Post by jeffolie on Nov 7, 2013 12:42:31 GMT -6
Nov. 6, 2013
Why China may change forever this weekend
LOS ANGELES (MarketWatch) — OK, see if you can read the following sentence without falling asleep: On Saturday, the Third Plenary Session of the 18th Central Committee of the Communist Party of China will begin its four-day meeting.
Sounds wildly boring to be sure, but this meeting — known popularly by the snappy name “Third Plenum” — could be the biggest thing to happen to China in decades.
And given that China is now the world’s second-largest economy, that its fortunes have a major impact on U.S. corporations, and that some economists say China is on the brink of a potential economic crisis with world-shattering implications, it couldn’t hurt to take a look at what the Third Plenum is all about.
A plenum is just a meeting of China’s top Communist Party brass, and they usually hold one or two a year over the five-year term of the Central Committee, basically the party’s leadership. Most of these meetings mean very little if you’re not a member of China’s government, but the Third Plenum … that’s a different story.
Economists and news reports are quick to point out that the Third Plenum of each term — especially following a leadership change — is when all the reforms are rolled out in one gigantic flood of policy changes.
At the Third Plenum held in 1978, China’s new leader Deng Xiaoping basically abandoned traditional Communism in favor of a “Reform and Opening” policy. At the Third Plenum in 1993, Deng’s successor Jiang Zemin went further, launching China’s “socialist market economy” which led to the nation joining the world economy in earnest.
So what’s in store for this year’s event? Will President Xi Jinping, who took power last year, take reform a step (or several steps) further?
The early indications are yes, he will. While hundreds of cadres will attend the Plenum, the real decisions are made by a much smaller group, and we won’t know for sure what’s in the works until President Xi delivers the Third Plenum’s “working report” sometime before the gathering closes on Nov. 12. But some possible details are already out.
Late last month, a key advisory committee issued the “3-8-3 Plan” of suggested reforms. (China loves to put numbers in titles: the “5-4 Movement,” the “7-7 Incident,” etc.) The plan’s name is shorthand for “3 areas of reform, 8 sectors to reform, and 3 major reform breakthroughs — see this Caixin report for more details.
Much of what was released is pretty vague, but it and a few other clues listed below suggest major changes are afoot. Or as Barclays economist Jian Chang put it in a note out last week, the 3-8-3 Plan “has exceeded general market expectations.”
As it stands, here’s a sample of some possible measures that may come out of the meeting:
Interest rates and the housing bubble
China is famous for its housing bubble. With interest rates on savings so low, real estate is a very popular investment option for those with funds, sometimes resulting in “ghost housing developments” where the owners sit on uninhabited investment properties as they wait for prices to rise.
The government is of course concerned, having launched a long series of curbs on the property market in recent years, but until the banking sector — dominated by the big state-owned players — offer a viable investment alternative, the housing bubble may remain a growing danger to China’s economic future.
Enter People’s Bank of China Gov. Zhou Xiaochuan. The Wall Street Journal reported this week that the central-bank chief shockingly lambasted party leaders late last year over the need to provide depositors with higher interest rates and to open up the financial system to more competition.
Rather than having Zhou drummed out of office, President Xi reportedly reappointed him to his post and called him “a talent who can be counted on.”
Social Security
Of the three “breakthroughs” that make up the final “3” in the 3-8-3 Plan, one of the most intriguing is the idea of a “social security” system.
Here, social security refers not necessarily to government funds for the elderly, but more likely an improvement in public health care, according to Barclays’s Jian Chang, who sees such a move as likely to show significant progress by 2015.
Click to Play Why China needs to kick the luxury habitDespite Xi Jinping’s clampdown on corruption and opulent displays of wealth, China’s cities still want to attract wealthy residents. China World columnist Andrew Browne discusses why this explosion of luxury in China needs to change.
Despite being run by communists, China has little of the social safety net found in many Western nations, and for anyone worried about social stability in the nation, this reform is actually pretty important.
‘One-child policy’
China’s famous limit of one child per couple has long been dying a slow death, with exceptions and outright flouting of the law not uncommon (See this MarketWatch report from 2010 on the inevitable end of the one-child policy.)
With the rapid aging of the Chinese population, some sort of liberalization is clearly needed. Still, many reports say the Plenum will result in a further relaxation of the policy, rather than outright repeal.
Going green
The 3-8-3 Plan makes fleeting mention of pursuing green development, and the environment is certainly a huge concern for a country where, for example, rampant smog caused an eight-year-old girl to develop lung cancer. Even in Beijing, where the nation’s leaders live and work, severe toxic pollution is a fact of life.
Here though, progress looks less likely, in part due to government inefficiencies. (See this report on the government’s difficulties in tackling a water-pollution crisis.)
Economic slowdown?
Something NOT on the agenda for the Plenum is engineering a further slowdown for the economy. However, as Barclays points out, this is often the result when big changes surface from a Third Plenum reform binge. Such was the case after the 1978 and 1993 meetings.
This, Jian Chang writes, “reflects the fact that structural reforms, while good for the longer term, tend to slow growth in the short term.”
Well, no gain without pain perhaps
www.marketwatch.com/story/why-china-may-change-forever-this-weekend-2013-11-06
Why China may change forever this weekend
LOS ANGELES (MarketWatch) — OK, see if you can read the following sentence without falling asleep: On Saturday, the Third Plenary Session of the 18th Central Committee of the Communist Party of China will begin its four-day meeting.
Sounds wildly boring to be sure, but this meeting — known popularly by the snappy name “Third Plenum” — could be the biggest thing to happen to China in decades.
And given that China is now the world’s second-largest economy, that its fortunes have a major impact on U.S. corporations, and that some economists say China is on the brink of a potential economic crisis with world-shattering implications, it couldn’t hurt to take a look at what the Third Plenum is all about.
A plenum is just a meeting of China’s top Communist Party brass, and they usually hold one or two a year over the five-year term of the Central Committee, basically the party’s leadership. Most of these meetings mean very little if you’re not a member of China’s government, but the Third Plenum … that’s a different story.
Economists and news reports are quick to point out that the Third Plenum of each term — especially following a leadership change — is when all the reforms are rolled out in one gigantic flood of policy changes.
At the Third Plenum held in 1978, China’s new leader Deng Xiaoping basically abandoned traditional Communism in favor of a “Reform and Opening” policy. At the Third Plenum in 1993, Deng’s successor Jiang Zemin went further, launching China’s “socialist market economy” which led to the nation joining the world economy in earnest.
So what’s in store for this year’s event? Will President Xi Jinping, who took power last year, take reform a step (or several steps) further?
The early indications are yes, he will. While hundreds of cadres will attend the Plenum, the real decisions are made by a much smaller group, and we won’t know for sure what’s in the works until President Xi delivers the Third Plenum’s “working report” sometime before the gathering closes on Nov. 12. But some possible details are already out.
Late last month, a key advisory committee issued the “3-8-3 Plan” of suggested reforms. (China loves to put numbers in titles: the “5-4 Movement,” the “7-7 Incident,” etc.) The plan’s name is shorthand for “3 areas of reform, 8 sectors to reform, and 3 major reform breakthroughs — see this Caixin report for more details.
Much of what was released is pretty vague, but it and a few other clues listed below suggest major changes are afoot. Or as Barclays economist Jian Chang put it in a note out last week, the 3-8-3 Plan “has exceeded general market expectations.”
As it stands, here’s a sample of some possible measures that may come out of the meeting:
Interest rates and the housing bubble
China is famous for its housing bubble. With interest rates on savings so low, real estate is a very popular investment option for those with funds, sometimes resulting in “ghost housing developments” where the owners sit on uninhabited investment properties as they wait for prices to rise.
The government is of course concerned, having launched a long series of curbs on the property market in recent years, but until the banking sector — dominated by the big state-owned players — offer a viable investment alternative, the housing bubble may remain a growing danger to China’s economic future.
Enter People’s Bank of China Gov. Zhou Xiaochuan. The Wall Street Journal reported this week that the central-bank chief shockingly lambasted party leaders late last year over the need to provide depositors with higher interest rates and to open up the financial system to more competition.
Rather than having Zhou drummed out of office, President Xi reportedly reappointed him to his post and called him “a talent who can be counted on.”
Social Security
Of the three “breakthroughs” that make up the final “3” in the 3-8-3 Plan, one of the most intriguing is the idea of a “social security” system.
Here, social security refers not necessarily to government funds for the elderly, but more likely an improvement in public health care, according to Barclays’s Jian Chang, who sees such a move as likely to show significant progress by 2015.
Click to Play Why China needs to kick the luxury habitDespite Xi Jinping’s clampdown on corruption and opulent displays of wealth, China’s cities still want to attract wealthy residents. China World columnist Andrew Browne discusses why this explosion of luxury in China needs to change.
Despite being run by communists, China has little of the social safety net found in many Western nations, and for anyone worried about social stability in the nation, this reform is actually pretty important.
‘One-child policy’
China’s famous limit of one child per couple has long been dying a slow death, with exceptions and outright flouting of the law not uncommon (See this MarketWatch report from 2010 on the inevitable end of the one-child policy.)
With the rapid aging of the Chinese population, some sort of liberalization is clearly needed. Still, many reports say the Plenum will result in a further relaxation of the policy, rather than outright repeal.
Going green
The 3-8-3 Plan makes fleeting mention of pursuing green development, and the environment is certainly a huge concern for a country where, for example, rampant smog caused an eight-year-old girl to develop lung cancer. Even in Beijing, where the nation’s leaders live and work, severe toxic pollution is a fact of life.
Here though, progress looks less likely, in part due to government inefficiencies. (See this report on the government’s difficulties in tackling a water-pollution crisis.)
Economic slowdown?
Something NOT on the agenda for the Plenum is engineering a further slowdown for the economy. However, as Barclays points out, this is often the result when big changes surface from a Third Plenum reform binge. Such was the case after the 1978 and 1993 meetings.
This, Jian Chang writes, “reflects the fact that structural reforms, while good for the longer term, tend to slow growth in the short term.”
Well, no gain without pain perhaps
www.marketwatch.com/story/why-china-may-change-forever-this-weekend-2013-11-06