China unveiled long-term economic reform and policy changes late last Friday. The changes, decided by the Chinese government at its Third Plenum meeting, included a 60-point plan to alter the way the second-largest economy functions. The plan has major ramifications that will be felt globally over the next few years.
One of the largest changes made by President Xi and the Chinese government is a relaxation of the one-child policy that was introduced in 1979 to fight overpopulation. Couples will now be allowed to have two children if at least one parent is an only child.
“This will be a story for the next ten or twenty years,” says Nick Consonery, senior Asia analyst at the Eurasia Group. “It’s a fundamental shift because the one child policy has fed into a negative demographic story for China. China has an aging population which will increasingly be a strain on the government’s budget and a drag on economic growth.”
Other key policy changes include a reformation of the welfare system. Under current rule, Chinese laborers who move to urban areas are required to give up public services they were previously entitled to. Easing these rules will encourage more migration to factories where there is a labor shortage.
Farmers will now be able to transfer and leverage land as collateral. Previously, the Chinese government owned all land and farmers were only permitted to work certain areas of soil. This change is intended to spur further urbanization and investment.
Other reforms include setting up deposit insurance to encourage banking, fixing the Chinese IPO system, and requiring state-owned enterprises to pay larger government dividends.
These changes will create more opportunity for U.S. companies to engage in asset-market expansion in China, says Consonery.
“What we see is a government that is really trying to build momentum behind reform…this is a government that’s really trying to push some change and we’ll see huge economic and market ramifications as they do that,” says Consonery.
Despite some concerns that the Chinese government will have trouble implementing these policies on a local level, Consonery believes that this is a positive change both for China and the global economy.
“Is it going to be hard for them? Absolutely," he notes. "But when we look at the trajectory of China in a very big picture sense, we have to say it’s improving.”
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