China 'to focus on reform, openness'

China 'to focus on reform, openness'

CHINA will consider easing restrictions on interest rates and currency conversion as part of a highly-anticipated raft of market reforms that could be unveiled at a key Communist Party meeting this week.

Observers say Beijing's focus at the summit will allow for domestic consumption to power growth, shifting the country's economy away from an export- and investment-led model that is losing steam after three decades of rapid-fire growth.

Unlike more unwieldy issues such as reforming the household registration, or hukou, system, the anticipated financial overhaul has reached a point - with projects like the Shanghai free trade zone (FTZ) already launched - where there is likely to be a road map, they add.

"The main theme (of the summit), if without surprise, is to deepen economic reform and openness," Mr Zhu Haibin, chief China economist at JPMorgan Chase said.

"The aim of financial reform is to remove price distortion in the financial market, such as in interest and exchange rates, and to improve the efficiency of capital allocation within the country and across the border."

Just how to do this will be discussed during the four-day meeting - officially called the third plenary session of the Communist Party Central Committee, or the Third Plenum for short - beginning this Saturday.

Economists say Beijing will likely tackle areas such as liberalising bank deposits and speeding up the development of capital markets. The exact timeline for implementation, however, remain fuzzy.

Bank of America Merrill Lynch China economist Ting Lu said Beijing might try to tackle the debt racked up by local governments, which poses a risk to the stability of the nation's financial system.

This could see Beijing replacing the short-term bank and trust loans of local governments with longer-duration bonds.

These short-term loans, with higher funding costs, have increased loan servicing fees, accelerating the risk in China's debt accumulation.

He expects Beijing to gradually loosen restrictions and eventually allow local governments to issue bonds.

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