Why Does China’s 3rd Plenum Matter?

What the heck is a plenum?

No, it ain’t a deadly disease yo! Merriam-Webster defines a plenum as a general assembly of all members of a legislative body. In China, a plenum refers to the meeting of the Communist Party’s Central Committee. Each Party Congress, which lasts for five years, generally has a plenum held annually except for the first year.

Why is the 3rd plenum important?

Judging by how analysts are buzzing about with speculations on China’s 3rd plenum, you’d think it’s time for the Hunger Games’ Quarter Quell! You see, the 3rd plenum is typically when the current legislative body sets its economic strategies.

History shows that the 3rd plenum is usually when economic reforms are initiated. For instance, the 3rd plenum of the 11th Party Congress in 1978 marked the start of the “Reform and Opening Up” policy and the modernization of China’s agricultural and national defense industries. The 3rd plenum of the 14th Congress in 1993 introduced the socialist market economy, paving the way for a set of aggressive economic changes such as reforms in the banking sector, state-owned enterprises, and income distribution.

What should we expect for the upcoming 3rd plenum?

Several Chinese government officials have already been quoted saying that the upcoming plenum this November 9-12 in Beijing would contain announcements on comprehensive and unprecedented reforms. That’s just like saying “You ain’t seen nothin’ yet!”

Analysts say that these reforms could span from increased trade liberalization to stricter financial regulation to changes in rural land ownership… In other words, anything can happen! In particular, sweeping economic reforms could be laid out in hopes of bringing China back to its glory years of double-digit GDP growth.

How could the forex market react?

Ahh, there’s the million-dollar question. I wish I could give y’all a million-dollar answer as well, but it really depends on what kind of reforms are announced. Stronger focus on economic changes that are targeted towards boosting growth could spur a risk-on market environment, as these might be enough to assure traders that the global recovery would be sustained. This could keep commodity-dependent currencies, such as the Australian dollar and New Zealand dollar, supported in the near-term.

Take note though that, even though the planned reforms would likely be announced during the upcoming plenum, it could take YEARS before these are actually implemented. There’s also a strong possibility of a “buy the rumor, sell the news” reaction to this event, as expectations are running very high.

Either way, it could be a good idea to limit your exposure ahead of this highly-anticipated event, which might result to price gaps over the weekend. Be careful out there!

  • alexjst

    The reform is already happening. Just search for “Li Keqiang economics” and people will see where China is generally headed.

    BTW, “double digit growth” is no longer China’s wish. Sustainable growth is now much more desired. The previous leaders left quite some big problems (like 20+ trillion RMB of local government debt, almost dead stock market, uncontrollable real estate price, etc – all possibly being the aftermath of the once 4 trillion stimulus plan). We are yet to see how the current new leaders are going to save the situation.

    As for trading, the recent “Free Trade Zone” opened in my city might be an indicator what the government wants to do, or at least wants to try…

    I am from China.

    • Forex Gump

      Oh wow, thanks so much for reading my blog and for sharing this information! I’m also interested to find out how the current government plans to deal with the problems left behind by previous leaders. I’ll keep tabs on that “Free Trade Zone” hint that you mentioned, might be applied to more cities, you think? Please share your updates with us if you get a chance!

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