DDN Business Insider | Intensification of reform: How will CPC's 3rd plenary session stimulate new momentum in China's economy?

Editor's note: The meeting will focus on "further comprehensively deepening reform and advancing Chinese modernization", which has attracted much attention both in China and abroad. What impact will the meeting bring to the market? Read on for the full scripts of our latest edition of DDN Business Insider.

【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. The third plenary session of the 20th CPC Central Committee is being held in Beijing from today to July 18th.

The meeting will focus on "further comprehensively deepening reform and advancing Chinese modernization", which has attracted much attention both in China and abroad. What impact will the meeting bring to the market? Regarding this topic, we have invited Dong Shaopeng, China Stock Market Policy Expert and Senior Researcher from the Chongyang Institute for Financial Studies at the Renmin University of China, and Yu Fenghui, economist, expert of the Top 100 Hong Kong Listed Companies Research Center, and new finance expert, to bring their comments and analysis.

Mr. Yu, what do you think about the public's concern towards the third plenary session?

【Yu】In my opinion, the high level of attention the market is paying to the third plenary session of the 20th CPC Central Committee is mainly because the third plenary session has always been an important meeting for the Chinese government to deepen reforms and promote development. We know that the third plenary session of the 11th CPC Central Committee established the major policy direction of China's historic reform and opening up. It was after the third plenary session of the 11th CPC Central Committee that China experienced more than 40 years of rapid development. Of course, this time, the significance might also be that it is another important meeting at a critical moment in China's history to advance reform and opening up. Therefore, the goal of this third plenary session is clear, with the most important issue being reform and opening up.

So such decisions will have far-reaching effects on China's economy and society, including politics. The market is also looking forward to this meeting for some political signals, which will guide the investors in their future investment directions.

【Anchor】Alright. This meeting has garnered attention from various sectors, and some even believe that the importance of the third plenary session surpasses that of the 20th National Congress. Mr. Dong, what is your view on this perspective?

【Dong】I disagree with the idea of simply comparing the third plenary session with the 20th National Congress of the CPC. If there is a difference or a contextual difference, it is because, at the time of the 20th National Congress, the pressure of the macroeconomic downturn was not as severe as it is now. Over the past two years, our assessment of the economic difficulties and corresponding policy arrangements have significantly changed. Or in other words, have become more aligned with this new stage of development. Therefore, the third plenary session may appear to have more tasks to accomplish than the 20th National Congress and the arrangements may seem more complex. However, in fact, they are consistent with each other.

The 20th National Congress itself provided a comprehensive outlook for works to be done in the five or even fifteen years after November 2022. It is also an important arrangement for achieving Chinese-style modernization and the great rejuvenation of the Chinese nation. So it was very forward-looking. However, the annual plenary sessions are more targeted. So the mission accomplished by the third plenary session and the 20th National Congress are different. I believe that the third plenary session will make more precise arrangements in economic development, social development, and political reforms, based on the latest situation.

【Anchor】Alright. Mr. Yu, what do you think are the key issues to focus on in the third plenary session for Hong Kong and overseas investors? What are the reasons?

【Yu】For Hong Kong and overseas investors, I think we should focus on topics of economic system reform, especially opening to the outside world and technological innovation in the third plenary session. These topics are related to market access, investment environment, industrial upgrading, and other key issues. Therefore, as overseas investors, including Hong Kong investors, it is essential to thoroughly learn and understand these topics.

We think that the third plenary session will, to a certain extent, boost the performance of the Hong Kong and A-share markets. But the actual impact will depend on the details of the meeting and the actual policies implemented, especially the extent of the policies' strength, which has the greatest impact on the market. If the meeting releases positive signals, it may boost market confidence and push both markets to rise. From the medium and long-term economic development perspective, the third plenary session is a crucial meeting for promoting the high-quality development of China's economy.

