China's Third Plenum: wait and hope

The document purports to be a roadmap forged by the new leadership, setting out China’s economic reforms for the next 5-10 years, but it may keep market observers waiting.

If there were people still expecting substantial reforms from the Third Plenary session of the Chinese Communist Party, they might be a little disappointed by the communiqué released after the four-day closed-door meeting.

The document purports to be a roadmap forged by the new leadership, setting out China’s economic reforms for the next 5-10 years.

However, somewhat typically the roadmap appears to be full of roads without a destination.  

“I feel it is too rough to be a framework document,” said Hu Yifan, chief economist, head of research and managing director with Haitong International.

Usually, the communiqué is a short announcement that sets the tone for a much longer version called “Decision”, released a week after the completion of the plenums. 

Without detailed goals or measures, or numerical targets, the communiqué did actually mention some core problems in the country’s reforms.

These included the relationship between government and the markets, the gap between rural and urban areas, the relationship between state-owned and private sectors, rule of law, and the fiscal and tax system.

However, readers would be forgiven for thinking there was nothing different or exciting from the sentences and words that have been used in other party communication for a long time. 

Especially as the communiqué said the reforms aim to achieve decisive results by 2020.

“I hope the ministries will carry out substantial reforms in the next two to three months. Or, this meeting will let people down and lead to serious results, such as a financial meltdown,” said Andy Xie, an independent economist and former Morgan Stanley researcher.

Xie wants Beijing to implement reforms to tackle the country’s property bubble and currency inflation.

Clues, however, can be found in Tuesday night's statement.

It highlights that markets should play “a decisive role” in determining the allocation of resources in the economy, which is positive, said Zhu Haibin, chief China economist with JP Morgan.

Beijing has also decided to set up a group to work on deepening reform and opening up the markets.

The Third Plenum has also decided to establish a National Security Council to improve the strategies of the country’s security.

Without elaborating, the exact purpose of the NSC is believed to be similar to the US’s NSC, which was built up after 911 to function as a security advisory body to the top leadership.

The arrangement should improve the government's operations and internal communication, economists pointed out.    

Looking forward, observers believe it is crucial to watch out for further concrete details and a timeframe of the various reforms going into 2014.

“The whole market is still in a stage of digesting the spirit from the [communiqué],” said Hu.

The idea, as ever, is to wait and hope. 

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