China: Bold Reform Measures Lacking in Communique

The growth impetus witnessed in Q3 looks to have continued into the start of the current quarter, judging by the latest raft of data for October. Monthly releases for industrial output, nominal retail sales and fixed asset investment showed that growth in these sectors remained firm. Helping to shore up the improving economic outlook for China, industrial profits continued to grow at a solid clip in October, rising by 15.1% (y-o-y). Meanwhile, there was further positive news on the external front after exports rebounded in October following September’s slump. Overseas shipments beat market expectations to rise by 5.6% (y-o-y), while imports rose by 7.6%. Consequently, 2014 forecasts for a number of leading economic indicators have risen this month.

Last month China’s leaders concluded the third plenum of the Communist Party’s 18th Central Committee. The four day session sets out the road map for the country’s reform plans over the next decade. Despite expectations of a massive reform push, the communique issued after the gathering was largely vague and lacking in reform details. However, there was a notable change in the wording used to describe the role markets will play in the economy from previously ‘basic’ to ‘decisive’ in the latest communique. Furthermore, the decision to set up a special body to push through policy changes was seen as a positive move, but there was no talk of financial sector liberalisation. Also, there was no mention of reforms to the present household registration system. In fact, plans were outlined to strengthen the central role of state enterprises. In the absence of bold reform measures and given the ambiguity of the document, the initial responses from commentators have been generally mixed.


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