Some people argue that China’s can not truly transform its economy without broader, liberal political reforms that unleash a “marketplace of ideas”, creativity and innovation. The leadership does not seem to agree with that argument.

Effectively combating corruption is key to most of these reforms. if the Party can not get corruption under control—not eradicate it, as that is unrealistic—then much of this will be just talk.

BI: What does this mean for the Chinese economy?

BB: It is unclear. Many of these changes will take years to implement, and some may be thwarted or distorted as they flow from the center down through the bureaucracies. But expect the overarching goal to be the transformation of the economic growth model and the de-emphasis of GDP.

BI: Why should investors care?

BB: If the leadership gets it right then China should be able to work through many of the current economic problems, albeit very painfully. If they do not, the country may be headed to severe distress in the next few years.

As for individual stocks, there are lots of local analysts putting out recommendations on stocks that could benefit and some have run up significantly ahead of the Plenum. At least in the short-term you may see smart investors “buying on the rumor and selling on the Plenum”, as there are so many expectations built into this upcoming meeting that it is hard to see how there will not be disappointment in the near-term. And expect many of the pundits and economists to express “disappointment” with whatever is in the report, so there may be a shift back toward more negative sentiment about China in overseas discourse.

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