China reveals far-reaching Third Plenum reform details

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Well, some more headlines for the moment anyway but it’s more detail than we’ve had so far

They plan to:

  •  greatly reduce govt intervention in resource allocation
  •  improve property rights protection system
  • loosen family planning restrictions
  • transfer some state assets to national social security fund
  • raise dividends paid by SOES to 30% by 2020
  • abolish labour camp system
  • let local govts broaden financing channels
  • let local govts issue bonds
  • reduce capital punishment ” step by step”
  • scrap residence restrictions in small cities
  • lift restrictions on residence registration in orderly manner in mid-size cities
  • integrate urban and rural social security systems
  • push forward price reforms in resource sectors
  • accelerate capital account convertibility process
  • speed up interest rate reform
  • establish deposit insurance system
  • expand consumption tax to cover polluting products
  • speed up property tax reforms
  • quicken resource tax reform
  • push forward environmental tax
  • maintain balanced structure between local and central govt revenues
  • collective owned land to have same rights status as state land
  • encourage overseas investment by individuals and companies
  • remove barriers on private firms entering some specific sectors
  • encourage private firms to take part in SOE reform
  • standardize system of managing local and central govt debt
  • set up debt risk alert mechanism
  • establish exchange market for property rights transfers
  • select more cities to develop free trade zones

Plenty to consider here.. the reforms are far reaching, as they had previously indicated they would be, but we shall need to see the final detail, and they will need to be delivered still of course.

Chinese leaders have promised “decisive” results by 2020

I’ve highlighted some key headlines but they all have a significance in the bigger picture

Markets will be pleased to see this further release though for sure

Author: Mike Paterson

Mike Paterson has more than 30 years of experience trading FX including key market-making roles as a senior spot trader with UBS and Credit Suisse. He was also head of FX at the State Bank of Victoria in London. With sizeable daily trading volumes Mike carved out a career combining professional integrity with a cynical grasp of seizing market opportunity. Since leaving the City, Mike has been working as an independent consultant and trading for himself, along with presenting seminars and writing for a number of publications. Mike now lives in Kent but remains a passionate sponsor of Southend United FC.


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Mike Paterson


  1. Thank you Mike for the details.
    These measures might have some positive ipacts on Chinese stock markets. The averarage P/Es for Chinese stocks are only 10 or below comparing to 17-18 for US stocks. Chinese bank shares’ P/Es are even lower at around only 7-8. One of the reasons was because of fear of excessive local govt debts. So allowing local govt to broden financing channels and issue bonds would alleviate worries on Chinese bank shares. These measures might help the Chinese and Hong Kong stocks markets to catch up.
    Some selected sectors might also be benefited by the new measures.Ecouraging more overseas investments are good signs of opening investment markets further.
    To speed up the capital account convertibility signaled that they want to speed up RMB into the internaional markets.

  2. It is the major global financial event besides the appointing the Fed Chairwoman.

    China should concentrate on corruption (started), pollutions (water and air), production safety and quality (esp. food), regulations (all kinds including organization similar to our SEC)…

    They should learn from the West and avoid the mistakes of the West (such as overspending to buy votes). Learn to settle territorial disputes without using force. Be a good global citizen.

    They’ve fixed the basic human rights (food and shelter). Now they should improve the other human rights such as freedom. It is far better than 15 years ago but is still not up to par with us. To move to the next stage of a developed country, they should protect intelligence properties at least starting in Tier I cities.

    There are many important items not included in the reform. Taking out the restriction of selling farm land is a surprise to me.

    They have good track records on their previous reforms starting from Deng and most items in their five-year plans. Even with many problems, the centralized government is quite effective. It is easy to have large scale project such as high speed train. The problem when the decisions are passed to the local governments, they usually are changed or not followed 100% according to the benefits of the local governments.

    No one will give you a medal for improving or maintaining roads and dams, but building more roads and dams. They need to calculate the returns of major projects besides providing jobs to relieve social unrest.

    It is from my book Debunk the Myths in Investing (amazon).


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