Thousands of party members were accused of corruption in 2013. President Xijinping is taking the fight against corruption seriously. The sheer volume of cases is impressive. This fight against corruption is not a very new development, but new is the fact that even the highest party functionaries are not safe anymore.
It remains unclear if Xijinping is using this fight also for his own agenda, to get rid of his political adversaries. The following years will show if Xi can be remembered for cleaning up and improving the economic environment.
Overall China is currently in a period of transition. The fight against corruption is causing a lot of commotion and wide spread reforms are being enacted. These reforms will take time, but a transition of the Chinese economy will happen.
A shift to a more consumption driven growth will be necessary. But also the environmental living conditions and the rule of law have to be improved if China hopes to attract global firms and foreign direct investments.
The basic conditions and potential for economic growth remain intact. Export driven growth currently remains sluggish. Also China remains rather insular and fails to integrate regionally and globally. Territorial disputes with most of its neighbours upset regional governments and hurt international trade. Japan is outpacing China in Asia with outbound investments, while China is busy with internal reforms, internal unrest and border disputes.
Cost are rising fast in China, labor disputes and questionable decisions of local labor authorities increase the overall cost of manufacturing. Times are tough, prices and factor cost are rising. It remains important to find new sources of income and watch the details even more. Keep an eye out for trouble spots and insist on due diligence in your China operations.
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.
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.
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:
- 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.