China has unveiled a comprehensive reform package to revitalise the world's second-largest economy after releasing an underwhelming communique early last week, heralding a fundamental shift in economic policy for Australia's most important economic partner.
Beijing's broad reform policy initiative, ranging from a taxation system overhaul to land reform, will have a direct consequence on Australian industrial sectors such as resources, tourism and real estate.
The Chinese government's decision to crack down on industrial overcapacity, especially in the steel sector, is most likely to have an impact on Australia's iron ore industry, which exported $39 billion worth of ores to China last year.
"As China's economy slowed, extra capacity became a major issue, one that the central government is now resolved to tackle," the official Xinhua News Agency reported.
China's steel industry, which collectively earned only 2.27 billion yuan or $397 million, for the first six months of the year is one of the worst-performing industries with a collective profit margin of 0.13 per cent. Under China's new economic policy, Beijing will not prop up the inefficient steel sector with favourable policies such as subsidised electricity, water or land prices, and will demand consolidation in the sector.
The State Council, China's cabinet, issued orders to ban new projects, reappraise projects under construction and close down unauthorised or polluting production facilities.
Chinese local governments, whose support has been crucial to the steel industry's survival, are likely to be challenged under the new market-centred economic policy. Zhao Zhenhua, an economist from the Central Party School, an influential think tank, said the excess industrial capacity was due to local interference.
"What appears to be overcapacity is in fact a revelation of blind competition among local governments," Xinhua reported Mr Zhao as saying.
Beijing's wide-ranging policy reform package has impressed many commentators and economists. Mark Williams, the chief Asia economist of Capital Economics, said the reform package exceeded expectations.
"This is the most impressive statement of reform intentions that we have seen this century," he said.
The news of China's bold economic reform came as the ANZ received the green light from the Chinese regulator to open up a sub-branch in the Shanghai free trade zone, which is expected to play an important role in the country's further liberalisation effort.
"The Shanghai free trade zone initiative is an important initiative as part of China's reform agenda and is expected to further open up the financial services industry to private and foreign capital," Charles Li, ANZ's chief executive for China, said.
"It will also help to bolster RMB convertibility, support a path to interest rate liberalisation and increase the volume of cross-border transactions given companies located in the zone will be able to take advantage of both onshore and offshore markets."