An emphasis on stability

The statement mentions several areas of economic reform, without including a lot of specifics. These areas, and the language used to discuss them, are largely similar to that in earlier policy documents, for instance the statement after last year's CEWC. But there are changes.

There is more emphasis than before on the need to "resolve the overcapacity problem".

The statement suggests the government will continue to stimulate domestic demand. However, as in the March 2013 work report of the government to the National People's Congress, there is little emphasis on the need or plan to rebalance the pattern of growth towards more consumption and services, away from investment and industry. While the statement noted that consumption has a "basic role", it added that investment has a "key" role.

Relatedly, there was no mention anymore of urbanization and its role in driving domestic demand and consumption. This featured in last year's statement after the CEWC, but it seems to have been de-emphasized recently.

In our view, significant financial and monetary reform is likely to take place in 2014, as indicated by the commitment to "improve and optimize the financing and credit structure", "increase the proportion of direct financing" and "promote interest rate liberalization and the exchange rate formation mechanism reform".

We think the six "key tasks" for 2014 point to areas where policy measures and reforms are likely to take place in 2014:

First, ensure food security.

Second, adjust industrial structure, which is about "resolving the overcapacity problem", "vigorously developing strategic emerging industries", "accelerating the development of various types of services", "promoting upgrading of traditional industries, "creating an environment where enterprises are (doing the) innovation", and "strengthening intellectual property protection".

Third, focus on debt risk prevention, which is about controlling and resolving local government debt risk and lays out the need to "impose strict standards for the sources (of debt)", "categorize local government debt in budget management", and "standardize the government borrowing process". The statement is explicit about the division of responsibility: "Provincial and municipal governments should take responsibility for the local government debt in their regions".

Fourth, actively promote coordinated regional development.

Fifth, protect and improve the people's livelihood, which calls for effort and policies to "solve the housing problem", "increase construction and supply of low-rent housing and public rental housing".

Sixth, continuously improve the level of openness (of the economy): "maintain the traditional export advantage", "create new comparative and competitive advantages", "expand equipment and technical imports which are good for adjusting the domestic growth structure", "accelerate negotiations for free trade agreements and investment", "build a stable, transparent and equal investment environment and protect the investors' legitimate rights and interests".

Urbanization did not feature much in the CEWC statement. It was the subject of a separate high level conference. The statement released after that conference on Saturday called for "steady", "active" and "human-focused" urbanization. As did the statement after the Third Plenum in November, it called for partially relaxing the hukou system (or household registration) but did not elaborate on the needed overhaul of the fiscal system.

Next year is the first year after the Third Plenary Session of 18th Communist Party of China Central Committee that addressed comprehensive reforms. How much progress can be made in achieving the six key tasks and making headway with the broader reform plans outlined in November will show the Party's resolve on reforms.

Louis Kuijs and Tiffany Qiu are economists with The Royal Bank of Scotland.

(China Daily 12/16/2013 page9)

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