China’s leaders poised to unleash market forces after plenum - Financial Times
China’s leaders poised to unleash market forces after plenum
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November 12, 2013 4:10 pm
China’s leaders poised to unleash market forces after plenum
By Simon Rabinovitch in Shanghai and Tom Mitchell in Beijing
For months it was billed as a pivotal moment for the advancement of China’s economic reform agenda.
Such was the sense of anticipation that the so-called “third plenum” of the Chinese Communist party’s 18th Central Committee appeared to disappoint, in as much as it offered only faint clues about the specific reforms President Xi Jinping and Premier Li Keqiang intend to implement over the coming decade.
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IN CHINA
But there was enough from the four-day gathering of more than 370 of China’s most powerful men and women, which ended on Tuesday, to suggest that the president and premier are preparing to unleash market forces as never before in the world’s second-largest economy.
Plenums have traditionally offered Chinese leaders a platform on which they can lay out a vision for their time in power, and have come to define the country’s economic strategies over the past three decades.
While not widely appreciated at the time, in December 1978 Deng Xiaoping consolidated his grip on power at the third plenum of the 11th Central Committee and launched China along a path from which there was no turning back.
This week’s plenum hinted that bland rhetoric could be a precursor to bold action, leading to far-reaching reforms. In particular, analysts pointed to the creation of a leadership group to spearhead reforms. The body will probably be headed by either Mr Xi or Mr Li and rank above ministries, allowing it to direct and co-ordinate policies.
While China’s growth record since the early 1980s is a testament to the success of earlier moves to shift towards a more market-driven economy, Mr Li has previously observed that the reform process has “entered deep waters”, an allusion to powerful vested interests that are opposed to far-reaching reforms.
“They are learning lessons from the past. If you don’t have a small group pushing reforms forward, then you have too many interests holding them up,” said Shen Jianguang, an economist with Mizuho Securities. “Objections have come from the establishment, from ministries, and now the small group will be able to overrule them.”
“The new leaders appear very determined to move forward but actually implementing changes will be much more difficult,” added Gary Liu of the China Europe International Business School. “Our system is very complex.”
In a sign of what some saw as the government’s resolve to press ahead with difficult reforms, the communiqué said markets would play a “decisive role” in allocating resources. Previously, markets had been described as playing a “basic role”.
For years, China has pledged reforms to give farmers more control of their land, cities more fiscal powers and private investors more space to operate in. But progress on all fronts has been limited.
They are learning lessons from the past. If you don’t have a small group pushing reforms, you have too many interests holding them up
- Shen Jianguang, Mizuho Securities economist
The communiqué noted the problems arising from China’s two-tier system of land ownership, under which farmers intent on migrating to cities – or even already settled there – may not sell their land back home to fund their new lives in urban areas. “Farmers should participate equally and enjoy the fruits of modernisation,” the statement said.
“The concept of equal land rights has been raised,” said Ma Guangyuan, a Beijing-based economist. “The distinction between urban and rural land will surely be abolished. That will be a significant reform.”
Much was also left unsaid in the communiqué. While attention has centred on Mr Xi’s agenda for financial reform, the plenum made no mention of banks, interest rates or the renminbi – three areas that are crucial to China’s financial plans.
“They need to increase the intensity of reform,” said Gao Minghua, director of a corporate governance centre at Beijing Normal University. “The promise to protect the private economy is new, but the communiqué doesn’t outline any specific measures.”
Other analysts argued that the lack of detail should not be seen as a disappointment. Communist party documents are often intentionally vague and leave implementation to government departments.
At another plenum in 1993, the party embraced the concept of a “socialist market economy”. Within a decade of that bland and seemingly contradictory pronouncement, China established stock markets in Shanghai and Shenzhen, joined the World Trade Organisation and overhauled its banking sector.
Under then President Jiang Zemin and Premier Zhu Rongji, the government also began a cull that reduced the number of state sector employees from about 70m in 1997 to 35m a decade later, while state-owned enterprises halved from 250,000 to fewer than 125,000 over the same period.
The downsizing of the state sector has since slowed, however, with state-owned companies being the prime beneficiaries of cheap credit and a Rmb4tn government stimulus that carried China’s economy through the depths of the global financial crisis.
Xi, the son of revolution
After a career spent largely in provincial leadership positions, Xi Jinping entered the party’s inner sanctum in 2007, when he joined the Communist party’s Politburo Standing Committee and became vice-president a year later. The appointments put him in pole position to succeed Hu Jintao, China’s then president and party general secretary.
Like most up-and-coming political figures, Mr Xi kept a low profile as vice-president, with the exception of a 2009 outburst in Mexico when he lashed out at “a few foreigners, with full bellies, who have nothing better to do than try to point fingers at our country”.
The son of a revolutionary leader, Mr Xi seemed at ease as he assumed power in a transition that began last year. Compared with Mr Hu, a wooden figure, Mr Xi speaks confidently in public and in March outlined his “dream” of national rejuvenation. It was the kind of rhetorical flourish usually associated with western politicians.
But while Mr Xi’s more fluid leadership style has been dramatically different from that of his predecessors, this week’s plenum resorted to the same formulaic language trotted out by the party on such occasions.
That disappointed some observers, especially after Yu Zhengsheng, who also sits on the Politburo Standing Committee, promised “broad and unprecedented” reforms that would “strongly push forward profound transformations in the economy, society and other spheres”.
They had hoped the plenum would announce concrete measures to rein in China’s state-owned enterprises, which dominate vast swaths of the economy, while also unveiling land and residency reforms to better the lot of the 260m migrant workers.
