’s social and economic development over the next decade and beyond. After the proposals are made public, the new leaders must prove that they can implement substantial change without derailing the growth of the world’s second-largest economy.

In our view, the announcements expected at the Third Plenary Session of the 18th Communist Party Central Committee meeting on November 9–11 may be as historically significant as those made at a similar session in 1993, when Deng Xiaoping, then party leader, launched the “socialist market economy” campaign. Read more

Predicting the outcome of any Chinese political meeting is a fool’s errand. However, investors are already trying to weed through the possible winners and losers from a whole host of possible reform measures that could come out of China’s Third Plenary Session – aka the plenum – which opens this weekend .

Here is a roundup of ten sectors in the spotlight. Read more

It is getting hard to find bargains in developed markets. China has plenty of cheap stocks – but James Mackintosh warns that they may be a bet on the scale of reforms likely to follow this weekend’s Communist party meeting.

By Zhang Zhi Ming of HSBC

Thirty years of reforms have given local governments in China unprecedented authority, including widespread powers over land sales, infrastructure, commercial and residential property construction, natural resources and foreign direct investment. With limited supervision, it is their foot rather than Beijing’s that has been firmly on the accelerator of the country’s remarkable growth engine.

We argue that the pendulum has swung too far in one direction, especially now that the old growth model is starting to run out of steam. Read more

By William Rhodes

It is likely that the “The Third Plenum of the 18th Chinese Communist Party Congress,” which takes place in mid-November, will set the government’s economic policy course for the next five to 10 years. The path ahead will see domestic consumption and substantial financial innovation and liberalisation replacing the emphasis on exporting, and heavy public sector investment, as the prime drivers of growth.

The road that President Xi Jenping and Premier Li Keqiang are embarked upon may involve the most far-reaching economic reforms since former leader Deng Xiaoping made his famous 1992 Shenzhen speech. Read more

When Xiao Gang, the new boss of the China Securities Regulatory Commission, used ‘China dream’ as the theme of his first public speech following his appointment back in March, he was making an obvious echo of president Xi Jinping’s evoctaion of a ‘China dream’. Xiao’s speech was published on CSRC’s website to just before China’s May 4th Youth Day.

However, whether Xiao really is a reformist remains to be seen. He certainly seems willing to continue the reforms started by his predecessor, Guo Shuqing. But progress will require something more practical than dreams. Read more

What should we make of the appointment of China’s new top securities regulator? The expectations are: stability, predictability, and no great drive for further market reform. But we might all be surprised.

Xiao Gang (pictured), until this week the chairman of the Bank of China, is being interpreted as a cautious new head of the China Securities Regulatory Commission. Read more

The re-balancing of the Chinese economy should enable Indonesia, Thailand and Vietnam to double their share of the world textile market and boost intra-Asian trade as a proportion of world trade – so says a report from the consultancy Ernst & Young. Read more

By Michal Meidan of Eurasia Group

At the end of the week, China’s new leaders will step out onto the stage at the Great Hall of the People in Beijing in order of seniority. Their policy choices will have an impact that extends far beyond China’s borders and yet for now, no one knows who they are, and how they view China’s future.

Indeed, even though Xi Jinping and Li Keqiang are virtually assured to assume the presidency and premiership, respectively, all the other positions are still open. The final makeup of the Politburo Standing Committee, and the order in which China’s new leaders will take the stage, will hold a number of clues regarding their ability, and appetite, to pursue economic and financial sector reform. Read more