China Politburo member Yu Zhengsheng said the Communist Party would consider “unprecedented” economic reforms next month, as a top research agency proposed changes to rural land ownership rules and social security.
The Development Research Center under the State Council, or cabinet, has also proposed adding “outside investors” to boost competition, China News Service reported Oct. 26, citing a publicly released plan. Yu’s comments in the southern city of Nanning were reported Oct. 26 by the official Xinhua News Agency.
Credit Suisse Group AG said the proposals are ambitious and exceed its expectations, while Nomura Holdings Inc. said the government’s effectiveness in implementing reforms remains to be seen. Analysts surveyed by Bloomberg News this month said policies flowing from the meeting, called the third plenum, will reduce the odds of a severe slowdown or financial crisis.
The meeting “will focus on studying comprehensive and deep reform,” Yu was quoted as saying in Xinhua’s report. “The depth and strength of the reforms will be unprecedented and will promote profound changes in every area of the economy and society.”
The plans are part of “probably the most ambitious” economic initiatives since the People’s Republic of China was formed and should be viewed as the foundation of President Xi Jinping’s reform framework to be unveiled at the third plenum, Dong Tao, a Hong Kong-based economist at Credit Suisse, said in a note today. Even so, the “details are missing at this moment” and their effectiveness depends on “policy design and execution,” Tao wrote.
The benchmark Shanghai Composite Index of stocks closed little changed today. While money-market rates rose last week by the most since a June cash crunch, China’s brokerages are betting that the increase is a sign of strength in the economy rather than finance-industry weakness.
The research agency’s plan was previously reported Oct. 1 by China Reform magazine, a Caixin Media publication, which cited what it said were excerpts from the proposal. Domestic media seized on the plan over the weekend. China Reform listed policy shifts including reducing administrative approvals, breaking monopolies, lowering barriers to entry in the financial industry and setting up a deposit-insurance system.
The proposal also includes making the yuan an international reserve currency in some markets, setting up funds to invest and manage state assets, adjusting the system of transfer payments for local governments and reducing government stakes in financial institutions, according to China Reform.
The State Council Information Office didn’t immediately respond to a faxed request from Bloomberg News for comment on the reports.
Yu is ranked fourth in the seven-strong Politburo Standing Committee headed by party chief and President Xi. The comments were made in a speech at a forum to promote relations with Taiwan.
Premier Li Keqiang has pledged to cut the state’s role in the economy, change the financial and fiscal systems, and overhaul land and household registration rules to sustain growth.
The research center’s proposal to let farmers use land as collateral or transfer it to others is “highly controversial,” and the party’s final plan may be vague and reflect a lack of consensus for aggressive change, Zhang Zhiwei, chief China economist at Nomura in Hong Kong, said in a note today. Under existing regulations, farmers own rights to use land collectively and can’t sell to developers directly, leading to grabs by local governments.
Many of the proposals in the research center’s plans appeared in China’s five-year plan released in 2011 and progress “has not been significant,” Zhang said.
Officials are searching for ways to deal with a surge in local-government debt. China’s National Audit Office has submitted its report on the situation to the State Council and the level of debt exceeds 14 trillion yuan ($2.3 trillion), Caijing reported yesterday on its website.
The government said yesterday that it will make it easier for some companies to register and cut costs for starting a business, according to a statement following a State Council meeting led by Premier Li on Oct. 25.
Yu’s remarks follow comments Xi made to foreign business executives last week that “comprehensive reforms” would be “planned out” during the plenum, according to an English-language Xinhua report on Oct. 23 that didn’t specify any policies. Dates for the meeting haven’t been announced.
Next month’s gathering will be the third full meeting, or plenum, of the party’s current Central Committee, including Xi, Li, ministers and the heads of the biggest state firms and banks, who took over in a once-a-decade power transition that started in late 2012. Thirty-five years ago, a similar Communist Party gathering saw Deng Xiaoping and his allies inaugurate a series of reforms that began to open up China to foreign investment and loosen state controls over the economy.
“I don’t expect to see concrete measures announced at the meeting, but I do expect to see concrete setting of a clear direction and objectives,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong who previously worked for the World Bank in Beijing. “It’s clear that in the financial and monetary areas there’s a full mandate to move ahead, but so far we haven’t had the same signals in other key areas of reform.”
The government has already made progress in areas including cutting regulation, “but that’s low hanging fruit,” Kuijs said. “Some recent statements, such as on the fiscal front, seem to indicate it’s going to be pretty tame.”
Elsewhere in the world today, Sweden reports on September retail sales and Italy will provide a business-confidence index. The U.S. will see releases on September industrial production and pending home sales.
China has pared its growth ambitions, targeting annual expansion of 7 percent this decade, compared with the 10.5 percent average pace of the last 10 years.
Bloomberg’s survey of analysts conducted from Oct. 11 to Oct. 18 indicated that the odds of a severe slowdown in China or a credit crisis will fall after the summit as leaders tackle local-government debt and financial reforms.
Fifteen of 23 economists and political analysts said policies flowing from the meeting will reduce such risks, and a majority said the plans will help China become a high-income economy by 2030.
Asked which reforms are most needed now and most likely in the next 12 months, survey respondents ranked changes in financial markets and local-government funding as both most urgent and probable. Expectations were lower for reforms to the residence-registration or hukou system, which limits labor mobility, the rule of law and state-owned enterprises.