Reading the tea leaves on Chinese economic reform

HONG KONG - Constitutional amendments proposed by China’s Central Committee do not mention economic reform directly, but the indirect impact of amendments proposed should be taken into account, no matter how difficult it may be to draw clear-cut conclusions, Nataxis says in a comment on current changes in China.

China’s structural issues, led by aging and the sharp reduction of the return on investment, have made economic reform more urgent than ever, Natixis says.

“Aware of this, only a few months ago, at Davos, China’s new economic mastermind, Liu He, offered a very rosy picture of the extent of economic reform we should be expecting from China in 2018.

“On that positive tone, China watchers have been looking for signals of economic reform at this week’s highly relevant Central Committee meeting.”

Natixis says the key theme of the Constitutional amendments seems to be further power consolidation.

“This is not only reflected in the lifting of Presidential term limits, but also in a more ambitious vision of China’s role in the world as well as a more centralised model of the State - both thanks to a more powerful oversight body (supervisory commissions) as well as more limited policy space for local governments.

“Whether a more centralised model will push reform forward is clearly difficult to tell.” Natixis says -

• The impact of the lift of the presidential term limits cannot yet be assessed as it depends on President Xi’s ultimate will to carry out the reform;

• A bolder international role for China has now been sealed in the Constitution but with “Chinese characteristics”.

(A clear preference for soft power and pragmatic co-operation so that China can continue to open up should be read more in terms of China’s outbound interests rather than inbound opening up as part of economic reform, Natixis says.)

• Supervisory commissions, now listed as a new part of State organs, give President Xi a much tighter grip on the country’s developments.

• A new clause that grants Constitutional status to local laws and regulations puts boundaries on local governments’ law-making, which effectively helps centralize power even further.

www.natixis.com   (ATI).