{
  "title": "A Wish List for China’s Third Plenum",
  "publication": "IMF Blog, October 22, 2013",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2013/10/22/a-wish-list-for-chinas-third-plenum",
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  "summary": "Author: Anoop Singh",
  "sections": [
    {
      "heading": "Financial markets — overview",
      "content": "- Author: Anoop Singh\n- Date: October 22, 2013\n- Context: IMF view that economic growth will slightly surpass this year’s official target, while identifying growing challenges that require accelerating reform ahead of the Third Plenum."
    },
    {
      "heading": "The challenges ahead",
      "content": "- Three decades of unprecedented expansion have raised nearly 500 million people out of poverty.\n- Key pressures and vulnerabilities:\n  - Heavy reliance on capital accumulation and relocation of surplus labor from the countryside to urban factories.\n  - Stock of credit among the highest in the world and growing fast, particularly in the non-bank segment.\n  - In the past four years alone, the stock of credit as a share of GDP has risen from around 140 percent to 200 percent.\n  - Non-bank intermediaries mobilize short-term deposits to lend for longer maturities without the same capital buffers, provisioning, or regulatory rules that banks adhere to.\n  - Large buildup in debt, including at the level of local governments:\n    - Infrastructure spending by local governments used as a counter-cyclical tool since the global financial crisis.\n    - Because local governments are constrained in how they raise revenue and are not permitted to borrow directly from the markets, they channel infrastructure funding through off-budget financing vehicles.\n    - Augmenting reported public debt to include this additional infrastructure-related borrowing, IMF’s sense is that the general government debt is around 45 percent of GDP (twice the official number).\n    - This suggests less fiscal space to deal with unanticipated events than the reported headline number indicates.\n  - Capacity continues to be built well ahead of final consumer demand and returns to capital are diminishing.\n  - Demographic trend: surplus labor will be exhausted by around 2020, making it more difficult to offset diminishing returns by relocating surplus labor.\n- Conclusion: The current growth model looks increasingly unsustainable."
    },
    {
      "heading": "What’s to be done? (policy recommendations)",
      "content": "- Financial sector reforms (main dimensions):\n  - Deposit rate liberalization.\n  - Elimination of perceived widespread implicit guarantees on financial products and intermediaries through:\n    - Introduction of deposit insurance.\n    - A formal resolution framework for failing institutions.\n  - Gradually move away from administrative guidance on credit allocation to adopting a policy rate as the main operating target for monetary policy.\n  - Objectives: contain the buildup of risks, enhance the efficiency of investment, and boost household capital income.\n- Fiscal reforms:\n  - Give local governments authority over their own revenue sources more in line with their expenditure mandates.\n  - Shift the tax burden toward progressive and efficient forms of taxation.\n  - Channel dividend payments from state-owned enterprises to the budget.\n  - Objectives: address vulnerabilities in local government finances, reduce excess investment, and boost household consumption.\n- Structural measures (the third broad area):\n  - Level the playing field within and across sectors through deregulation and easing barriers to entry (particularly in services).\n  - Raise resource prices to rationalize investment and protect the environment.\n  - Reform the hukou (household registration) system to improve labor market mobility and achieve a more efficient matching of workers to vacancies.\n  - Objective: enable a shift toward a growth model less reliant on capital accumulation and more dependent on the efficient use of resources (‘total factor productivity’ growth)."
    },
    {
      "heading": "Eyes on the Third Plenum — timing and trade-offs",
      "content": "- Implementing significant reforms is a tall order and involves tough choices, including possibly accepting slower growth as the economy adjusts to the new path.\n- Starting reforms now will allow China to sustain convergence to the level of higher income economies and deliver growth benefits more broadly and sustainably; delay increases the probability of stalled convergence.\n- China’s leadership has indicated reform objectives; priority is to lay out and then implement concrete reform plans to manage the transition.\n- Invoke of pragmatism: Deng Xiaoping’s maxim cited to underline expectation of far-sighted pragmatism at the Third Plenum.\n\nSource: A Wish List for China’s Third Plenum (IMF blog post).\n\n---\n\n Content in this bundle\n\n- Country Report\n  - Country Report (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Country Report (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/blogs/articles/2013/10/22/a-wish-list-for-chinas-third-plenum"
    }
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    "Authors: Anoop Singh",
    "Published: October 22, 2013",
    "Author: Anoop Singh",
    "Date: October 22, 2013",
    "Context: IMF view that economic growth will slightly surpass this year’s official target, while identifying growing challenges that require accelerating reform ahead of the Third Plenum.",
    "Three decades of unprecedented expansion have raised nearly 500 million people out of poverty.",
    "Key pressures and vulnerabilities:",
    "Conclusion: The current growth model looks increasingly unsustainable.",
    "Financial sector reforms (main dimensions):",
    "Fiscal reforms:",
    "Structural measures (the third broad area):",
    "Implementing significant reforms is a tall order and involves tough choices, including possibly accepting slower growth as the economy adjusts to the new path.",
    "Starting reforms now will allow China to sustain convergence to the level of higher income economies and deliver growth benefits more broadly and sustainably; delay increases the probability of stalled convergence.",
    "China’s leadership has indicated reform objectives; priority is to lay out and then implement concrete reform plans to manage the transition.",
    "Invoke of pragmatism: Deng Xiaoping’s maxim cited to underline expectation of far-sighted pragmatism at the Third Plenum.",
    "**Country Report**"
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