The Third Plenum of a new Chinese Leadership ‘s mandate is the one at which the government’s economic and political agenda is normally presented. The plenum took place in mid-November and for this month’s report, we present the highlights.
1. Improving the market system
China will deepen its economic reform to ensure that the market plays a decisive role in allocating resources. The country will work to improve the modern market system, macro-regulatory system and an open economy.
2. Team in charge of reform
The Party is to set up a central leading team for “comprehensively deepening reform.” It will be in charge of designing reform on an overall basis, arranging and coordinating reform, pushing forward reform as a whole, and supervising the implementation of reform.
3. Diverse forms of ownership
China is to promote an economy with diverse forms of ownership. Development in the non-public sector will be encouraged.
4. Protection for environment
The Party has vowed to establish a sound system to protect the environment.
5. Better budget management
A financial system that supports the initiative of both central and local authorities should be set up, the Party said. China needs to improve its budget management and taxations systems in a bid to make responsibilities of government agencies match what they spend.
6. Expanding free trade zones
China is to relax investment restrictions and accelerate construction of free trade zones. Such zones will be expanded in inland and border areas. New policies will apply to both domestic and international ventures, with the strategies of “bringing in” and “going global” combined to adapt to globalization.
7. More rights for farmers
A new integrated system of urban-rural relations will allow people living outside cities equal participation in modernization and better property rights, the Party said. New agribusiness systems will be formed and more property rights should be given to farmers.
8. Reforming judicial system
China is to reform its judicial system to better protect the rights and interests of the people.
Some analysis of the above agenda
The key outcome appears to be increased central control in the hands of the Party’s top leaders in order to make way for necessary economic reforms. This will take place through the introduction of two new institutions that have the potential to allow the Xi administration to press forward with a program of market reforms while keeping a tight political grip to break through considerable resistance from entrenched bureaucracies and powerful state-owned business monopolies.
The Plenum’s true significance will become clearer in the coming months and years when we will discover whether or not Xi has the political capital necessary to see reforms through. The signs from this meeting and the run-up to it suggest that he does.
The Boston Consulting Group believes that the current dip in China’s growth will not endure and that, under Xi’s leadership, China’s economy is destined to continue growing at a rapid clip. BCG is confident that the reforms tabled in the Plenum will contribute greatly to China’s growth between now and 2020.
Source: APCO Worldwide, the Boston Consulting Group
Optimists in China think that property prices can keep going up forever. They point out that the country is undergoing the largest urbanization in history. The throngs of migrants from the countryside all need homes, the argument runs. China’s swelling middle classes, many of whom live in shoddy 1980s housing, are also eagerly moving to fancier apartments. The result has been a spectacular property boom over the past decade.
At first glance, it does seem that this belief might be valid. During the first three quarters of this year residential sales shot up by 35% versus the same period a year ago. Prices for new homes rose year-on-year in September in 69 of the 70 biggest cities. In Shanghai, Shenzhen and Beijing prices jumped by more than 20%; in slightly smaller cities, such as Nanjing and Xiamen, they rose by around 15%.
However, as we have mentioned in previous reports, despite these signs of health, even some of China’s biggest property moguls appear to be growing uneasy. Wang Shi, the chairman of China Vanke, the country’s largest residential-property firm by volume, has called the market a bubble. Wang Jianlin, the country’s richest man and the chairman of Dalian Wanda, a property giant turned entertainment firm, acknowledges that parts of the country may be experiencing a property bubble, though he thinks it “controllable”. Li Ka-Shing, a Hong Kong tycoon who has long been bullish on China, has started to sell his mainland holdings.
Shanghai and Shenzhen recently followed Beijing’s lead by requiring that buyers of second homes put up 70% of the purchase price as a deposit. In Beijing, the sale of a second home incurs a 20% capital-gains tax. (This is supposedly a nationwide policy, but is not always enforced in other cities.) Couples with two homes are reportedly divorcing to avoid the tax, since once officially single they can each own a primary residence, and thus sell either one without penalty.
As it is, the stock of new housing is soaring. GaveKal, a consultancy, calculates that after a decade of undersupply, China’s housing market is now shifting to “structural oversupply”. Its experts point out that housing completions rose to 1.1 billion square metres last year, nearly double the figure seen before 2008.
Another concern arises from the property developers themselves. They have been taking on massive quantities of debt. Analysts at Bernstein think the industry is at its most indebted for a decade. That makes it “highly vulnerable” to a downturn. If the economy hits a rough patch and sales slow, the most desperate could start a vicious cycle of price cuts.
Then there is the question of where China’s property magnates choose to put their money. Hardly a week goes by without an overseas investment or trophy acquisition by a big Chinese developer. Dalian Wanda is diversifying both by industry (its boss wants to be a movie mogul and is building what he claims will be the world’s biggest film studio in the Chinese port city of Qingdao) and geography (it is building a hotel complex on the South Bank of the River Thames in London).
After decades as an entirely domestic firm, Vanke now has developments in Singapore, Hong Kong and America; Mr. Wang confides that Britain will be next. He says he wants a fifth of his firm’s investments to be outside China soon. Fosun International, a diversified Chinese conglomerate with big property holdings, last month acquired One Chase Manhattan Plaza, a grand building near Wall Street in New York. Zhang Xin, one of the co-founders of SOHO China, another property giant, bought a stake in New York’s GM building earlier this year; this month she reportedly outbid Brad Pitt and Leonardo di Caprio to secure a $26m townhouse on the Upper East Side in Manhattan.
Source: various Chinese journals and analysts
BC softwood lumber export volume to China as of the end of September 2013 was 5.77 million cubic meters as compared to 5.46 million cubic meters over the same period in 2012. BC softwood lumber export value for this period was $1.026 billion, a 35% increase over this period in 2012.
(click graph to enlarge)