China concluded its Third Plenum, a key economic policy-setting meeting, but the initial reaction to its priorities has been lacklustre.
The Hang Seng Index was down more than 2% Friday morning, while the Shanghai Composite Index slid 0.7% before bouncing back a bit. Investors complained about a lack of implementation details in Thursday’s communique from the Third Plenum meeting, which in years past has led to important reforms such as the opening of the Chinese economy in 1978.
“What investors hope to see are detailed measures,” said Shen Meng, a Beijing-based managing director for boutique investment bank Chanson & Co. “But the entire communique is just repeating political slogans and concepts unveiled since the 18th National Congress [in 2012], and lacks concrete measures to be carried out.”
Third Plenum meetings usually concentrate on China’s development priorities while other plenum meetings are convened to elect party leadership and discuss things like ideology. The Third Plenum is held twice a decade.
The meeting, which ran from July 15 to 18 after months of unexplained delays, vowed to promote “high-quality development,” a term usually associated with manufacturing and advanced technology. But in the plenum, the top leadership also stressed the importance of national security and said it would step up ideology and propaganda work, according to a policy communique published by the official Xinhua News Agency.
Investors were hoping for concrete measures to improve the business environment, support for private enterprises and ways of boosting people’s incomes, said Shen. Meantime, the communique didn’t elaborated on how China will boost weak domestic demand and arrest a prolonged slump in the real estate sector.
Some analysts, however, saw positive signals. The communique is expected to be followed by more policy announcements in coming days, potentially offering investors clues on how the leadership plans to support the economy, which only expanded 4.7% in the second quarter in part due to weak demand and consumption, missing expectations.
Feng Chucheng, founding partner of Beijing-based research firm Hutong Research, noticed that the communique didn’t mention the so-called common prosperity drive. Unveiled years ago, that political slogan, which roughly means a redistribution of wealth, has led to a crackdown on excess spending and monopolistic practices in industries such as technology and private tutoring.
Feng also pointed out that officials haven’t specifically talked about reforming consumption taxes. Weeks before the meeting, some analysts were predicting that China would broaden the scope of consumption taxes to help local authorities boost government income. A prolonged property downturn has shrunk its land sale revenues.
But that wasn’t part of the communique, possibly because it would spook the public. “Right now consumption tax is only collected in very few sectors,” he said. “Explicitly calling out consumption tax reform will hurt consumer confidence.”
