Event

One year after the leadership change, the Communist Party (CP)’s Central Committee third plenum was expected to deliver significant commitments to future reforms in a period of economic slowdown, transition and population ageing. Overall, the meeting did not disappoint as bold reforms were announced for Xi Jinping’s presidential mandate. The market will play a “decisive” role (e.g. market-based price-setting for various industries such as energy and transport), migrant workers will receive equal treatment in urban areas (first in small and midsized-cities), farmers will have increased land rights (potentially reducing numerous expropriations), state companies will pay higher dividends and local governments will levy property taxes (thereby improving weak public finances). The most notable plans are mainly - but not exclusively - of socio-economic nature. Besides the belated and probably insufficient loosening of the one- child policy that will allow every only-child parent to have a second child, the Communist Party has counterbalanced its more liberal economic stance by announcing a tightening of state controls. This will apply to internet use and the fight against corruption whereas security committees and a new national Security Council under Xi Jinping’s direct control will be set up.

Impact on country risk

The 3rd Plenum has confirmed that China has entered a new era: structural reforms have become inevitable to ensure sustainability of its domestic model. Three main lessons can be drawn from the latest CP’s  plenum. First, economic rebalancing calls for necessary measures favourable to the market economy and development of a wider social safety net. Secondly, resistance to modernising the Chinese socialist political system is strong given entrenched vested interests. The reiterated economic power of state companies and the stress on Maoist principles are testimony to that. The Communist Party has thus no intention to give up its monopoly of power. Third, Xi Jinping is expanding his power by building a stronger presidential position. All these measures are outlined in a defined framework but implementation and practice might still disappoint. Nevertheless, the third plenum has given the impression that Xi Jinping’s term will be more active and pro-reform than Hu Jintao’s, which is welcome given the risk perspective against the background of the country’s challenging outlook.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com