For those seeking bold, dramatic changes, China's third plenum – a four-day meeting of the Communist Party's 205-member central committee – ended with abundant disappointment. State media announced Tuesday that China will adopt a "decisive" market role in the economy. However, President Xi Jinping failed to provide details of how it will take on its three most urgent challenges: Liberalizing the economy; combating stalling growth; or reducing the staggering inequality between urban and rural citizens.
To be fair, plenums are historically used to outline broad reforms, with specifics to be fleshed out in upcoming months. And there are signals that change is sprouting ever so slowly beneath China's red curtain.
"These reforms are aimed to transform the economy by 2020. It takes time to turn a ship of this size," said Eric Lascelles, chief economist of RBC Global Asset Management.
Economists have singled out the shift in official language about markets as the key takeaway from the meeting. The market is now set to play a "decisive" role, a deliberate change from the "basic" role assigned over the past two decades.
Much to the disappointment of some vocal China-watchers on social media, the plenum did not explicitly address opening up state-owned monopolies to private competition, one of the most controversial aspects of China's growth. The Party mentioned that private companies are "important components" of the economy, but maintained that state industries will continue to take a leading role.
Another big disappointment: no mention of reforming hukou, the household registration system. China's rigid residency system requires citizens to register their hukou status. As a result, workers are only granted healthcare, decent salaries, or other benefits in the area to which they are registered. While rural workers are allowed to migrate to cities, their status remains the same, meaning that they are denied the benefits enjoyed by urban citizens. This lack of labour mobility is seen as a huge strain on economic growth.
Last week, Xinhua News Agency commented that "a widening wealth gap has appeared between cities and the countryside. Strikes, riots, and other demonstrations are being fueled by land appropriations and labor disputes."
The party did say it would grant more property rights to farmers. All farm land is state-owned, so farmers aren't able to sell or consolidate their land, keeping a distance between farms and cities. "The biggest mismatch in China is between rural and urban citizens. So this…would help alleviate that," said Mr. Lascelles. Details, however, were not forthcoming.
But under the radar, there are signs of reform. After years of excess credit creation and lax oversight of regional industry, Beijing appears to be cracking down on local government spending. The central government announced on Oct. 15 that it will trim China's steel industry by 8 per cent, much to the chagrin of local governments who rely on this sector. Beijing has also released plans to slim other bloated industries such as aluminum, cement, and shipbuilding, which some analysts have tied to the astonishing rise in local government debt.
China has made attempts to gauge the size of such debt, including a major audit commissioned by China's State Council. Results are pending, but preliminary research suggests that regional governments owe a whopping $3.3-trillion (U.S.). Notably, the plenum didn't provide details on interest rate reform or regional finances.
"The Chinese economy is slowing…but structural reforms are still on track based on what I see," argued Mr. Lascelles. "You need to read between the lines a little bit, but if you expand your vista…this is a broad endorsement of reform."
For now we will remain in wait-and-see mode, as committee reports in coming months will paint a clearer picture of China's intentions.