Beijing has unveiled the clearest guidelines so far on financial sector reform and ways to boost private investment, as the economy faces the risk of slowing further under the weight of heavy regulation and state monopoly.
The State Council meeting chaired by Premier Li Keqiang on Monday outlined the specifics of Beijing's goals by laying down that clear timetables have to be set for reforms, in a move that analysts say should bode well for investors in the long run.
Among the most concrete of its pronouncements, the government said it would this year "steadily" reform interest rates and exchange rates, come up with "operational proposals" on yuan convertibility under the capital account, establish a mechanism for individuals to invest abroad, set plans to overhaul railway investment and financing and open certain railway and subway projects to private capital, study new urbanisation plans, and reform the household registration system.
HSBC's China economists Qu Hongbin and Sun Junwei said in a research note: "Beijing [has] opened the curtain for speeding up reforms … Beijing is turning words into deeds and implementation is expected to pick up speed."
The cabinet suggested it would act to ease financial risks including establishing more transparent budgets for local governments. It also pledged to "regulate and develop" bond, trust and equity investment and financing, although it gave no details.
Li Zuojun, a senior researcher with the Development Research Centre under the cabinet, said the top leaders had reached a consensus that reform was the only way to solve deep-rooted political and economic problems.
The first series of reform plans laid out in the meeting "are deemed relatively more feasible to carry out … Once conditions are ripe, there will be more to come, step by step", Li said.
The Shanghai Composite Index yesterday rose 0.2 per cent to 2,235.57 points to close a volatile trading day as investors digested Beijing's decision to ease limits on individuals investing overseas, which is likely to drain money from the securities market.
"The impact of these reform measures may not be positive in the short term, although the government's decisiveness may boost market confidence," Societe Generale's economist Yao Wei said.
She expects that this year and the next, the yuan's trading band will be widened when the one-sided bet on yuan appreciation subsides. The window of opportunity for doing so might be in the second half this year, she said. The central bank was also likely to remove the floor on bank lending rates and raise the ceiling on deposits rates, Yao said.
Li said the government would overhaul the hukou, or urban household registration system, "in a categorised way", meaning plans will vary according to the size and economic status of cities.
A detailed urbanisation plan would be unveiled in the first half of this year, he said. But some difficult steps, such as land reforms, might take place later, Li said.