News Analysis: China in your hand

The Chinese government seldom lets the outside world into its thought process so when it does every word is dissected for its potential meaning not only in terms of the country itself but the global economy too.

Earlier this month, the Chinese government released a paper entitled “A Decision on Major Issues Concerning Comprehensive and Far-Reaching Reforms”, which proposed sweeping reforms including opening up state-owned enterprises to private investment and reducing its stronghold over Chinese business.

The paper was part of its Third Plenum where the great and the good of China’s powerful elite lock themselves in a room for days on end before announcing what reforms they hope to enact in the forthcoming years.

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“Economic reform is key, and the core solution is the proper relationship between the government and the market, leaving the market to play the decisive role in allocation of resources and the government to play a better role,” the statement said.

The debate about whether what has come out of the Third Plenum is good or bad is characterised perfectly by one of its most bullish fund manager supporters and another big name who sits on the other side of the fence.

Fidelity’s Anthony Bolton told reporters in Hong Kong last month that the policies were a “catalyst” for foreign investment.

“What I think is really impressive is the extent of what they’re doing, and the amount of reform that they’re doing . . . When you add all this up, I think it is pretty significant,” Mr Bolton said.

“There hasn’t been a catalyst, particularly to get foreign interest back in China. I think this could be the catalyst that brings that money back,” he said. “I think this will be the new story.”

Mr Bolton who is stepping down from his £510.4m Fidelity China Special Situations fund in April next year, has famously lost investors’ money through investment in the locally-listed Chinese ‘A’ shares market since the fund launched in April 2010, although it has rallied in the past six months.

Hugh Young, managing director of Aberdeen Asia and manager of its £2.4bn Asia Pacific fund, said while the tone of the Third Plenum was positive it did not provide clarity about how investors would make money.

The manager said the issue was that while the macroeconomic picture was improving, he could still not find attractive companies on the ground.

“In principle we would love to put money in China through great Chinese companies, but as we have seen with other managers, China can be a rather tricky place when it comes to deciding on the companies,” Mr Young explained.

“...Maybe we are too long in the tooth and conservative, but we prefer a little more clarity. The tone is undeniably good but does it mean you suddenly plough all your money in? It’s not the way we do it,” he said.

Mark Williams, chief Asia economist at Capital Economics, agrees that “the problems that existed on the eve of the Plenum have not gone away”.