Asia Briefing: Plenary session may indicate what’s next for China
The third plenary session of the 18th Central Committee of the Chinese Communist Party. The title’s far from snappy, but the event has the potential to be ground-breaking. Next month the ruling Communist Party is holding a key party plenum that is widely expected to be the forum for China’s new leadership to detail its plans for financial reform. The third plenary session gathers the politburo’s seven-member standing committee, plus the 200-odd members of the central committee, which was selected at last November’s party congress.
It was the third plenum in 1978 that saw Deng Xiaoping’s economic liberalisations emerge, the ones that have formed the basis of China’s economic rise, as well as the launch of Zhu Rongji’s socialist market economy in 1993.
Among the reforms analysts expect are liberalisation of the corporate sector, including opening up to foreign investors, the expansion of the Shanghai free-trade zone and relaxation of the hukou system of control on internal migration. Even the one-child policy is up for debate.
There is growing speculation that president Xi Jinping will use the third plenum to announce the opening up of China’s capital account, which will allow easier investment abroad by Chinese investors. By opening up the capital account, it will free up China’s vast national savings, which could bring much- needed liquidity into global financial markets – or swamp them, as Diana Choyleva of Lombard Street Research said last week, as she wrote of China’s “wall of money” which she believes could well “swamp global financial markets”.
“Very few expect ground-breaking change. But Beijing may well surprise the market with a much swifter timetable for opening China’s capital account,” she said. US national savings come to $2.7 trillion (€1.96 trillion) while China’s are $4.2 trillion. She says China’s savings are not likely to go for traditional routes such as treasuries or other government bonds.
“Much more likely it will follow the children into US, UK, Australian real estate, private equity and eventually quoted stocks. Higher domestic interest rates in China will be one necessary mechanism through which income and wealth will be transferred from China’s firms to China’s consumers and the much- needed re-balancing of the economy could be achieved,” Cholyeva argues.
China’s economy is in a gradual rebalancing phase, according to the government, and Beijing has repeatedly said it would accept slower growth as it tries to wean the economy off dependence on investment and exports in favour of domestic consumption.
Gross domestic product (GDP) is set to grow 7.6 per cent this year, beating the government’s 7.5 per cent target, before losing some steam next year as the government forges ahead with structural reforms, a Reuters poll of economists showed last week. While an expansion of 7.6 per cent in 2013 would be the weakest in 24 years, it would still be comfortably above the government’s 7 per cent forecast.
“Data for September suggest that momentum had started to fade at the end of the third quarter,” wrote Mark Williams from Capital Economics in a research note. “Growth in industrial production edged down, with the slowdown particularly acute in energy intensive sectors and among state-owned firms, which were the major drivers of the summer rebound. Cement output, a gauge of construction activity, has also weakened recently.
“This is consistent with evidence that infrastructure spending and investment by state-owned firms cooled last month.”
Meanwhile, vice-premier Ma Kai has been hosting the fourth China-EU high- level economic and trade dialogue in Brussels and is due to follow this with official visits to Belgium, Iceland and Ireland at the invitation of the federal government of Belgium, prime minister Sigmundur Gunnlaugsson of Iceland and Tánaiste and Minister for Foreign Affairs and Trade of Ireland Eamon Gilmore from October 25th to 30th.
“The upcoming visit to Ireland by vice-premier Ma Kai is an important one,” said Ireland’s new ambassador to China, Paul Kavanagh. “Mr Ma has very senior governmental responsibilities in the economic and financial area. There are many opportunities for competent, enterprising and committed Irish companies and institutions that are, and must be market-ready, to build their business links with Chinese partners.”
Xi recently received Kavanagh at the Great Hall of the People in Beijing, during which he warmly recalled his visit to Ireland last year, and the Taoiseach’s visit two months later.