20130913-大和证券-Likely_reform_agenda_at_autumn_CPC_meeting_15页_417kb

Summary of the Likely Reform Agenda at the Autumn CPC Meeting

Core Content

The upcoming Autumn Communist Party Congress (CPC) meeting is expected to unveil a comprehensive reform agenda aimed at addressing structural challenges in China's economy and promoting sustainable growth. The reforms focus on deregulation and liberalisation, financial liberalisation, rebalancing the economy, and urbanisation. These measures are intended to improve efficiency, stimulate innovation, and enhance the quality of economic growth over the medium term.

Main Views and Key Reforms

1. Financial Liberalisation

• Interest rate liberalisation is expected to be a key reform, with the removal of restrictions on deposit and lending rates.
• Exchange rate flexibility and capital-account convertibility are also likely to be discussed, allowing the Renminbi (RMB) to fluctuate more freely and enabling cross-border capital flows.
• Deposit insurance is anticipated to be introduced to reduce the risk of bank failures and to support the liberalisation of interest rates.
• Securitisation of bank loans and bond market development are expected to help alleviate capital pressures on banks and diversify financing channels.
• VAT reform has already been extended to service sectors, reducing the tax burden on companies and improving profit margins. It also changes the distribution of fiscal revenue, with more going to the central government than local authorities.

2. Free Trade and Deregulation

• Free trade is expected to promote competition and efficiency by opening up sectors dominated by state-owned enterprises (SOEs), such as finance, energy, and transportation.
• Removal of administrative barriers to private capital will allow more private firms to enter these sectors, increasing investment opportunities and boosting trade-related industries like logistics and shipping.
• China's free-trade zone initiatives, including the Shanghai Free Trade Zone, are expected to reduce government approval requirements for foreign investment and increase trade volume.

3. Economic Rebalancing

• The focus is on shifting from an investment and export-driven model to a consumer-based economy.
• Promotion of the service sector, including IT infrastructure, education, healthcare, and cultural industries, is central to this rebalancing.
• Urbanisation is another key component, with efforts to remove household registration restrictions to allow more migrant workers to access urban social services like healthcare and education.

4. Fiscal and Tax Reforms

• Fiscal system reform aims to realign revenue and expenditure between central and local governments.
• Property holding tax is expected to be expanded to more cities to curb speculative property prices and increase local government revenue.
• VAT reform is seen as a way to reduce the tax burden on service sectors and improve the efficiency of the financial system.

5. Labour and Population Policies

• The one-child policy is expected to be relaxed to address the declining working population and rising dependency ratio.
• Reform of the household registration system is anticipated to allow more migrant workers to settle in cities, thereby increasing consumption and improving labour productivity.
• Land reform is expected to make rural land usage more flexible, enabling better land allocation and providing additional income for migrant workers.

Investment Implications

• Non-bank financials (brokers, asset managers, and Internet-based financial intermediaries) are likely to benefit from financial liberalisation and the expansion of the bond market.
• Logistics, shipping, and ports will see increased activity due to free trade and deregulation.
• Internet consumer services and healthcare are expected to benefit from deregulation and increased private investment.
• Real estate could also see growth due to the increased urbanisation and the potential for new urban residents to boost property demand.

Conclusion

The reform agenda is expected to be comprehensive, covering financial, trade, fiscal, and structural areas. The reforms aim to improve economic efficiency, reduce risks, and support long-term growth by promoting competition, innovation, and consumer-driven development. The outcomes of the CPC meeting could significantly influence market confidence and investment opportunities across various sectors.