Third Plenum Communique creates hope, fosters disappointment in market

November 13
9:59 AM 2013

After months of hype and build up, China had announced its sweeping reform agenda in vague terms. As a result, the immediate reaction of investors to the governent's plan of action was a gamut of possibilities.

Chinese President Xi Jinping had issued the statement late Tuesday from the Third Plenum of the Chinese Communist Party. While many economists and analysts were hopeful, others were disappointed with the content of the communique. Most agreed though that they would need to wait for a final verdict for all the full details to emerge. 

The following are some of the takeaways from what may, or may not be the beginning of the biggest reform change in China since the time of the late Deng Xiaoping in the 1990s.

The first impression taken from the Third Plenum communique was the dearth of information it had offered especially on economic reforms. While there are very few policy announcements, such as the creation of a National Security Committee and improvement of court procedures and law enforcement programs, there was little or no detail provided on the future reforms to be undertaken.

There is an expectation of a "decision report," of which would provide more details resulting from the meeting. This is often released a week after the said conference and followed thereafter by concrete policy undertakings from the various government offices.

On the other end of the spectrum was the lack of an overall vision captured in the communique. A cursory reading of the statement offered only a list of vague general promises that were put together into a policy statement.

The market clearly had been waiting for the content of the communique. Credit Suisse AG issued a statement on the communique, saying, "This package is probably the most comprehensive and ambitious reform architecture in the history of the People's Republic. The fate of Xi's reform is likely to be determined by policy design and policy execution."

Societe Generale also added, "We maintain our view that the most likely and imminent measures will be interest-rate liberalization, more experiments in the Shanghai Free-Trade Zone and relaxation of the one-child policy. In order to sustain business confidence, policy makers also need to deliver detailed execution plans on the pension reform, the [state-owned enterprise] reform, and the fiscal reform in the next few months."

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