The policy direction under President Xi Jinping will become clearer at the forthcoming Third Plenum of the ruling CPP in November, at which the outlines of the economic reform agenda for the next decade will be mapped out. Investors will be watching closely for indications of how the regime plans to engineer a shift from an export- and investment-led growth model to one that is more consumer-driven.

Measures to improve labor mobility (through reform of the hukou household registration system) and land reform (to advance the urbanization drive) are anticipated, amid hopes for a more concerted attempt to address the problems left behind by previous leaders. But it is perhaps too much to expect a radical shift in direction comparable to embrace of market mechanisms espoused by Deng Xiaoping in the late-1970s.

Among the specific problems that officials need to address is China’s growing debt burden, which is now at least double that of other heavily indebted emerging markets. With companies deleveraging in anticipation of lower growth and weaker investment returns, the risk of debt-related troubles is not insignificant.

Anti-trust regulators are reported to have threatened foreign companies with larger fines if they hire lawyers during investigations.

China’s foreign credit dependency is very low, and efforts being made to rein in local government indebtedness limit the near-term risk of a major crisis caused by foreign capital flight. However, a failure to get a handle on the debt issue now will increase the risk of a major internal credit shock down the road, a concern that could undermine growth potential in the near term.

A more immediate threat for foreign companies operating in China stems from the National Development and Reform Commission’s more rigorous enforcement of a five-year old anti-monopoly law. Anti-trust regulators are reported to have threatened foreign companies with larger fines if they hire lawyers during investigations.

Chinese officials have denied the claims, but recent enforcement actions against a growing number of multinational firms have indeed involved increased financial penalties. To be fair, there is no evidence that only foreign companies are being targeted.

However, with the authorities also raising concerns about mergers and acquisitions involving Chinese and foreign-owned enterprises, and taking a heavy-handed line on alleged perpetrators even before evidence is disclosed or cases come to court, foreign companies do seem to be at risk of unfair and discriminatory practices.

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