Decoding China’s policy intent: how liberalisation happens behind the veil of conservative official statements

Nora Schlenzig and Lauren Chung try to decrypt China’s policy announcements at this year’s ‘two sessions’. Detecting the subtleties takes practice and, often, what is not said is just as important as what is said

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Central bank governor Zhou Xiaochuan (third from left) speaks to reporters during a press conference on the sidelines of the National People’s Congress meeting. For the first time, he publicly condemned exuberant overseas deal-making by Chinese firms, further justifying China’s capital controls. Photo: EPA

Published: 2:02pm, 23 Mar 2017Updated: 7:42pm, 23 Mar 2017

After years of decoding “forward guidance” from the US Federal Reserve, market participants feel increasingly confident that they can anticipate monetary policy direction. For many, decoding China’s policy communication is not quite as straightforward.

China’s “two sessions” – annual meetings of the National People’s Congress and the Chinese People’s Political Consultative Conference – wrapped up last week. During the sessions, central bank governor Zhou Xiaochuan (周小川) for the first time publicly condemned exuberant overseas deal-making by domestic firms, further justifying China’s capital controls.

The statement left little room for misinterpretation as Zhou identified purchases in sports and entertainment as making little sense for China’s development. This direct tone is not always employed in official Chinese communication. Typically, the subtleties matter.

Policy changes in China have often been a result of local experiments only carried out at the national level once proven effective at a smaller scale

And what is not said can be just as important as what is said. For example, the Post highlighted the lack of reference to “yuan stability” in the government work report, while the previous three years’ reports stressed “keeping a stable yuan at a reasonable and balanced level”. Its absence this year is likely to portend further liberalisation of the renminbi exchange rate.

If subtle shifts in official rhetoric are missed, the People’s Daily has been a reliable indicator of policy direction. Notably, the government has also taken steps to engage the young. For example, leading up to the sessions, the National Development and Reform Commission website even invited netizens to share their thoughts with Premier Li Keqiang (李克強).

Finally, analysts should note the divergence between the often more conservative tone from Beijing and the more liberal policies issued by provincial governments. This may be part of a practice often referred to as “signal left, turn right”, meaning rhetoric remains conservative despite practical steps towards reforms.

What the big topics that went unmentioned at China’s ‘two sessions’ reveal

Policy changes in China have often been a result of local experiments only carried out at the national level once proven effective at a smaller scale. This was the case for Deng Xiaoping’s (鄧小平) special economic zones. And this is still a common practice. For example, pilot programmes for overhauling the tax system are first launched in some cities before being rolled out nationwide.