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China's Cabinet releases blueprint for the economy
By Ma Jun |
00:32 UTC+8 June 3, 2013
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Print Edition
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THE State Council, or China's Cabinet, last month released the "Opinions on Economic Reforms in 2013," which provides the guideline on key reforms that the government will initiate or push harder this year.
These reforms are intended to enhance the potential rate and quality of economic growth, provide a level-playing field for healthier competition, and strengthen social protection for the vulnerable segment of the population. Among the 22 points mentioned in this reform agenda, we believe the following items will have meaningful implications for the real economy:
1. Abolishing and decentralizing administrative approvals, and permitting private sector investment in key sectors.
These reforms will permit and encourage private sector investment in previously restricted sectors. We expect more than 100 approval items to be abolished or decentralized in the near term.
The State Council document also highlighted that the government would open up the financial, railway, energy, and telecom sectors to private sector investment. These reforms should enhance economic growth potential, and should in particular boost demand for railway construction, oil and gas drilling, and new energy equipment.
2. Higher taxes and levies on polluting products and sectors. The reform plan stated that the government would "include products that are heavily polluting and consume natural resources excessively into the consumption tax list" and "establish the strictest environmental protection system."
In our view, these messages imply that taxes and levies on coal and pollutants generated by coal burning will likely rise. Coal consumption growth will likely slow in the coming few years. Clean energies, as a result, should replace coal at an accelerated pace.
3. Acceleration in capital account liberalization. The reform plan stated that China would establish a Qualified Domestic Institutional Investor 2 system which permits wealthier individuals to invest overseas, and facilitate qualified foreign institutions to issue yuan bonds in the onshore market.
We believe that the chance of an announcement of QDII2 in the second half of this year is high. This would allow greater fund flows from Chinese mainland to Hong Kong and other overseas markets.
Banks specializing in foreign exchange business, brokers, and the Hong Kong equity market will likely benefit from greater fund flows.
4. Developing critical illness insurance. As the first and top priority item in the paragraph on social security reform, the reform plan stated that the government would promote the provision of "critical illness insurance in urban and rural areas."
Policy makers in China now realize that the government-sponsored basic health insurance is unable to effectively cover critical illnesses, and thus commercially provided critical illness insurance will be a key solution.
Part of the premium contribution to the basic health insurance scheme will likely be re-allocated to paying premiums for critical illness insurance. Tax incentives will also likely be provided to insurance companies that provide critical illness insurance policies.
Insurance companies' premium growth will be enhanced due to faster development of critical illness insurance on government initiatives.
In addition to the above, the reform plan reiterated the need to further expand the on-going resource pricing reform and tax reform.
These reforms are intended to enhance the potential rate and quality of economic growth, provide a level-playing field for healthier competition, and strengthen social protection for the vulnerable segment of the population. Among the 22 points mentioned in this reform agenda, we believe the following items will have meaningful implications for the real economy:
1. Abolishing and decentralizing administrative approvals, and permitting private sector investment in key sectors.
These reforms will permit and encourage private sector investment in previously restricted sectors. We expect more than 100 approval items to be abolished or decentralized in the near term.
The State Council document also highlighted that the government would open up the financial, railway, energy, and telecom sectors to private sector investment. These reforms should enhance economic growth potential, and should in particular boost demand for railway construction, oil and gas drilling, and new energy equipment.
2. Higher taxes and levies on polluting products and sectors. The reform plan stated that the government would "include products that are heavily polluting and consume natural resources excessively into the consumption tax list" and "establish the strictest environmental protection system."
In our view, these messages imply that taxes and levies on coal and pollutants generated by coal burning will likely rise. Coal consumption growth will likely slow in the coming few years. Clean energies, as a result, should replace coal at an accelerated pace.
3. Acceleration in capital account liberalization. The reform plan stated that China would establish a Qualified Domestic Institutional Investor 2 system which permits wealthier individuals to invest overseas, and facilitate qualified foreign institutions to issue yuan bonds in the onshore market.
We believe that the chance of an announcement of QDII2 in the second half of this year is high. This would allow greater fund flows from Chinese mainland to Hong Kong and other overseas markets.
Banks specializing in foreign exchange business, brokers, and the Hong Kong equity market will likely benefit from greater fund flows.
4. Developing critical illness insurance. As the first and top priority item in the paragraph on social security reform, the reform plan stated that the government would promote the provision of "critical illness insurance in urban and rural areas."
Policy makers in China now realize that the government-sponsored basic health insurance is unable to effectively cover critical illnesses, and thus commercially provided critical illness insurance will be a key solution.
Part of the premium contribution to the basic health insurance scheme will likely be re-allocated to paying premiums for critical illness insurance. Tax incentives will also likely be provided to insurance companies that provide critical illness insurance policies.
Insurance companies' premium growth will be enhanced due to faster development of critical illness insurance on government initiatives.
In addition to the above, the reform plan reiterated the need to further expand the on-going resource pricing reform and tax reform.
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