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The Shanghai Composite has closed +1.7% and the Hang Seng +1.65% after senior Chinese economic official Yang Weimin said the government had approved a 20,000-word document at the Third Plenum this week about reforms involving 15 sectors.
"Every sentence is reform, every word packs a punch," Yang said. The document "seizes onto the most deep-seated problems in reforming our country’s economic system."
Investors were disappointed earlier this week by the lack of details in the government's initial pronouncements about its reform agenda.
"While the [Plenum] communique may have disappointed some, it is normal practice for the post-event statement to cover only broad principles," a Barclays economist quoted by CNBC says, regarding investors' reaction to the conclusion of a four-day meeting at which China's leaders sketched a forward-looking plan for their country's economy.
Shares are nearly 2% lower in both Shanghai and Hong Kong as the 5000-word statement that followed the meeting struck analysts and investors as too vague and borderline contradictory.
Some expect a final document (called the "Decision Document") due out next week to provide more detail on specific reforms.
China's leaders are set unveil a 10-year reform plan today following a four-day meeting that involved the 205-member Central Committee of the country's ruling Communist Party.
While the government has been playing up the possible outcome of the parley, economists have been dampening expectations. China's leaders need to balance their desire to overhaul the economy with what is seen as the need to ensure that growth remains strong enough to preserve stability.
Reform could involve eight key areas, including finance, taxation, state assets, innovation, foreign investment and governance. The liberalization of the economy is expected to be a key element of the program.
Meanwhile, aggregate financing in China dropped to 856.4B yuan ($140.6B) in October from 1.4T in September and came in well below forecasts of 1.115T yuan. The decline may well reflect a tightening of lending conditions by the People's Bank of China.
The M2 money supply rose 14.3% on year vs consensus of +14.2%.
Among the potential reforms being looked by China's leaders for the country's state-owned firms would be allowing private investors to hold up to a 15% stake, according to a local report. "We welcome private capital to invest in the state-owned enterprises," says one official when questioned about the story.
The trial balloon comes as the Communist Party's top officials meet in Beijing - the meeting's conclusion and the communique come tomorrow.
Private investors currently may buy shares of those publicly-traded state-owned firms on the stock exchange, but these can't amount to much for any one buyer. Larger stakes are one thing, but what about boardroom access to improve efficiency and corporate governance. I'll believe it when I see it, says an economist (in so many words) at Industrial Bank.
Chinese inflation slowed in October to 0.1% on month from 0.8% in September and came in below consensus of 0.2%.
On year, though, a rise in food prices helped CPI increase to an eight-month high of +3.2% from +3.1%, but the metric still undershot forecasts of +3.3% and was within the government's 2013 target of +3.5%. While China's leaders have recently warned about inflation and the central bank has been tightening, UBS economist Wang Tao doesn't believe rising prices are "going to be a serious threat anytime soon."
China's producer price index dropped for the 20th month in a row, falling 1.5% vs -1.3% and -1.4%. The trend indicates softness in demand for raw materials and factory products, and suggests that China still very much has to contend with deflationary forces even as annual inflation rises.
The growth in industrial production increased to 10.3% on year from 10.2% and exceeded forecasts of 10%.
The rise in retail sales held steady at 13.3% but slightly missed predictions of 13.4%.
As expected, urban investment grew 20.1%, down from 20.2% a month earlier.
China's trade surplus more than doubled on month to $31.1B, which could increase pressure on the country to let the yuan appreciate further.
Exports to the EU +12.7% on year, to the U.S. +8.1%. The strong numbers are particularly surprising, as last year's figures are widely thought to have been over-reported.
"Combined with...better export data in Korea and Taiwan, China's export numbers suggests some — although not yet decisive — improvement in global demand momentum," says RBS economist Louis Kuijs. The import growth reflects "healthy expansion of demand" in China. (Previous)
The data comes ahead of a four-day meeting of China's leaders starting tomorrow, when they are set to discuss "comprehensive reforms" of the economy. These are expected to include the liberalization of interest and exchange rates, promoting competition, cutting red tape, strengthening the fiscal system and pushing innovation, and developing the service sector.
