KraneShares Weekly China Update: Follow Up From China’s Third Plenary Meeting

ETF Trends

A Summary of China’s Third Plenary Economic Reforms:

  1. One-child policy relaxed: The controversial policy introduced in 1979 has contributed to falling birth rates. Now the policy is to be eased to allow couples to have two children if one the parents is an only child. Baby-product related stocks such as Goodbaby International soared in Hong Kong on Monday following the easing of the one-child policy.
  2. Welfare-system reformed: China said it would relax its system of household registration, known as the hukou system. Under this system, migrants give up the public services they are entitled to when they move to urban areas. Analysts say changing this system is a key step towards liberalizing the labor market, allowing the free movement of labor and encouraging urbanization.
  3. Greater rights for farmers: According to China’s official Xinhua news agency farmers will be granted rights to “possess, use, benefit from and transfer their contracted land, as well as the right to use their land ownership as collateral or a guarantee.”
  4. Stepping up financial reforms: These include setting up a deposit insurance system by early 2014, giving qualified private investors the go ahead to set up banks, loosening controls on the pricing of water, electricity and natural resources and revamping the system for Initial Public Offerings (IPOs).

State-Owned Enterprises (SOEs): SOEs will be required to pay larger dividends to the government, with 30 percent of earnings from “state capital” to be paid back to the state and used for social security by 2020. Private firms, meanwhile, will be encouraged to play a greater role in the economy. According to a report by Agence France-Presse, China’s 113 large SOEs under direct government control typically pay five to 20 percent of their profits to the government in dividends.

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