China: China's Third Plenum – High stakes for China and a big deal for Australia

Last Updated: 21 November 2013

Few things are as important to the world over the next few decades as the reform of China's domestic financial markets. China's growing share of world trade, the size of its economy and its role as the world's largest creditor mean that what happens within China is directly relevant to the rest of the world.

The restructuring and opening up of China's financial markets have been at the heart of China's reform agenda for the last two decades.

A year after Xi Jinping took over at the helm of the Chinese Communist Party the upcoming Third Plenum will provide the clearest signals for some time about China's economic direction and capacity and commitment of the new leadership team to push through further reforms.

The Third Plenum runs from 9 to 12 November and is a plenary session of the Party's Central Committee, the body from which the Politbureau is selected. It provides one the first real opportunities for Xi Jinping, as Party leader and President, to flesh out his economic vision for the country.

Expectations are high. As China enters a new era of slower growth - with a shift to a more sustainable economic model – there is wide agreement that significant changes are now needed.

The case for financial reform is compelling. The era of double-digit annual GDP growth underpinned by a growth model based on export and investment-led growth is coming to an end.

President Xi and Premier Li are now building Party support for rapid action on an economic agenda that they hope can manage China's transition to a very different form of economic growth and to deliver sustained annual growth of between 7 and 7.5 per cent.

What should we be looking for?

What we know already is that the path ahead will see domestic consumption and substantial financial innovation and liberalisation replacing the emphasis on exporting, and heavy public sector investment, as the prime drivers of growth.

The financial reform process over the last 20 years points to a carefully sequenced road map which has witnessed the creation of the platforms, institutions and laws needed to support, supervise and regulate financial markets and their participants.

The pace of major reform has slowed somewhat over the last few years and many are hoping for the process to be re-energised with the continued incremental roll-out of reforms.

This would involve deepening the capital markets, developing the corporate bond market, allowing for greater private ownership within the banking sector, increasing oversight of the "shadow" banking market, loosening restrictions on China's cross-border capital flows by expanding the QFII/RQFII and QDII schemes, relaxing the controls on deposit rates (especially following the introduction of the mooted bank deposit insurance scheme) and further developing strong independent regulatory bodies to support the integration of China's financial sector with the global financial system.

A stated end-goal in the sequencing is to make the Renminbi (RMB) an international currency and one that is freely convertible. China is already actively promoting the use RMB to settle international trade contracts but realizing its ambition for convertibility will require new efforts to support the development of deep and liquid domestic RMB markets, as well as developing deeper bond markets and derivative markets to hedge currency and other risks.

These changes are on the wish-list for many within China's power brokers and reformers, but those expecting rapid change may be disappointed.

Policy making and reform in China these days are less about charismatic leadership and more about forging a consensus, especially in the face of strong resistance from vested interests that have benefitted from the economic model of the last 20 years. The Plenum is a Party meeting and it is unlikely that there will many specific policy announcements.

More likely a broad policy "road map" will be laid out, with new policy settings directed to a more efficient allocation of capital (especially for smaller enterprises and in the private sector) and deepening of the capital markets.

Implications for Australian business

The changes that these reforms will bring about for Australia – and the world - will be profound.

Australia's financial services sector is one of the most efficient and sophisticated in the world. It is well-regulated and its financial institutions well-capitalised and profitable. There are linkages to the region through trade flows, in-bound investment into the booming resources sector, outbound superannuation funds and the activities of foreign (including Chinese) banks in Australia.

Despite all this, the general level of investment and business interests directly into China remains under-weight when compared to the growing importance of China to Australia's economic success.

Continuing to see China as a customer, offering two–way trade and investment flows and foreign exchange service, as well as some relatively narrow service offerings such as managed investments is a short term option only.

Longer term, our priority must surely be to integrate with the region, forging deep partnerships that make Australia's financial services industry a truly regional industry with a strong Australian base, providing services seamlessly across the region.

The strategies that can be adopted by organisations will vary, but there are several aspects of China's reform process that suggest significant long-term opportunities:

  • Wealth management: Any policy move by Beijing away from reliance on bank deposits and lending, and associated support for regulated wealth management products, will allow Chinese investors access to more sophisticated, higher-yielding and longer-term investment and insurance instruments.

    Years of experience gained in managing Australia's burgeoning superannuation funds, expertise in product development and skills in critical areas such as fee income generation, credit risk assessment and cross-selling of products and asset management position Australian wealth and funds managers and insurers to take advantage of these opportunities.
  • Renminbi internationalisation: Off the back of rising regional trade flows, the RMB is already an important intra-Asian regional currency. Within the next 10 years the RMB will take its place as a new global currency.

    Policy support this year from the Australian government through a range of initiatives, and new business platforms provided by banks in Australia mean that Australian companies are now able to use RMB invoicing to save fees, grow markets and reduce currency risk when dealing with Chinese counterparties. The RMB is no longer a matter of long-term strategizing, but something that all corporate treasurers should assess now.
  • Opening up of the bond market: This is the most critical of the steps in China's sequential reform process. The domestic market is growing rapidly and Australian institutions are well-positioned to combine their experience in the origination of fixed income products and services with Chinese banks' local knowledge, relationships and distribution capabilities.

    More significantly, the opening up of the local bond market to foreign issuers and investors heralds the potential for a diversified and exciting new investor base.
  • Alternative financial funding solutions: Policy reform is encouraging the development of "innovative" financing techniques. A recently re-invigorated pilot program for asset securitisation has proved to be highly successful. Australian expertise in this area is renowned and offers opportunities to work with local partners to create new financing options for the China's mid corporate market and at the same time ensure that this segment of the market develops in accordance with global best practice.
  • The "going-out" of Chinese banks: Chinese banks are expanding internationally as they seek to support Chinese enterprises abroad. Australia has been an important testing ground for investments, helping Chinese banks to acquire experience, skills and capabilities. Partnerships with Chinese banks have the potential to provide further banking services in Australia and to unlock opportunities within China itself. Over time Chinese banks in Australia will expand the range of services and products they offer, creating more competitive pressure in the local market.
  • China as a source of capital: China has potential to be a source of capital to finance Australia's investment needs. Xi has spoken of UD$500 billion outbound investment by Chinese interests over the next 5 years. Australia has been the beneficiary of much of China's first wave of outbound investment. Our challenge now is to ensure we retain our "fair share" of this new wave of capital, and that our policy settings and community views are aligned to ensure Australia does not miss out on the benefits that can flow from this once in a lifetime event.
  • Deploying our intellectual capital: More generally, Australian financial institutions, legal advisers and other experts can play an important role in working with Chinese institutions to improve their systems of corporate governance, risk management, internal control and to adopt best practices, all of which are essential building blocks for a strong, integrated regional financial system.

Gearing up for the ride

How individual institutions take advantage of these opportunities will depend on the strategy of each institution, its market and product alignment, its risk appetite and the amount of capital an institution is willing to deploy.

What is clear, however, is that to be successful, Australian business and policymakers have to develop a longer-term (10 to 20 year) game plan and work closely to deliver it. Our policy horizons and national policies need to reflect those of our key regional partners, China being the most important.

Now, more than at any time in the past, success will be linked to the creation of partnerships, collaborations and strategic alliances.

China's reform processes are underway. We should not underestimate the determination of the leadership to press resolutely ahead with reforms.

The announcements coming out of the Third Plenum have the potential to be game-changers – for China and the world.

The changes will bring with them a massive rebalancing of the world's financial markets. The ride will not be smooth, but for those prepared, the opportunities will be significant.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions