This weekend, China’s Communist Party will gather for what is being billed as a very important meeting to determine the path of the country’s economic growth. It will be the third meeting of the party’s current Central Committee, widely known as the “Third Plenum”. It will be held during November 9-12.
Third Plenums are quite significant, according to China watchers. Back in December 1978, at a Third Plenum, Deng Xiaoping announced the start of far-reaching market-oriented reforms that changed the face of the Chinese economy over the next three decades. There’s similar buzz surrounding the upcoming Plenum. So what do China watchers expect will happen this time around?
More economic reforms. That seems to be on top of the agenda. A sweeping reform plan for the economy is expected to be tabled at the Plenum.
Expect to see some consumer-oriented reforms, including those advocated by the People’s Bank of China’s governor, Zhou Xiaochuan, according to a Wall Street Journal report. Earlier this year, Zhou was re-appointed to the post of central bank governor despite the fact that he was past the retirement age. Experts believe that his reappointment indicates that party leaders want him to continue with financial reforms.
Under Zhou’s watch, the central bank has slowly but surely worked to reduce the reliance of the renminbi on the U.S. dollar (the renminbi is currently pegged to the greenback), opened China’s capital account and reduced the financial system’s dependence on bank lending, according to this Financial Times report.
The Wall Street Journal believes that party leaders will incorporate some policy recommendations of Zhou in their economic plan that will be released at the Third Plenum. These recommendations include encouraging more bank lending to the private sector instead of state-run firms, and further opening the financial markets to foreign investors.
A BBC report and The Economist believe the reform plan will draw inspiration from a ”3-8-3 plan” that aims to transform the Chinese economy by 2020. The 3-8-3 plan refers to three main reform principles (opening markets, transforming government and reforming enterprises); eight reform priorities (reducing bureaucratic red-tape, promoting competition, land reform, banking reforms include interest rate and currency liberalisation, fiscal reforms, state-owned enterprise reforms, encouraging innovation and service sector liberalisation) and three strategies to achieve them ( lowering market barriers, setting up social security safety nets, and allowing trading of collectively-owned land).
The Third Plenum, it must be noted, comes at a critical time for the global economy. The U.S. Federal Reserve is contemplating a gradual withdrawal of its monetary stimulus, which could — and has — rattled investors around the globe. Economic (and monetary) policy makers will have to take that into account (because of the renminbi-dollar peg) when they unveil their reform agenda this weekend.
The next post will discuss the possibility of tighter monetary policy in China (being discussed in the media) against the backdrop of the U.S. contemplating a gradual tapering of monetary stimulus.