Ultimately, the government wants to reduce the economy's over-dependence on heavy industry, state investment and exports to one that is more reliant on private consumption and greater diversification. They're also looking to reduce the risks of the huge build-up in lending.
China October HSBC Services PMI: 52.6 versus 52.4 previous.
The read on the non-manufacturing sector "should help cement China's growth momentum in the coming months," HSBC economist Qu Hongbin says.
Although the generally upbeat tone of the report is consistent with the October read for the country's official non-manufacturing PMI, the two reports paint a different picture with regard to the new orders sub-index.
The HSBC report has new order growth "accelerating to a seven-month high," while the official report had the index dropping to 51.6 from 53.4 in September.
Deutsche on Wednesday is launching what would be U.S. ETF investors' first shot at owning so-called Chinese A shares - stocks trading in Shanghai and Shenzhen. The db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) will track the CSI 300 Index.
Invesco last month launched the PowerShares China A-Share portfolio (CHNA), but until the company gets approval to own A-shares, it's trying to replicate the action with futures and other ETFs. There's also the Market Vectors China ETF (PEK) which attempts to approximate Shanghai and Shenzhen with swaps linked to those stocks, but it's failed to gain much traction with just $34M in AUM after three years in business.
Then there's a closed-end fund, the Morgan Stanley China A Share Fund (CAF), currently trading at a 8.2% discount to NAV, and on the market since 2006.
China A-shares is "the last big market access product," says Deutsche exec Martin Kremenstein, drawing a comparison to 2004's launch of the SPDR Gold Trust (GLD). MSCI estimates opening A shares completely to foreign ownership would boost China's weight in the MSCI Emerging Markets Index (EEM) to 30% from 18%.
However, the new orders sub-index dropped to 51.6 from 53.4, while activity in commercial services, the food and drinks industry, and real estate contracted.
"The non-manufacturing sector should continue to develop at a stable rate over the next few months, although there still needs to be more market training and promotion to further release the service sector's potential," the government said.
At a meeting next weekend, China's leaders are expected to unveil reform to strengthen the sector and open it up to foreign competition. (PR)
China's official manufacturing PMI increased to an 18-month high of 51.4 in October from 51.1 in September and surpassed consensus of 51.2. (PR)
However, the reading for big companies rose, while that for smaller ones dropped into contraction territory, highlighting the unbalanced nature of China's economy.
HSBC PMI edged up to 50.9 (flash 50.9) from 50.2.
Output growth hit a six-month high, an expansion in new orders and export orders accelerated, and the survey indicated the fastest accumulation of work-in-hand since March 2011.
The stronger momentum of manufacturing growth translated into the first expansion of employment since March, HSBC said. "This in turn should support private consumption growth in the coming months. China is on track for a gradual growth recovery." (PR)
Meanwhile, prices for new homes in 100 cities climbed an average of 10.7% on year in October, data from research firm China Real Estate Index System shows.
China's short-term money market rates have continued to climb even after the central bank yesterday injected 13B yuan ($2.13B) into the market in an effort to ease worries that it was planning a major tightening of policy.
The seven-day repo rate rose 64 bps to 5.59%.
However, analysts believe that the increase in rates is seasonal, and they aren't too worried that rates will spike to the extreme levels seen in June. They also reckon that the central bank will soon provide more cash for the markets.
The People's Bank of China has injected 13B yuan ($2.13B) into the markets via open market operations, resuming such action for the first time in two weeks.
Although the amount was small, especially compared with the 102.5B yuan that has drained from the system, the move eased fears that the PBOC was planning to dramatically tighten monetary policy and signaled that the bank doesn't want a repeat of the cash crunch in the summer, when repo rates climbed to extreme levels.