With his newly awarded special leadership status, Chinese President Xi Jinping is now ready to fully implement economic reform. Xi himself has pledged structural reform, but what are the specifics of the plan?
At the sixth plenary session of the Chinese Communist Party's 18th Central Committee, which ended on Oct. 27, Xi was named a "core" leader, joining the ranks of China's former supreme leaders Mao Zedong and Deng Xiaoping. In theory at least, Xi was granted exceptional power that his predecessor Hu Jintao did not possess.
Unlike the plenum, which primarily focused on political issues such as party discipline, the Politburo meeting on the following day centered on analysis of the current economic situation. The meeting stressed that China will press ahead with Xi's supply-side structural reform, such as eliminating overcapacity and reducing inventories, while at the same time curbing the possibility of an asset bubble, among other potential risks.
A strong tailwind for emboldened economic reform is dimming concerns about economic slowdown. Notably, China's producer price index rose for the first time in about four and a half years in September on a year-on-year basis, thanks to rising coal and steel prices after a dismal 2015.
The economy is no longer slowing. China's gross domestic product grew by an annualized 6.7% in each of the past three quarters. The curiously flat figures look somewhat fishy but may nonetheless be a sign that the government is determined not to allow the economy to slow any further. In fact, China can still prop up its economy with public investment, for instance.
Given such a favorable economic environment, there is a new question for China. What kind of reform will the Xi administration pursue?
The first obstacle will be the National Congress, a key political gathering held every five years to select the Communist Party's top leadership. It will be difficult for Xi to put in place any bold reform plan that may disrupt the economy ahead of the next congress, to be held next autumn. The latest Politburo meeting underscored the importance of moving forward without compromising stability.
More important, though, is where the reform is headed. Ever since China joined the World Trade Organization in 2001, the world has closely followed the country, including the entry of its currency into the International Monetary Fund's Special Drawing Rights reserve currency basket in November last year. Outsiders expected China to shift to a market economy.
But recent moves raise questions. For example, the Chinese government said in April last year that it plans to upgrade the country's three policy banks, including China Development Bank, to give them greater authority. It represented a shift from a previous stance, which appeared to be aimed at turning the three banks into commercial banks -- China Development Bank was converted to a stock company. Xinhuanet, a state-owned news service, described the policy change as "reversion."
China liberalized its financial sector in order to have its currency accepted to the SDR basket. But the future looks uncertain. Ahead of the IMF decision on whether to adopt the yuan, the government liberalized interest rates by abolishing the cap on deposit interest rates in addition to already liberalized rates for lending. But later, it said it would allow banks to self-impose limits on rates, a move that does not necessarily lead to a market economy.
From: Asian review
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