【Anchor】Alright. Recently, the trading volume and market performance of A-shares and Hong Kong stocks have been relatively subdued. Mr. Dong, do you think this is related to the markets' "wait and see" attitude? To what extent do you think the third plenary session will boost the performance of the Hong Kong and A markets?

【Dong】The upcoming third plenary session will make important arrangements on the reform of state-owned enterprises, the development of the private economy, including the reform of rural land and tax reform. In terms of the capital market, both A-share and Hong Kong stock markets have high expectations. Of course, it is also necessary to assess the progress and impact of reform in the medium and long term. While there may be short-term market enthusiasm (in response to the reforms), the real long-term impact on the market will depend on the step-by-step implementation of the policy.

At present, the global economy is slowing down. So from a policy perspective, China still needs to stimulate, boost domestic demand, and expand investment. This year, one trillion yuan special government bonds have been issued. It is expected that at least one trillion yuan special government bonds will be issued annually for the next five years. These long-term investments will lead to infrastructure construction and the development of some major projects, including some large-scale initiatives. In addition, it will encourage other financial institutions, enterprises, and foreign investors to invest more in our domestic market. This is a medium to long-term goal that we are pursuing. In this process, the various Free Trade Zones, including the Hainan Free Trade Port, should also utilize more convenient ways to attract foreign capital.

Therefore, there will be some investment hotspots in the Hong Kong stock market and the mainland market in some key areas, including infrastructure, biomedicine, geospatial economy, quantum computing, big data, and robotics, etc.

【Anchor】Alright. Mr. Yu, how do you view the relationship between the market attitude and the third plenary session? What do you expect for the stock market performance going forward?

【Yu】The volume and performance of the A-shares and Hong Kong stocks have been subdued recently, underperforming expectations. But this may be related to the markets' cautious attitude towards the third plenary session, characterized by a wait-and-see approach due to uncertainties.          So once the meeting is held, the uncertainty will diminish. Therefore, the current phase is considered a normal performance stage in assessing policy trends and their impact on the market.

We know that in the past few days, the CSRC has temporarily suspended certain short-selling tools or imposed stricter regulations on them. For example, this includes quantitative trading, as well as halting margin trading and securities lending and repurchase transactions.

Recently, the Hong Kong stock and the A-shares have performed relatively well, of course, driven by favorable policy stimuli. But how long the upward trend will last remains to be seen. Of course, it is not too likely to trigger a reversal of the A-share market. We still hope that the third plenary session will release the three major economic reforms I just mentioned, namely economic system reform, opening up of the country to the outside world and technological innovation.

【Anchor】Alright. From the perspective of medium-to-long-term economic development, Mr. Dong, how do you think we should understand the relevance of the third plenary session to Hong Kong?

【Dong】The third plenary session still needs to boost the Mainland economy, and at the same time, co-ordinate the current economic situation of the Mainland and Hong Kong. Therefore, we need to revitalize China's economy and effectively implement the Fifteenth Five-Year Plan, focusing on upgrading foreign trade, high-tech development and infrastructure development. In particular, this includes further industrial upgrading and expansion in the Guangdong-Hong Kong-Macao Greater Bay Area. This will positively impact Hong Kong's financial and stock markets, injecting greater vitality and technological support into the relevant list

【Anchor】Alright. Mr. Yu, how do you view the relationship between the third plenary session and Hong Kong?

【Yu】Specifically for Hong Kong, it may mean more development opportunities and more room for cooperation. Hong Kong should actively participate in the development of the country, strengthen economic cooperation with the Mainland, form a synergy between Hong Kong and the Mainland, and jointly promote the development of the Chinese modernization that we have already established, particularly in the high-level and high-quality opening pattern. If our level of openness does not advance well, it could impose significant economic constraints on both Hong Kong and China. These are my opinions. Overall, I believe that the third plenary session will definitely bring benefits to Hong Kong stocks, A-shares, and both domestic and overseas investors. The key question lies in the magnitude of these benefits, but undoubtedly, they will be positive. I expect the stock market to perform well as a result.

【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.