The Third Plenum of the 18th Central Committee of the Communist Party produced the first policy and reform blueprint of the new Chinese leadership, it is a pledge to deepen reform and strengthen the role of the free market.
Though the announcements so far are lacking detail and any short term changes will be limited. Change in all areas covered by this third plenum will be introduced gradually and only if proven successful.
The third plenary session of the 18th CPCcentral committee, November 9 to 12, 2013
During this meeting a blueprint for comprehensive reform should be put forward, with a focus on innovation development strategy.[China reforms eye more innovative bases; Xinhua; 05NOV13]
China needs a shift to a more sustainable growth path. One that uses resources more efficiently, is more inclusive, and more consumer based. To achieve this shift, actions on several fronts are needed:
[Singh, Anoop; A wish list for China’s third plenum; IMF direct; 22OCT13]
Also the development research center (DRC) if China’s state council recently released a proposed roadmap for the next round of reforms. This ‘383 Scheme’ refers to “a three-in-one reform principle in eight key reform areas, with three correlated reform combinations,” which puts an emphasis on a economic structure ruled by the law. [Dezan Shira & Associates; China’s Official Think Tank Releases ‘383 Scheme’ for Future Reforms China Briefing; 05NOV13]
Major problems with reform of the current system remain. “Transformation of the economic growth is entirely interlocked,” said Yuan Xucheng, a former official who is now deputy secretary general of the China society of economic reform, a think tank in Beijing. ” You can’t transform one part without transforming all others.”
Obstacles will be hard to overcome. Reforms of the hukou system, land policy, social safety net, fiscal system for local governments as well as reforms of sectors controlled by state-owned companies all face resistance, because urban residents, state owned companies, ministries and local geovernments all fear for loss of their privileges. [Buckley, Chris; Chinese Leader’s economic plan tests goal to fortify party power; New York Times; 06NOV13]
It remains to be seen what the CPC central committe will declare in the next few days and which meassures will actually be carried out.
Development of the Chinese economy in the first 3 Quarters 2013.
In the first three quarters of 2013 the Chinese economy was stable and showed overall growth, albeit with lower growth rates than in 2012.
CPC Central Committee and the State Council continue to support stable growth trend, focus on deepening reforms and opening up, accelerating transformation and upgrade the Chinese economy as well as protect and improve the livelihood of the population.
[Chinese Bureau of Statistics, www.gov.cn; http://www.gov.cn/wszb/zhibo581/content_2509780.htm]
The government statements show confidence that the economy will continue to grow and reforms will be successful. However according to the IMF, “Space for demand support policies through government spending and lending (including through the shadow banking in China) is approaching its limits and can no longer be relied on as engine for growth.”
[Managing Director’s Global Policy Agenda to the International Monetary and Financial Committee; October 12, 2013; Page 5: Emerging market economies]
“Bold structural reforms are needed to contain growing credit risk and maneuver a smooth transition to consumption – driven growth.”
“Interest rates should be liberalized and a more transparent interest – rate based monetary framework developed, supported by strengthened financial sector regulation and supervision, including of the shadow banking system.”
[Managing Director’s Global Policy Agenda to the International Monetary and Financial Committee; October 12, 2013; Page 8: China]
The current central government seems to be somewhat committed to change, but currently also faces massive problems: Air pollution in major Cities for example has become a major problem in 2013. Unrest among ethnic minorities has increased and peaked in the recent attack at the Tiananmen square. Also the urbanisation comes with problems for the environment and living condition of the population. Which may result in increase of social unrest. Further reforms are urgently needed in China.
Chinese President Xi JinPing and Secretary of State John F. Kerry were selling their nations at the summit in Bali. Xi stressed the need for a peaceful region which would be good for business. But Secretary of State John F. Kerry countered, “Every entrepreneur and business in the Asia Pacific needs to know that they can reap the benefits when they develop the next big thing,”.1
Xi, in his relatively low key speech only made references at the territorial disputes and the role of the United States. But China rightly points at the fact that the US shifted its focus to the region without backing it with the appropriate resources.
Xi was also recently touring the region, signing bi-lateral agreements in Indonesia and Malaysia, preparing the way for direct investments and economic cooperation. China is clearly gaining influence in the region and is committed to its political and economic goals. Time for the US and EU to wake up before it is too late.
1: washingtonpost.com; By Anne Gearan, Published: October 8
China’s outbound direct investment reached a record high of $87.8 billion in 2012, making it the world’s third-largest outward investor during the period. [xinhua]
In 2013, China continues to seek opportunities around the world and especially Asia. The population in south-east asia is growing fast, infrastructure projects will offer opportunities for investments and cooperation. It comes at no surprise that China and its neighbours seek to lift bilateral ties under the new circumstances.
Cooperation between China and the ASEAN countries holds great potential. President Xi JinPing visited Jakarta last week and then continued to Malaysia. Meeting with top level officials in Indonesia and Malaysia to strengthen cooperation and investments in those countries and the region.
Also Chinese Premier Li Keqiang left Beijing on Wednesday morning to attend the East Asia leaders meetings and pay official visits to Brunei, Thailand and Vietnam from October 9 to 15.
Recent developments in China have shown that the overall macro-economic fundamentals remain stable. The central government is aiming for a sustainable growth model. Stimulus programs will be limited to key sectors, while more reforms will be implemented.
Economic growth should remain stable, but on lower levels at around 7-8% for 2013 and 2014. Double digits GDP growths rate will be a thing of the past.
The labour market remained tough in 2013 and we witnessed problems to find and retain semi-skilled workers. However these problems were significantly less pressing then in 2012. Wage growth may slow down a little in 2014, but employers still have to watch and monitor developments closely.