Reform is to serve as stimulus to new growth

Third Plenum decision to stimulate economy's vitality, says senior adviser

Economic vitality will be stimulated after the Third Plenum of the 18th Central Committee of the Communist Party of China, with the country expected to see a relatively high growth rate until 2020, a top policy adviser says.

The ambitious economic reform decisions mapped out by the new leadership will help China "maintain an average year-on-year GDP growth of about 8 percent" in the next seven years, says Zheng Xinli, executive deputy director of the China Center for International Economic Exchanges, a government think tank.

As a member of the drafting group of the main document released after the Third Plenum, Zheng said that more than 300 detailed reform measures will be worked out in one or two months, covering economic, social, political, cultural and ecological fields.

The reforms will be a key step to ensure that China will join the high-income countries' group by 2022 and achieve a per capita GDP of $17,000 by 2030, says Zheng.

"Before 2030, we will generally stay on a phase of rapid growth," Zheng says.

Economists with a more cautious outlook predicted earlier that the growth pace of the world's second-largest economy is likely to slow down to 7 to 8 percent a year in the next decade, because labor costs will be higher than in the last 30 years.

China's GDP growth in the fourth quarter is expected to moderate to around 7.5 percent after the third quarter's rebound to 7.8 percent. Before that, growth slipped to 7.5 percent in the second quarter from 7.7 percent in the first three months, according to the National Bureau of Statistics.

Stephen Green, chief economist in China at Standard Chartered Bank Plc, says that the Third Plenum came up with "the biggest package of market economic reforms since the early 1990s, and delivered a clear sense that the leadership is fully committed to implementation".

Driven by the reform plans, the service sector is expected to be a new growth point for the country's economy. It will see rapid growth in the near future, says Zheng.

He added that manufacturing-related service businesses, in particular, will develop faster than before, including logistics, audit, legal services, and consultancy firms.

After a five-year development period, the number of employees in the service sector is likely to increase to 50 percent of the country's labor force, compared with the current 36 percent. Currently, the global average level is at 62 percent, says Zheng. "That will bring 110 million new job opportunities," he says.

And as the "demographic dividend" is gradually being cashed out, China will usher in a new era as the yuan becomes one of the world's reserve currencies, which will be a more powerful driving force for the country's economy than just relying on a low-cost labor force, says Zheng.

"The internationalization of the yuan depends on the whole reform of the financial system," he says.

The Third Plenum decision highlighted the acceleration of the interest-rate liberalization process, further opening up of the capital account, increased support for privately owned banks and greater freedom for companies to issue debt in foreign currencies and do cross-border transactions.

Chang Jian, a senior economist at Barclays Capital, says fiscal reform is expected to be a key step to address some major financial and economic risks.

But it's more important to boost "meaningful" fiscal and bank reforms, otherwise, other financial reforms run the risk of being "premature" and may lead to greater risks, Chang says.

"We think the government will try its best to meet or exceed expectations, with all areas of concern being covered and some positive surprises likely in some reform areas," she says.