China’s Communist Party Meets to Map Out Economic Changes

Leaders of China’s ruling Communist Party started a four-day conclave in Beijing today where they may chart out the biggest economic and societal changes to the country in a generation.

Potential reforms include loosened controls on interest rates and the yuan and closer supervision of local-government finances, according to analysts including Zhang Zhiwei, chief China economist at Nomura Holdings Inc.

State media have hailed the third plenum -- so called because it’s the third meeting of the party’s Central Committee since a November leadership changeover -- as a “watershed” for reform as China seeks to move to an economy focused on domestic demand instead of state investment and exports. The 1978 plenum ushered in market-oriented policies that spurred average annual growth of more than 10 percent for 30 years.

“We will see a new round of comprehensive economic and also political reforms in the coming years which will put China on a more solid foundation for sustainable growth,” Li Daokui, a professor at Tsinghua University and former adviser to China’s central bank, told Bloomberg Television.

Topping the agenda will be a discussion “on comprehensively deepening reform,” the official Xinhua News Agency said in an English-language report released at 11:34 a.m. local time today to announce the start of the meeting.

The plenum will ‘deliberate on a draft decision” of the party’s central committee on “major issues concerning comprehensively deepening reforms,” it said, without giving details. Xinhua used the phrase “comprehensively deepening reform” three times in the four-paragraph report.

Sweeping View

Reflecting the significance that Chinese state media are giving the event, the People’s Daily, the main newspaper of the Communist Party, yesterday presented a sweeping view of China’s history since the party’s 1949 victory in a front-page article. The piece cast this year’s meeting as a bookend to the era that began with the 1978 gathering.

Yu Zhengsheng, the fourth-ranking member of the 85-million member party, said last month that the plenum would usher in “unprecedented” economic reforms. The official Xinhua News Agency said Nov. 4 that the plenum would be a “watershed as drastic economic policies will be unveiled,” including giving more scope to market forces and an overhaul of the household registration, or hukou, system that limits labor mobility.

High Expectations

“Third plenums have this aura in terms of making dramatic pronouncements,” said Robert Lawrence Kuhn, author of the book “How China’s Leaders Think.” “Expectations are very high in China for this, and anything less than that is going to be a disappointment.”

If the 2008 third plenum is any precedent, the Central Committee’s roughly 200 members and 170 alternates will make few announcements during the event, and conclude with the release of a communique outlining the party’s road-map. After the 2008 conclave, which took place at the height of the global financial crisis, the party highlighted its plans to double rural incomes and boost consumption.

Ahead of this year’s gathering, President Xi Jinping embarked on a campaign to crack down on graft and extravagance in the party. Party members criticized themselves and their supervisors in sessions across the country, and sought to rejuvenate ties with ordinary people through a so-called mass line campaign that had some officials living with rural families.

Spot Checks

Police have also set up what they call the “Beijing Security Moat” to prevent anything from upsetting the gathering. Public Security Minister Guo Shengkun made surprise spot-checks of security measures at the Tiananmen East subway station on Nov. 4, his ministry said Nov. 5.

That’s the station outside the Forbidden City, where a sport-utility vehicle crashed and blew up on Oct. 28, killing its three occupants and two bystanders. The government blamed the incident on a terrorist group from western China’s Xinjiang region.

On Nov. 6 a series of explosions outside the provincial party headquarters in the northern city of Taiyuan killed one person and injured eight. Yesterday, police arrested a 41-year-old ex-convict who confessed to the crime, Xinhua reported.

“The plenary session will play a very important role in the process of China’s reform and opening up,” Foreign Ministry spokesman Hong Lei told a briefing in Beijing yesterday. “We believe this meeting will achieve full success.”

Before it's here, it's on the Bloomberg Terminal.