China: Nov 9-12 Party Plenum and Our Expectation of Reforms
Comment of the Day

October 31 2013

Commentary by Eoin Treacy

China: Nov 9-12 Party Plenum and Our Expectation of Reforms

Thanks to a subscriber for this note from Deutsche Bank containing their estimation of what might be expected from the upcoming plenary session of China’s parliament. The full note is posted in the Subscriber's Area but here is a section
Deregulation: We expect China to reduce entry barriers (investment restrictions for private investors) by 90% in the medium term. The sectors to be further opened to private investors will likely include oil and gas, railway, subway, telco, banking, insurance, medical services, education, and culture. Take oil and gas as an example, private investors will likely be allowed to engage in oil and gas exploration, trading (imports and exports), and pipeline operations. The implication will likely be a reduction of the market share of major oil and telc SOEs, but it will mean much greater efficiency and economic growth potential due to faster private sector development.

2) Opening up: We expect China to significantly increase it openness by granting foreign investors market access to most services industries. The main sectors to be open to foreign investments (e.g., via lifting the foreign ownership limits) will likely include banking, insurance, telecom, education, health care, culture and entertainment, travel services, delivery services, legal and other professional services. China may also show its increased willingness to join negotiations of high standard FTAs such as TPP. Increased foreign competition may be initially negative for some large SOEs, but the medium-term implication is to incentivize domestic reforms and improve productivity via competition.

Eoin Treacy's view Subscribers may be interested in my comments on this subject posted in Comment of the Day on Tuesday.

The above report contains an ambitious list of potential reforms. The control of state owned enterprises and liberalisation of foreign participation in the banking sector are possibly the most contentious from the perspective of entrenched party self-interest. Movement on these fronts could be viewed as major steps on improving governance should reflect positively on the stock market.

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