31 Dec 2013
Third plenum and central economic and urbanisation work conferences: opportunities and impact
After the Third Plenary Session of the 18th CPC Central Committee (the Third Plenum) came to a close on 12 November, the Decision on Major Issues Concerning Comprehensively Deepening Reforms was announced, fully setting out the strategic directions for the work of deepening reforms. Then at the close of the Central Economic Work Conference and Central Urbanisation Work Conference on 13 December, the key points of industrial restructuring and further opening up to the outside world in the coming year were disclosed, although the detailed contents have not been announced. While the overall plan for urbanisation has yet to be revised, the central urbanisation work conference has divulged development directions such as easing restrictions on the hukou (household registration) system in medium and small cities, optimising land-use efficiency, and raising the level of urban construction.
Major tasks of economic work in 2014
According to press release, at the Central Economic Work Conference which came to a close on 13 December, the keynote of economic work in 2014 will be “pursuing progress while ensuring stability”. Efforts will be made to keep the economy growing steadily within a reasonable range and to introduce reform in every facet of social and economic development.
The major tasks in 2014 cover six areas: (1) guaranteeing national grain security, ensuring production capacity on the one hand and maintaining import at the right level on the other; (2) carrying out industrial restructuring, this includes resolving the problem of excessive production capacity, encouraging technological innovation, and breaking through the bottleneck obstructing the commercialisation of technological achievements; meanwhile, steps will be taken to develop new strategic industries and accelerate the optimisation and upgrading of traditional industries; action will also be taken to strengthen environmental and safety standards; (3) preventing and controlling debt risks, in particular the risks of local government debts; (4) promoting coordinated regional development; (5) ensuring and improving people’s livelihood; (6) raising the level of opening up to the outside world, this includes expanding imports of equipment and technology needed in restructuring, strengthening macro-economic guidance and services for enterprises “going out”, providing information on outward investment, and streamlining examination and approval procedures for outward investment.
Where reforms are concerned, the communiqué issued at the Central Economic Work Conference mentions that reforms which have clear directions and high efficiency as well as reforms which only require approval by local governments and departments may be launched at a faster pace in 2014 or the near future. Action will be taken to improve structural tax reduction policies and expand the scope of industries where indirect tax reform pilots are implemented. Efforts will be made to maintain reasonable growth of the scale of monetary credit and social financing, advance interest rate marketisation and reform of the formation mechanism for RMB exchange rate marketisation, boosting the operational efficiency of the financial sector and its ability to service the real economy.
Raising the level of urban construction
Urbanisation is an important force in driving domestic demand. At the Central Urbanisation Work Conference which came to a close on 13 December, it was clearly put forward that urbanisation must be advanced in a practical and practicable way and should not be rushed, so as to prevent some local governments from developing property projects indiscriminately. The conference also affirms that the prime task is to allow resident population who manage to work and live in urban areas to have their hukou registered in cities (i.e. granting them registered residency status). This move will expedite reform of the hukou system.
The Urbanisation Work Conference proposes the urbanisation layout of “three verticals and two horizontals”. In addition to the three large city clusters in Beijing-Tianjin-Hebei, Yangtze River Delta, and Pearl River Delta, a number of city clusters will be gradually developed in areas with the right conditions in the central and western region as well as the northeastern region to form important growth poles propelling the development of the central and western region and northeastern region.
It was also proposed at the conference that the efficiency of urban construction land-use and level of urban construction will be raised. Uncontrolled expansion of construction land will no longer be allowed and scientific planning will be introduced. Where funds are concerned, on the one hand, a sound local administration system of bonds issuance will be established while on the other, market access will be liberalised to encourage social capital to participate in the investment and operation of urban public facilities.
Positive impact on Hong Kong
Summarising the decision of the latest Third Plenum and the development directions issued by the Central Economic Work Conference and Central Urbanisation Work Conference, further reform and opening-up will generate a host of opportunities in the medium to long term:
Market access system reform. This includes looking into a management model of pre-establishment national treatment and negative list governing foreign investment. It is set to greatly simplify procedures and Hong Kong’s small and medium-sized investors in particular will stand to benefit.
The RMB will gradually achieve convertibility under the capital account. For instance, by raising the degree of RMB convertibility in cross-border capital and financial transactions, mainland enterprises may utilise cross-border loans or make outward investments with greater flexibility. This can help expand the demand for services provided by Hong Kong as an international financial centre and offshore RMB settlement centre.
Outward investment by enterprises and individuals will be further promoted, in particular, outward investment by individuals will be more liberalised. This will generate great demand for services provided by Hong Kong as an international financial centre, wealth management centre and business service platform.
Policy directions such as encouraging technological innovation, expanding technology import and improving the conditions for financing by small and medium-sized technological enterprises will bolster the demand for technology import. This will bring about a positive impact on the role played by Hong Kong as an intellectual property marketplace.
The service industry will be opened up further, including orderly liberalising the financial, education, cultural and medical service sectors, and lifting market access restrictions on foreign investors in such service sectors as nursery and old age care, construction and design, accounting and auditing, trading and logistics, as well as e-commerce. Hong Kong’s service industry will stand to benefit.
Under the reform direction whereby government functions undergo changes, the government will promote the purchase of services from outside. This will open up a government service outsourcing market to private sector service suppliers.
Where urbanisation is concerned, the level of urban construction will be raised and social capital will be encouraged to participate in investing and operating urban public facilities. This will generate more opportunities for Hong Kong’s professionals in related fields, such as urban planning, public/community services, and management.
The policy of easing one-child restrictions will directly boost the demand for baby products and toys as well as related services. The drive to increase asset-derived income of the people and raise the proportion of middle-income earners is bound to stimulate domestic demand, which will in turn benefit the development of Hong Kong brands in the domestic market.
Some possible negative impacts
The Third Plenum puts forward that prices formed by the market will be regulated by the market. This will promote price reform in such areas as water, oil, natural gas, electricity, transportation and telecommunications. During the planned economy era, China adopted the “low price, low income, low consumption” model for a long period, whereby the prices of basic commodities such as resources and energy were suppressed. It can be expected that price reform in these areas may bring about price hikes, leading to higher prices and production costs.
China will continue to adopt and improve such measures as minimum wage and wage payment protection system. In the medium term, labour cost will rise steadily, exerting persistent pressure on labour-intensive and low value-added industries.