Communist Party leaders have been meeting for four days to discuss the broad outlines of economic reform for the next five years. And the result is: not much. The communique released yesterday contains only the usual slogans of recent months and years, such as ‘reform and opening up,’ ‘supply-side reform,’ or newer phrases like ‘new productive forces’ and ‘high-quality growth’, Commerzbank’s FX analyst Volkmar Baur notes.

Third plenum says nothing unexpected

“But, a change in thinking or new approaches are nowhere to be found. Detailed documents on the decisions taken will be published in the next few days. But even there, one will probably look in vain for ideas on how to support and revive private consumption. In the first half of this year, the Chinese economy grew by 5%. But 0.7 percentage points of that growth came from foreign trade alone.”

“This means that domestic demand grew by only 4.3%. This persistently weak domestic demand by Chinese standards is also reflected in persistently low inflation and falling government bond yields – except for the 10-year segment, where the central bank has announced that it may intervene to correct the situation.”

“As long as the domestic economy remains weak, the interest rate differential between Chinese and US Treasuries will remain high and the Chinese Yuan (CNY) will remain under pressure. For now, the only bright spot for the CNY is the upcoming interest rate cycle in the US, which should provide some relief for the CNY.