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Caixin Insight: Xi tells Reform Pioneer City to do more reform

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Shenzhen Reform Plan

The 40th anniversary of the Shenzhen Special Economic Zone brought by far the biggest new policy of the week, with a major new reform plan and a high-profile speech from Xi.

President Xi Jinping on Wednesday urged the city of Shenzhen, a pioneer in China’s reform and opening up in the southern province of Guangdong, to take the lead in advancing the country’s reform agenda with more political courage and wisdom in the face of challenges without precedent, especially the pressures of global competition for technology and talent.

His remarks followed a plan (link in Chinese) released on Monday by the Party Central Committee and the State Council, the Comprehensive Reform Implementation Plan for Shenzhen to build a pilot socialism demonstration zone with Chinese characteristics (2020-2025) .

As noted in a set of related opinions last year, the plan takes a list-based approach in which the city can apply to the central government for permission for batch reforms, giving the city a great deal of autonomy to manage its own program, including in key areas such as factor markets (especially land) and improvement of the business environment.

The plan is expected to generate breakthroughs in these areas which could then be rolled out nationwide, especially in the current context of concentration in the Chinese domestic market.

On earth:

– the plan aims to explore and resolve issues of adjustment in planning, land supply, income distribution and historical land use issues

– Shenzhen is notoriously constrained by its land supply, which poses a series of challenges including housing shortages as well as health care and education

– approval for the conversion of agricultural land to building land (other than permanent basic agricultural land) will be given to the Shenzhen municipal government for approval

– this level of autonomy is unprecedented, even for SEZs

– with more flexible approval of building land, Shenzhen could revitalize its economy and better distribute existing land resources

Peng Peng, executive director of the Guangdong Province branch of the China Economic Reform Society and a senior researcher at the Guangzhou Academy of Social Sciences, commented:

This is really great news, but I hope that when it comes to how it works, the state can further authorize it and incorporate it into SEZ legislation, so that Shenzhen can really get a head start. , because the factors of production are very important; doing a good job could revitalize the economy as a whole.

The plan also places a strong emphasis on regional coordination, calling on Guangdong Province to actively create the conditions for Shenzhen to carry out comprehensive reform pilot projects and to give Shenzhen more economic and social management powers in the region. provincial level.

The second main focal point is the opening of the market, in particular:

– a list of special measures to be established for Shenzhen in order to ease market access, including for normally restricted areas such as energy, telecommunications, utilities, transport and education

– further relax restrictions on foreign investment in advanced technologies

-an internationally competitive talent recruitment system exploring ways to optimize the approval process for work permits and work-related residence permits for foreigners

Solid growth in trade as the global economy reopens

China’s exports rose 9.9% year-over-year in dollars to $ 239.8 billion last month, from 9.5% growth in August, marking the fastest expansion since March 2019, according to The data (link in Chinese) of the General Administration of Customs. Robust growth was supported by a lower base in 2019 caused by the US trade war, as well as rising manufacturing activity and a pickup in external demand as more economies lift restrictions on coronaviruses .

Exports were largely driven by products related to the pandemic, including medical supplies and home items. Exports of textiles (including face masks) and medical equipment rose 35% and 31% in September, respectively. It was slower than in August, but still well above average. Electrical machinery also rose in terms of its share of total export value. Strong demand from the United States and emerging markets illustrated the acceleration of the global economic recovery.

Chinese imports have increased 13.2% year-over-year in September, significantly exceeding the median growth expectation of 0.7% in a Caixin survey of economists and reversing a 2.1% drop in the previous month, marking the fastest growing high since December. In particular, raw materials and other industrial inputs were the main contributors to growth, indicating strong momentum in domestic industrial production, according to Wang Dan, chief economist of Hang Seng Bank China.

Trade graph1

Going forward, Chinese exports could continue to benefit from the resumption of global growth, albeit at a slower pace given the resurgence of new cases of Covid-19. At the same time, the pickup in imports is also expected to continue in the fourth quarter, albeit less dramatically than in September, given a slower expected acceleration in the recovery of GDP growth in the fourth quarter, according to Wang Tao, Head of Asian Economy and Chief China Economist at UBS. Investment bank.

Summary of CPI and PPI

China’s CPI rose 1.7% yoy last month, slowing 2.4% growth in August due to a high base and moderating prices for pork and vegetables.

Food prices rose 7.9% year over year in September, compared to 11.2% in August. The decline in the CPI was mainly caused by a continued decline in pork price inflation, which fell to 25.5% in September after growing 52.6% year-on-year in August. Dong Lijuan, senior statistician of NBS, said (link in Chinese) that pork price inflation eased with the resumption of pork production.

Core CPI, which excludes more volatile food and energy prices and can better reflect long-term inflation trends, was unchanged at a low 0.5% year-on-year. the other in September. The rebound in core consumer price inflation will always leave it relatively subdued and food price inflation is expected to decline further in the near term as pork supply continues to recover, economists said. of the research firm Capital Economics Ltd. Note released Thursday.

IPC 1015 TABLE

On the production side, the PPI was down 2.1% year-over-year in September, slightly larger than the 2% drop in August, due to cheap oil. However, the prices of coal, iron and cement rebounded and the prices of industrial products continued to rise, indicating that industrial demand continues to recover.

PBOC reduces foreign exchange risk reserve ratio to zero

Saturday, the Chinese central bank ad (link in Chinese) that it would lower the foreign exchange risk reserve ratio for forward foreign exchange transactions from 20% to zero, effective the following Monday. The move came after the onshore spot yuan rate ended at a 17-month high against the dollar on October 9, its biggest one-day percentage gain since 2005.

The People’s Bank of China (PBOC) initially announced the inclusion of banks’ forward sales of currencies as part of its macroprudential policy framework after the exchange rate reform of 8.11 yuan in 2015. It generally believes that the adjustments of the Reserve to currency risk ratio provide a signal to regulators attitudes.

The movement of the PBOCs could be interpreted as indicating to the market that it hopes to stabilize the currency and does not want the yuan to appreciate further. Thinking back to three similar adjustments in September 2015, September 2017 and August 2018, they helped mitigate the risk of short-term exchange rate fluctuations. But in the long term, changes in exchange rates are of course always a function of economic fundamentals.

However, this most recent adjustment might not have much of an effect, even in the short term. Analysts see it as a small technical adjustment and believe that the Chinese yuan will continue to recover despite actions taken by central banks to curb its strength. Peter Chia, senior currency strategist at United Overseas Bank, said as long as the larger macroeconomic factors weighing on the US dollar remain, it could weaken further against the yuan.

Contact analysts Li Huizi ([email protected]) and Gavin Cross ([email protected])

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