‘Sig­nif­i­cant move­ment’ is near­ing in re­form

China Daily (Hong Kong) - - BUSINESS COMPANIES - By AMY HE in New York amyhe@chi­nadai­lyusa.com

China watch­ers should ex­pect “sig­nif­i­cant move­ment” from the gov­ern­ment in the next six months as the coun­try be­gins im­ple­ment­ing planned re­forms de­tailed in the Third Plenum doc­u­ment, an Amer­i­can ex­pert has said.

Barry Naughton, eco­nom­ics pro­fes­sor at the Univer­sity of Cal­i­for­nia San Diego, in a keynote ad­dress at a New York Univer­sity Center on US-China Re­la­tions con­fer­ence on the Chi­nese cap­i­tal mar­kets, said he an­tic­i­pates much more gov­ern­ment ac­tion in the com­ing year.

He said the move­ments were sig­naled when the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion an­nounced ear­lier this month that ini­tial pub­lic of­fer­ings would re­sume as early as next month.

Share of­fer­ings in China have been sus­pended for more than a year and the an­nounce­ment, Naughton said on Fri­day, is in line with the call for mar­ket forces to play a “de­ci­sive role” in the econ­omy made at the Third Ple­nary Ses­sion of the 18th Cen­tral Com­mit­tee of the Com­mu­nist Party of China in mid-Novem­ber.

Naughton said that the re­sults of the Third Plenum were a “suc­cess”, de­spite any skep­ti­cism China watch­ers may have had lead­ing up to the meet­ing of China’s top lead­ers.

“What­ever your be­liefs are about how fea­si­ble the eco­nomic re­form is, the like­li­hood of se­ri­ous eco­nomic re­form sub­stan­tially in­creased af­ter the Third Plenum,” Naughton said. “Even if you’re a deep skep­tic, you have to ac­knowl­edge that there’s a lit­tle bit less grounds for skep­ti­cism. If you’re a strong op­ti­mist, then your op­ti­mism has been con­firmed.”

The de­tailed Third Plenum doc­u­ment was a “vi­sion state­ment plus a to-do list”, he said, rep­re­sent­ing a clear move­ment to­ward a very dif­fer­ent, re­vi­tal­ized pol­icy for State own­er­ship.

Naughton noted that the doc­u­ment re­vealed that the gov­ern­ment was headed to­ward a mode of gov­ern­ing that re­lied less on ex­ces­sive gov­ern­ment reg­u­la­tion.

“If there’s any­thing in the doc­u­ment that’s strong, it’s the idea that this type of pre­sump­tion — that gov­ern­ment ap­proval is nec­es­sary — has to be re­versed,” he said.

Au­die Wong, pres­i­dent of Amway China and also vice-chair­man of the China As­so­ci­a­tion of En­ter­prises with For­eign In­vest­ment, also hailed the move to give greater play to the role of mar­ket forces in re­source al­lo­ca­tion.

“It’s good news for both do­mes­tic and for­eign com­pa­nies in China,” he said.

Wong said he be­lieves the Third Plenum will help cre­ate a bet­ter in­vest­ment en­vi­ron­ment and more busi­ness op­por­tu­ni­ties for all com­pa­nies in China.

While the list of planned re­forms is am­bi­tious, the big num­ber of to­dos might slow down the process of re­form, Naughton said. “If you look at Xi Jin­ping, you can’t help but feel that he has an aw­fully full agenda,” he said.

“There is a dan­ger that the process will get bogged down. So much has been laid out in this doc­u­ment, there’s a dan­ger that there won’t be large enough break­throughs in any par­tic­u­lar area,” Naughton cau­tioned.

Another ma­jor risk is China’s po­ten­tially pre­car­i­ous fi­nan­cial sys­tem, Naughton said, given some signs of trou­ble in June dur­ing a credit crunch when in­ter­est rates spiked.

“There are lots of trans­ac­tions tak­ing place out­side of the stan­dard bank credit sys­tem,” he said. “The ba­sic cause...is that so much bank credit is tied up in non­per­form­ing lo­cal gov­ern­ment-spon­sored in­vest­ment ve­hi­cles.

“This does cre­ate a very sub­stan­tial mea­sure of risk, be­cause the sys­tem is just not well-adapted to deal­ing with sit­u­a­tions where the liq­uid­ity of th­ese dif­fer­ent fi­nan­cial in­stru­ments is thrown into ques­tion.”

Naughton sug­gested the gov­ern­ment needs to set up a na­tional wealth task force, one that can be­gin the liq­ui­da­tion of the “worst of th­ese lo­cal gov­ern­ment fi­nan­cial ve­hi­cles”, work­ing through bond re­fi­nanc­ing and de­faults in case any­thing un­ex­pected hap­pens in the fi­nan­cial mar­ket.

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