3rd Plenum reforms are close: expert
China watchers should expect "significant movement" from the government in the next six months as the country begins implementing planned reforms detailed in the Third Plenum document, an expert said.
Barry Naughton, economics professor at the University of California San Diego, in a keynote address at an NYU Center on US-China Relation's conference on Chinese capital markets, said he anticipates much more government action in the coming year - movement already signaled when the China Securities Regulatory Commission announced last week that Chinese initial public offerings would resume as early as next month.
Share offerings in China had been banned for more than a year and the announcement, Naughton said on Friday, falls in line with the Plenum's call for market forces to play a "decisive role" in the economy.
Overall Naughton said that the results of the Third Plenum were a "success", despite any skepticism China watchers may have had leading up to the meeting of China's top leaders.
"Whatever your beliefs are about how feasible economic reform is, the likelihood of serious economic reform substantially increased after the Third Plenum," Naughton said. "Even if you're a deep skeptic, you have to acknowledge that there's a little bit less grounds for skepticism. If you're a strong optimist, then your optimism has been confirmed."
Leading up to the Third Plenum, Naughton said that China's leaders were faced with a "crisis of confidence", an accumulation of a decade of reform stagnation. The government continued to talk about how important reform was, he said, but it was obvious that the country was in a state of "regression".
The Third Plenum was China's best opportunity to reverse its credibility crisis - "to reverse this perception of a disconnect between words and deeds" - and on that front, the leadership did what it set out to do, Naughton said.
The detailed Third Plenum document was a "vision statement plus a to-do list", he said, representing a clear movement towards a very different revitalized policy for state ownership.
Naughton noted that the document revealed that the government was headed towards a mode of governing that relied less on excessive government regulation. "If there's anything in the document that's strong, it's the idea that this type of presumption - that government approval is necessary - has to be reversed," he said.
While the list of planned reforms is ambitious, the big number of to-dos might slow down the process of reform, Naughton said. "If you look at Xi Jinping, you can't help but feel that he has an awfully full agenda," he said.
"There is a danger that the process will get bogged down. So much has been laid out in this document, there's a danger that there won't be large enough breakthroughs in any particular area," Naughton cautioned.
Another major risk is China's potentially precarious financial system, Naughton said, which saw some signs of trouble in June during a credit crunch when interest rates spiked.
"There are lots of transactions taking place outside of the standard bank credit system," he said. "The basic cause of the system is that so much bank credit is tied up in non-performing local government-sponsored investment vehicles. This does create a very substantial measure of risk, because the system is just not well-adapted to dealing with situations where the liquidity of these different financial instruments is thrown into question."
Naughton suggested that the government needs to set up a national wealth task force, one that can begin the liquidation of the "worst of these local government financial vehicles", working through bond refinancing and defaults just in case anything unexpected happens in the overall financial market.
amyhe@chinadailyusa.com
