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All eyes on nuts and bolts of China's reform agenda

Publication Date : 03-03-2014


Chinese Premier Li Keqiang's first-ever government work report when he opens the annual session of China's national Parliament on Wednesday will be scrutinised for fresh details about the top leadership's much-vaunted but vague reform agenda.

State media outlets such as Xinhua news agency sought to drum up expectations by likening the push and pace of reforms in the Year of the Horse to wan ma ben teng (10,000 horses galloping).

More than 330 different reforms covering 15 areas from health care to finance will be set in motion at the National People's Congress (NPC) meetings, it said in a report last week.

A spokesman for China's top political advisory body, the Chinese People's Political Consultative Conference (CPPCC), stressed yesterday that the government will not let up on efforts to tackle key public concerns such as corruption and pollution.

The past year's campaign to improve Communist Party officials' conduct is not "one-off", while various local governments have firm resolve to tackle environmental degradation, the spokesman, Lu Xinhua, told a press conference in Beijing as smog continued to envelop the capital.

However, analysts think chances of big surprises from the premier will be low.

Li is likely to stick to the same targets as last year: GDP growth rate of 7.5 per cent, inflation level to be kept at 3.5 per cent and a neutral monetary policy.

And he will continue to highlight key reform themes like tackling China's burgeoning local government debt, encouraging greener growth and opening up sectors like energy and banking to private enterprises.

These issues had been flagged at two key Communist Party summits late last year: the Third Plenum and the Central Economic Work Conference.

So analysts will not be holding their breath until they hear the specifics of how and when new policies will be rolled out when Li sets out the 2014 economic roadmap in his work report.

"All eyes will be on whether the authorities will walk the walk of reform," said HSBC economists Qu Hongbin and Sun Junwei, noting that the action plans of more than 31 proposed reforms have already been unveiled.

"Premier Li's (press conference), which concludes the NPC, along with those of the other ministers on the sidelines of NPC should give a clearer picture of the policy focus and priorities in implementing the reform plan released after the Third Plenum," they added in a note to clients.

One key indicator of the government's reform priorities will be the official growth target.

The median growth forecast in a Bloomberg poll of analysts for this year is 7.4 per cent - a 24-year low.

But Beijing may aim for 7.5 per cent, rather than lowering the target to 7 per cent.

This would imply "that the top leaders see changing the growth engine to a low gear as a gradual process, while signalling their strong will to push forward reforms to a wider audience," said Morgan Stanley economist Helen Qiao.

"In our view, with strong political support from President Xi Jinping, common understanding on reforms will likely be strengthened during the (liang hui), which is likely to be conducive to the actual reform implementation."

The NPC session opens two days after the start of the CPPCC. Hence the term liang hui, which means two meetings.

Other analysts such as Haitong Securities researcher Jiang Chao will be looking at the government's employment goals.

"The target for new urban jobs created this year will be raised to 10 million," he predicted, up from more than nine million in 2013. This will reflect the government's emphasis on ensuring social stability even as the world's No. 2 economy decelerates, he added.

A key official index for China's vast manufacturing sector hit an eight-month low, data released last Saturday showed.

Meanwhile, new orders for Chinese goods contracted, while employment in China's largest factories hit its lowest point since the 2008 global financial crisis.

But the biggest risk this year is from a potential default in the vast shadow banking sector, which includes non-bank lenders and trusts, or in the loans held by local governments, which are saddled with 18 trillion yuan (US$2 trillion) of debt.

Beijing is expected to introduce new policies after the liang hui so that local governments can raise more funds by issuing bonds, while allowing them to run fiscal deficits to finance public projects, Bank of America Merrill Lynch analysts wrote in a note.

The top leadership could also send a strong message to local officials to stop spending their borrowed funds on white elephants or wasteful projects.

"The real problem with the local government borrowings lies not in its quantum, but in the management and surveillance of this debt," Shanghai Finance and Economics University professor Hu Yijian pointed out.

Other issues likely to be raised include the pace of interest rate liberalisation. In contrast to resolving local government debt, reforms to make interest rates and the yuan currency more market- oriented will likely move much more quickly.


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