China's reforms amid turmoil in the West

As the Third Plenum begins a decade of reforms in China, the United States and Europe are coping with a lost decade of liquidity traps, growth stagnation, and sluggish recoveries.

In the 1980s, the then-Chinese leader Deng Xiaoping's economic reforms and opening-up policies enabled China to industrialize through investment and export-led growth. Those reforms were supported by three decades of globalization, which rested on the ability of the West to absorb Chinese exports.

In the coming decade, the economic reforms led by President Xi Jinping and Premier Li Keqiang will seek to fuel China's transition to consumption-led growth. However, these reforms will occur in a challenging international environment, amid what might be a lost decade in the West.

What can we expect in the near term?

In the past few months, China's new leadership has provided glimpses of economic reforms, which have now been officially launched.

According to the communique announced at the close of the Third Plenary Session of the 18th Communist Party of China Central Committee on Tuesday night, there will be reforms of the market, government and State-owned companies.

The key goal is to clarify the government's role in the economy. These are accompanied by reforms in finance, taxation, State assets, social welfare, land, foreign investment, innovation and good governance. In turn, the reform packages seek to relax control over market access, launch social security and allow sales of collectively owned rural land. The household registration system, which continues to discourage migration, will be phased out beginning with easier access to urban registration in third-tier cities.

The reforms come with increasing financial deregulation. A market-driven financial sector is vital to support the social model and consumption-led growth. Concurrently, China is opening doors for foreign investors and financial institutions, and the intention is to make the renminbi fully convertible and a major international and reserve currency within a decade.

Since early fall, these reforms have been fueled by the creation of Shanghai's free trade zone, along with 18 new policy initiatives, which seek to reduce restrictions in half a dozen key industries, including financial services and telecommunications.

These reforms, which will be spearheaded by a central team, are likely to be phased in over the next decade.