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Jakobsen: Third plenum a turning point for China
China’s top party officials are due to meet from Nov. 9-12 to discuss pursuing sustainable growth practices centered on environmental reform and reducing inequality in the country. This is the third and final political summit of the year for China’s party members. Saxo Bank’s Steen Jakobsen, Chief Economist and CIO, has observed that during this final meeting Chinese officials are usually dedicated to making and implementing important decisions. The larger than expected growth in two manufacturing indexes last week will provide more incentive for party officials to entertain implementing new political reforms during the meeting. Li Keqiang, the Premier of China has also expressed an essential need for China to undergo new policies, according to Jakobsen. Implementation of new political reforms will be an insurmountable task for Chinese officials. Motivating people in relatively small countries like Italy can prove to be a difficult task, and with a population around 1.4 billion people, moving all of China will be difficult to say the least and will come at a cost. GDP in China is set to increase between 7.4 and 7.6 percent, based on analyst’s estimates in the fourth quarter. The communist party has mandated a minimum 7 percent growth rate in order to double per capita income this decade. The current economic environment has created a “Boom-Bust economy” and immense “inequality” in China today as stated by Jakobsen. The future implications of new social reforms such as healthcare and urbanisation will lead to lower growth. Jakobsen predicts that China is moving towards a more gradual growth of 5 percent, which remains relatively strong. Shifting focus from production oriented businesses to move service based businesses will be critical for China’s future. Currently, service based industries make up for 45 percent of GDP. As demand in China has slowly been declining while activity levels have been increasing, changing focus will be a critical part of discussion during this week’s summit.
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