China stocks fall after party issues vague communiqué following plenum

Chinese stocks yesterday saw their steepest decline in nearly two months after a key Communist Party meeting failed to deliver bold and detailed reform plans to sustain the growth of the world's second-largest economy.

The Shanghai Composite Index slumped 1.8 per cent to 2,087.94 at the close, its biggest decline since September 26. The Hang Seng Index finished fell 1.9 per cent to 22,463.8 points, while the China Enterprises Index of Hong Kong-traded Chinese shares slid 2.7 per cent - their largest daily loss since August 20. The vaguely worded communiqué released on Tuesday after a four-day plenum of party leaders apparently failed to impress investors, businessmen or observers, even though it mandated a "decisive role" for the market.

While few expected many details from the plenum's closing message, observers said they had expected the leadership to have the resolve to announce major policy moves that would put the Chinese economy on a healthier track.

Hopes were running high in the lead-up to the plenum, with Politburo Standing Committee member Yu Zhensheng having pledged "unprecedented" reform policies, in terms of both scale and scope.

"Public expectation for the third plenum had been extraordinarily high," said Tao Jingzhou, managing partner at law firm Dechert China.

Tao welcomed some plans in the communiqué, such as expanding the development of free- trade zones, but said they did not go far enough. "It wouldn't make much sense simply to build more free trade zones," he said. "The key is to reduce barriers for investors to enter the market."

While the communiqué contained broad-brush ideas, it was seen as lacking specifics.