Photo: AP Photo/Alexander F. Yuan
After China’s leadership handover in November, media outlets everywhere said that those expecting big reforms out of China would be disappointed. The argument was that Jiang Zemin and his conservative ‘princeling’ faction won the battle in the make-up of the Politburo Standing Committee and that Hu Jintao’s allies that were considered reformers were left off the list.
At the time, some pointed out that Li Keqiang was a reformer. Xi Jinping’s recent visit to Shenzhen that followed in the footsteps of Deng Xiaoping’s visit to Shenzhen in 1992, was also seen as symbolic of market reforms.
In a new note, Societe Generale’s Wei Yao writes that it looks increasingly likely that Xi will reform China since the global economic environment is pressuring the economy, domestic imbalances are greater than before, and because of the rapidly ageing population.
Starting at the 18th party congress and in the time since, both Xi and Li have often emphasised the importance of reforms, but many question whether they will actual act on it. Yao however points out the number of reforms that have already been enacted and writes: “Our observation is that the pace of reforms, especially in terms of opening up the capital account, has already accelerated since the beginning of 2012 and gained more momentum after the Party Congress in November.”
Here are some reforms announced since the 18th Party Congress, many are concentrated in reforming capital controls:
- November 14th [Capital account reform] – The Renminbi Qualified Foreign Institutional Investor scheme (RQFII) – which allows qualified investors to channel offshore yuan into mainland stock and bonds – was expanded to 270 billion yuan, from 70 billion yuan. More recent reports suggest that China could relax a rule that requires RQFII to keep most of their funds in bonds.
- November 15th [Capital account reform] – Shanghai launched the Renminbi Qualified Foreign Limited Partner Program (RQFLP) which allow offshore yuan to be invested in private equity.
- November 22nd [Capital account reform] – The State Administration of Foreign Exchange (SAFE) which regulates the foreign exchange market lifted some restrictions on foreign direct investment and overseas direct investment (ODI).
- November 28th [Land reform] – State Council approved the amended Land Management Law to raise the compensation given to rural land ownrs for any land that is exprorpriated from them.
- December 7th [Financial market reform] – Wenzhou launched an index to track private lending and borrowing costs. Read more about it here.
- December 10 [Anti-corruption reform] – Three districts in Guangdong experiment with a program that would make the details of government officials’ assets public.
- December 14th [Capital account reform] – The China Securities Regulatory Commission (CSRC) lifted the $1 billion ceiling for sovereign wealth funds and central banks investing in Chinese assets through the Qualified Foreign Institutional Investors (QFII) program. Read more about it here.
Yao writes: “We are encouraged that changes are coming faster than before, but, at the same time, we try to be realistic about two things.
First, the path of rebalancing is most likely to be bumpy rather than smooth, as SOE de-monopolisation as well as fiscal sustainability are the most important, but also the most difficult to achieve. Second, the impact of good reforms may be positive for (private) business and consumer confidence, but not entirely positive for short- term growth.”