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Grace Ng

The Straits Times

Publication Date : 12-12-2012

China's new Communist Party leader Xi Jinping's trip to Shenzhen, a prosperous economic hub that has stood as a 30-year symbol of China's opening-up push, has raised hopes that new and accelerated reforms may be on the way.

The new leader, who had been seen previously by some as a conservative who might favour a gradualist approach, sent ripples with his bold call for change.

Not only was China to continue unswervingly on the path of reform, it was also to "have new kai tuo (opening up)", he told officials in Shenzhen, after laying a wreath at the foot of late reformist leader Deng Xiaoping's statue.

Just as Deng had reignited China's reform push - which had come under fire from opponents - during his famous 1992 "Southern Tour", Xi is galvanising the country to break new ground.

"Xi wants to signal he is the heir to Deng," said Professor Willy Lam, a Hong Kong-based Chinese politics expert. He is showing "he will proceed with the long-delayed restructuring of the economy".

While some analysts wonder if Xi's gestures are merely symbolic, others say he knows the urgency for change.

"China is at a significant point in history where its economy needs to accelerate its shift to a new model to maintain growth," Shenzhen University politics professor Huang Weiping said.

And while major reform proposals may be unveiled only after Xi takes office as president in March, analysts think his Shenzhen visit may kick-start a bigger role for the free market in China's state-led capitalist model.

For one thing, he is likely to support more "market elements, including private enterprises" in the economy, noted Lam.

Xi took time to meet private enterprises in Guangdong and Shenzhen during his trip. He "listened attentively and took notes" as companies like tech firm Yanxiang Group and appliances maker Midea shared suggestions on greater support for small and medium enterprises, state agency Xinhua said on Monday.

This has sparked talk that measures will be launched to make good on plans, announced in June, to open up state-monopolised industries such as oil and electricity to private investment.

Entrepreneurs could also get easier access to loans. Many had been starved for credit in the past, or resorted to shadow banking channels, as China's giant state-linked banks have traditionally focused on giving cheap credit to state-owned enterprises.

"One of the first reforms to be sped up may be to make state banks' activities more market-oriented," said HSBC economist Ma Xiaoping. Other financial reforms may be accelerated too, going by Xi's visit to special economic zones in Shenzhen and the Qianhai testbed for internationalising the yuan.

It raised expectations that China's tightly controlled interest rates, currency, securities markets and state-dominated lending sector could be opened up more swiftly than had been expected before Xi was named general secretary of the party on November 15.

HSBC analysts had already forecast "Big Bang" reforms in a Nov 6 report. "Interest rates will be liberalised, the bond market will double in size and the yuan (currency) will become convertible within five years."

But now that Xi has made clear his stance, the timetable for such reforms could well be brought forward, said Ma.

His Shenzhen trip also removes uncertainty over how the central bank, which spearheads such reforms, will operate after the retirement - expected soon - of current chief Zhou Xiaochuan.

"In the past, there were some worries about whether the new central bank governor would be from the conservative faction," said Ma. "But with the top leader already setting the direction for new reforms, this is no longer a concern."

Still, observers caution Xi will face opposition to his reform agenda. "The real challenge is how to overcome resistance from vested interests like state-owned enterprises and local governments," said Hong Kong-based observer Joseph Cheng.

Prof Huang added: "This is still a honeymoon period... As for whether there will be difficulties (in reforms) later, we will have to wait and see."