China says to rein in local debt, push financial reform | Reuters.
Category Archives: Macroeconomic
IMF Primary Commodity Prices
The impact of slowing emerging market growth is being felt on commodity prices, particularly metals.
Annual Central Economic Work Conference (CEWC)
The CEWC is part of the annual policy cycle, following on the Politburo meeting earlier this month.
The CEWC issued a statement emphasizing the need for stability, stability of economic reform and macroeconomic policy.
The statement mentions several areas of reform, but does not give much detail. However the need to resolve the overcapacity problem gets more attention than before.
6 key tasks a mentioned for 2014:
Food security; industrial structure (including overcapacity problem); dept risk prevention; coordinated regional development; to protect and improve the people’s livelihood; continuously improve the openness of economy.
China expands VAT reform to 2 new sectors – Xinhua | English.news.cn
China’s free trade zone plans herald quicker FX reforms | Reuters
It remains clear that all reform efforts will be conducted in small, careful selected steps. Which is fine, as long as the process is transparent to all market participants
Though we really need a more detailed time table as well as information about targets and methods of reform.
China’s free trade zone plans herald quicker FX reforms | Reuters.
Investors eye reform effects |Editorials |chinadaily.com.cn
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.
Time for a comprehensive reform
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:
- Financial reforms
- Fiscal reforms
- Structural measures
[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.
A Wish List for China’s Third Plenum | iMFdirect – The IMF Blog
Taller buildings, higher ambitions – is the crisis looming?
Sustainable growth and further reform
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.