A Top Economist Throws Cold Water On China's Huge Reform Announcements
The news has been met with relative glee, and Asian markets rallied.
But BAML's Ting Lu says that investors should curb their enthusiasm over the "decision," writing that it wasn't even that big of a surprise. While it will "arouse enthusiasm" from those craving reforms for many years - and markets will "remain bullish for a few more days" - things will cool off pretty quickly once people realize how difficult it will be to implement reform.
From the note:
We believe the current leadership did a great job in delivering such a comprehensive collection of reform plans. Given all the social, economic and political constraints, this "Decision" is perhaps the best reform package we can get at the moment if we take into account the fact that these new leaders only took office in just one year. In this regard, Chinese new leaders' efforts, strength and political skills should be highly praised and appreciated, in our view. However, some of the messages in the "Decision" may conflict with each other, some reform goals are still too vague, some reforms might be just intermediate steps towards a truly appropriate system for China, and some reforms might not be effectively carried out. It's great to see many reform ideas passed in this party plenum, but dust has not settled yet. In our view, regarding historical importance, this 3rd Plenum could be ahead of many other plenums (including some 3rd plenums) post the Cultural Revolution, but might still be behind the 3rd Plenum of the 11th CPC Central Committee in 1978 and the 3rd Plenum of the 14th Central Committee in 1993.
"We believe China's current top leaders are good and reform-minded, but centralizing power to a small team at the central level will naturally bring about the issue of power handover: what if those successors are less reform minded and less honest?" Lu asks.