Deng Xiaoping, in his famous 1992 southern tour, called for greater opening and scope of reform. Reform was aimed at smoothing State Owned Entity operation and alleviating a rising debt burden. Before 1992 not a single SOE was privatized. The Fifteenth Party Congress in 1997 announced the next big step, “grasping the big and letting go of the small.” Large SOEs were to be restructured and small SOEs, which the State Development and Planning Commission (1998) estimated to be 18 percent of state assets, were to be privatized. Clear signs that the government wanted to move away from the most competitive sectors of the economy were met with straightforward sales and mergers. This transition requires attention, and it’s implementation shouldn’t be taken lightly. Yingyi Qian (1999) commented, “It is quite remarkable for China to overcome ideological and political opposition to embrace the market system and private ownership without a political revolution.”
The Third Plenum of the 18th Party Congress issued equally great ideology. Published in January 2014, ‘the decision’ document gave reform ideology and a timetable. The documents given timetable of 2020 for policy implementation is far from legally binding, however anything published by the CCP that details reform headed by Xi Jinping is important to understand. There are two key economic points that give context to this blog:
1.) Markets are to play a decisive role in resource allocation. The language of ‘settling’ the relationship is of the utmost importance.
2.) Interest rate and capital market liberalization
It’s all about perspective
As news of China’s economic slowdown continues to grow in standard media, I feel it is important to provide high quality information about how policy implementation looks. This blog hopes to connect large macro-economic Chinese ideology to micro economic realities.
On November 26th the FT quoted Goldman Sachs as estimating China had spent $236 billion in support of the stock market, signaling a divergence from the market driven resource allocation as previously outlined. There is an obvious need to look at ideology versus implementation as the Xi administration enacts policy in such a different way from his predecessors as highlighted at the beginning of this post. This blog will give a bottom-up perspective on China, particularly Chinese investment vehicles.
I look forward to regular posts and providing the highest quality content I can. Thank you for reading.