What Will The Third Plenum Bring?

The author is head of Greater China research at Standard Chartered Stephen Green

The Third Plenum of the 18th Chinese Communist Party (CCP) Central Committee will likely meet in November.

We expect the meeting, chaired by Party Secretary Xi Jinping, to approve a document laying out the broad principles of China’s next stage of economic reform. Hopes are running high that this document will mark a significant breakthrough in policy across a range of economic issues.

We think the package will be significant, and it should boost medium-term confidence as details are rolled out in the coming months. A document full of old ideas and vague language would disappoint.

The Third Plenum is not the place to discuss details such as the level of the property tax Beijing will implement, how much money should be set aside for urban residency (hukou) reform, or which state enterprises will be privatised over the next five years. Such detail will have been discussed in the preparatory stages, and ministries may already have their plans.

The key to the plenum is laying out clear principles that inform and provide air cover for the policy detail that follows. We expect one or two catchphrases from the document to be highlighted and widely discussed as guidelines for change. An early reported theme is ‘comprehensive reform’. Analysts will pore over the document to assess how much the market is prioritised over the state. Once the Party leadership has spoken, government leaders will be expected to deliver.

We hope the Third Plenum document will include an extended section on this area that deals with the following issues:

Streamlining government; Re-orienting government functions; Providing sustainable sources of local fiscal resources; Creating disciplined budgets that ensure money is well spent; Improving evaluation of local cadres; Sorting out local government debt, now and in the future; Finding ways to allow private-sector participation in infrastructure projects; Enterprise reform is still a sensitive subject, and is unlikely to appear explicitly in the plenum document, etc.

The 2013 Third Plenum shares at least one similarity with the 1978 one: key reforms have already begun. Anti-corruption efforts introduced earlier this year are having a clear impact, administrative approval powers are being limited, some prices are being liberalised (interest rates, gas prices), and monetary policy has not been significantly loosened in the face of a prolonged slowdown.

We think the Third Plenum will act as a catalyst for these trends and put the Party’s stamp of approval on many more.

(The article has been edited for clarity)

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