It seems appropriate that I should follow up on last week’s
comments about the 3rd Plenum in China, but first here is a nice
short little video I found about this year’s correction in Emerging Markets.
I have never met the young lady, but I like her simple
explanation – I find a lot of people try to make things too complicated just to
justify there own existence, where as the simplest answer is often the best.
And on to China...
First of all I like the fact the FT put implementation
risk front and center of its coverage. As I hope I made clear last week,
implementation often goes counter to the intent of these meetings. I was
particularly struck by the phrase “In Chinese policy circles, the 2002-2012 rule of
President Hu Jintao is now referred to as a “lost decade” because of this
striking disconnect between state policy goals and actual outcomes.”
Ironically it appears to be the follow up document released
on Friday, rather than the official document from the meeting released on
Tuesday that has attracted the most attention, not only for the speed with
which it came out but also for the fact it appeared more direct. Sadly, I have
yet to see a good reason as to why they followed up in this manner.
It is good that they have started to ease the one child policy.
Urban Chinese of relatively modest means can afford the fines associated with
having more than one child, but the brutal enforcement of this policy in rural
communities and especially its warping of the gender ratio is a staple of
Western tabloid newspapers and is a serious cause for concern for demographers.
It has now been confirmed that China’s workforce is shrining and the population
is starting to age. As policies go, I suspect this will be one of the easiest
to implement quickly.
Improved property rights for farmers, even those who move
to the cities, and improved residency rights for those who move to smaller
cities sounds very encouraging, but again enforcement is going to be the key.
Officials in these areas make good money by ignoring even the existing rules,
whilst the calls for an extended phase-in suggest implementation wont be easy.
I was certainly happy to see talk of State owned Enterprises
handing over 30% of their profits by 2020. Unfortunately, as we have seen with
the likes of Gazprom in Russia, a lot of SOEs will simply hide profits by
ramping up the capex spending. I do not doubt that we will see many of these
companies opening lavish offices in London or New York. China is already losing
huge amounts through capital flight and the slow phase in might actually
encourage more of this in the short and medium term. Needless to say, I wont be
holding my breath until I actually see some real change take place.
A move to more market based price setting makes sense, and
if it is allowed to curb some of the SOEs at the same time, so much the better.
For me, I think it was important that they didn’t promise
too much. Between the two communiqués there was sufficient for a determined
Government to focus on without over promising, and enough to be ambitious if
they can implement it.
Over all, if they can implement enough of these measures to
reduce official corruption and its corrosive effects, that has to be a good
thing.
If…
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