Chairman Mao Is Rolling In His Grave As China Puts Markets Front And Centre

The 3rd Plenum of the Chinese communist party has upgraded the role of markets from “basic” to “decisive”.

This is an important step for Australia and for Australian growth, as a freeing up of the state-run shackles in the Chinese economy will give it more stability over the long run. And so with it, more stable Australian growth.

In a short note to clients overnight, Westpac’s senior international economist, Huw McKay, said that the move from basic to decisive:

implies that administrative streamlining, interest and exchange rate deregulation, resource pricing and competition policy will all feature in the detailed document once it emerges. We have noted many times that China’s present unbalanced economic structure is symptomatic of distorted markets for the factors of production, and that reducing these distortions (price and non-price) would go a long way towards ensuring the sustainability of the country’s long run growth path. A “central leading team” will be established to steer the “deepening of reform”. Clearly a great deal of political capital is being invested in the framework to be enunciated at the Plenum, which gives us some confidence that there is genuine resolve among the leadership to move forward.

While full details are yet to be released on the face of it this is unequivocally good news for the Chinese economy and for Australia’s interactions with China. Chairman Mao would be rolling in his grave.

Glenn Stevens and the RBA will likely also be cheering, because freeing up trade in the Chinese currency, the RMB, will lessen the need for the Aussie dollar to be a China proxy.

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