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China’s Fifth Plenum: “Shi San Wu”

Chinese leaders to chart economic course for country through 2020

Around 200 senior members of the Communist Party of China (CPC) met from October 26th 2015 through to the 29th, for its Fifth Plenary Session, colloquially referred to as the “shi san wu” or “thirteen-five”. China is undoubtedly in the midst of ushering in a new age of development, one defined by market reforms and consumer-driven growth. Notably, Beijing has been pushing for reserve currency rights and more recently abandoned its 35-year old one-child policy, among other key decisions largely viewed as steps towards modernization. Although the 13th Five-Year Plan will be launched against a backdrop of a slowing global activity and volatile equity markets, China’s economy remains one of the fastest-growing in the world, making it a major player within emerging markets and beyond. The plan is expected to tackle issues related to capital markets, social welfare and international relations.

Brief Recap of 12th Five-Year Plan

   The 12th Five-Year Plan set in motion the current “Chinese model” of growth which encouraged a shift away from the traditional investment-driven model to one that is consumption-led. It sought to leverage the demand-side of the growth equation, taking into account urbanization, rising per capita incomes, and the growing economic appetite of a new middle class.
   In 2013, the Third Plenary Session introduced additional layers of reform, covering a raft of economic changes that focused on state-owned enterprises (SOEs). At that time, Chinese leaders declared that markets must “play a decisive role in allocating resources.” The Chinese State Council also issued a set of reform guidelines for SOEs.
   In 2014, the Fourth Plenum focused more on “comprehensively advancing ruling the country according to the law” – in essence, the CPC contoured an understanding of the “rule of law” with Chinese characteristics.

Expectations from the Fifth Plenum

In the face of a slowdown in the global economy, senior Communist Party officials face the task of creating a roadmap that is a flexible and structurally sound 13th Five-Year Plan. We believe it will focus on:

   1. A more realistic growth target
We anticipate that a more “realistic” growth target will be set. Following the release of last quarter’s economic numbers, which showed a 6.9 percent growth rate, Chinese leaders will be looking to better manage expectations and ease international investors into a “new normal” of around 6.5 percent – which would still make China’s economy one of the fastest-growing in the world.

Incidentally, the farther growth slips below target, the more the government will be under pressure to stimulate the economy. A 6.5 percent target would suggest that the Communist Party leadership is serious about pursuing real and painful structural adjustments that could cost short-term growth in exchange for longer-term stability.

   2. Leadership shake-up
Many onlookers anticipate the possibility of a major leadership shake-up following the Fifth Plenum. According to local news reports, more than half of the CPC committee members selected during the 18th Communist Party National Congress in 2012 have been moved to different positions or were removed from their current jobs ahead of the 5th Plenary Session – development that is described as extremely rare.

   3. Economic Reform
The Communist Party is expected to take measures to shore up the country’s economy. More specifically, Beijing may implement reforms encouraging local governments to increase spending after a sizable contraction in expenditure earlier in 2015. The benefits would extend to China’s citizens, improving social welfare and the overall quality of life around the country, while pulling millions out of poverty.

   4. Anti-corruption campaign
It is expected that more clarity would be provided on the country’s anti-corruption campaign. Chinese media reported last week that the Wang Qishan-led Central Commission for Discipline Inspection (CCDI) would “expand its inspections into more state entities this year, with its sight set on major financial institutions including the central bank, securities regulators and state-owned banks.”

   5. Freer Markets
Beijing has taken several steps this year to see the Chinese yuan achieve reserve currency status. The International Monetary Fund is reportedly ready to include the yuan in the reserve basket of currencies, with a final decision to be made in November 2015. Subsequently, there have been murmurs of the CPC further loosening state regulation on foreign exchange rates and bank lending as well as removing barriers that prevent foreign investments in the corporate sector.

So what’s next?

   Full details of the meeting will be revealed in March 2016; in the meantime the release of a communiqué outlining some of the key takeaways will be issued following the Fifth Plenary Session, shedding light on the path the world’s second-largest economy will take through 2020.
   The Fifth Plenum’s outcomes will be revisited at the annual Central Economic Work Conference in December 2015.
   At a meeting of the National People’s Congress in March 2016, the Five-Year Plan is expected to gain the “rubber stamp of approval.”


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