The US dollar is firm against the major currencies and nearly all the emerging market currencies as well to close out the week (and month) Participants are clearly focused on next week’s events, and in particular, the prospect of additional easing measures by the ECB. In addition, next week’s speeches by Yellen and the monthly jobs report is expected to underpin expectations for the Fed’s lift-off in the middle of December.
On 29 October 2015, the 18th central committee of the Chinese Communist Party (CPC) issued a communiqué allowing all Chinese couples to have two children. The new policy will come into effect from March 2016 after formal ratification by the National People’s Congress. However, it is unclear whether ending China’s more than 30 yearlong one-child policy will trigger the CPC’s hoped for demographic changes.
Despite indicators of a continually cooling macroeconomic environment, Chinese stocks continue higher, even as disinflation and weak factory activity signal continued weakness.
Chinese stocks are no longer in a bear market, having risen 20% from their lowest point in August. At the same time, more indicators suggest that China’s economic growth is still worsening, with the threat of growing poverty likelier in the hardest-hit regions of the country and possibly throughout the continent.
The Shanghai Composite Index rose 1.8% as rumors of growing government support for the falling stock market lifts prices, helping most mainland indices rise in end-of-week trading.
Overnight, Chinese President Xi Jinping gave the strongest indication yet the country will revise down its economic growth goal to 6.5%.
They will have an official target when China releases its highly anticipated 13th five-year plan in March next year, but they are playing on the idea of the “economic new norm.” This means lower percentage rates of economic growth (although rates still high in international terms) coupled with structural economic reform.
The long-anticipated abolition of China’s one-child policy is a first step in the right direction. However, they can do much more. In the West, the criticism of the one-child policy is that it is a “cruel Communist strategy.” In reality, most opponents of that policy were Marxists and the idea itself came from the West.
Overpopulation or old population?
China’s new development blueprint seeks to realize a moderately prosperous society by 2020.
At the recently concluded Fifth Plenum of the 18th Communist Party of China Central Committee, the “Four Comprehensives” became the grand blueprint for the 13th Five-Year Plan (2016-20). Each of the four tasks requires broad measures and pragmatic actions.
A moderately prosperous society
China’s latest five-year plan, the details of which were endorsed at last week’s fifth plenum, aims to double the nation’s GDP and per capita income by 2020 (from 2010 numbers).
The 2020 deadline is important because it is the final year of the 13th five-year plan and the first plan led by Xi Jinping and Li Keqiang. It would allow the Chinese Communist Party to claim a doubling of the country’s economic size in the decade preceding the 100th anniversary of the Party’s founding in 1921.
China is scrapping its one-child policy and officially allowing all couples to have two children. While some may think this heralds an overnight switch, the reality is that it is far less dramatic. This is, in fact, merely the latest in an array of piecemeal national and local reforms implemented since 1984.
In fact, the change is really a very pragmatic response to an unpopular policy that no longer made any sense. In addition, much like the introduction of the policy in 1978, it will have little impact on the country’s population level.
As China’s growth is decelerating, Chinese purchasing power is accelerating. The next five-year plan will boost the change.
Only a few years ago, China still enjoyed double-digit growth. According to third-quarter data, the Chinese economy grew 6.9 percent year-on-year.
As a result, some observers have concluded that the Chinese economy is in trouble, Chinese consumers are hunkering down and the next five-year plan must be dead on arrival.
