The most important question about the upcoming Third Plenum of the Communist Party to be held in November 2013 will be what indications it gives about a post-high growth Chinese macroeconomic period. For the last thirty years, high growth has been taken as a given. This hovered around 9 per cent, sometimes rising to 11 or 12 per cent, and once or twice slipping to 8 per cent. But the pattern of a growth rate around 7.5 per cent is now clear. China is in an era of medium levels of growth, and this will involve some important challenges.
One of the most critical of these will be managing people’s expectations. High growth motivates people. China’s economic model in the last decades has created huge inequality, but it has also allowed most of the population to see some sort of tangible impact of their lives from this growth. The migrant laborers, for instance, have suffered and sacrificed during this period, but they have also been able to see benefits in rising living standards and new opportunities. While growth is strong, these hopes of being able to make a better tomorrow can be easily kept alive. But lower growth means the chances are reduced. For the first time, Chinese people are contemplating a future where they are likelier to see stagnation rather than dynamism. The popular response to this towards the government in terms of protest and expressions of frustration might be harsh, and the loyalty of people to the state which can no longer deliver high growth might prove itself to be very weak indeed.
Another challenge will be the government and party’s ability to articulate new social policy goals that are able to replace the fixation on raw GDP that has prevailed till now. The answer by the government to most complaints and attacks over the last decades has been to simply point at the high growth and let that do the talking. Now things are more complicated, and social-political tasks are coming to the fore. Hu and Wen during their period in office did set up the foundations of a national welfare and health system as a precursor to this. But it is a work in progress, and its completion will involve huge financial support and negotiation across the different government levels and vested interest in the country, In effect, the creation of a national healthcare system will be big business and involve creating a whole new power block. The political management of this alone will be challenging. The problem for the government at the moment is that wherever it places focus and tries to coordinate and harmonise, it also manages to bring into existence a new world of vested interest. This Midas touch is a mixed blessing. It has great powers, but these can be positive or negative. Its key function remains management. In this area, its abilities are improving but mixed.
These two challenges of communication and more complex policy goals are evidently closely linked. Chinese people are better informed and more educated than ever before. They are becoming demanding and expectant. So the Party has to have a much stronger means of trying to speak to them in a way that is consensual and non-prescriptive. Its deployment of the levels of coercion that existed in the past is waning by the day. This is made even more difficult because of the complexity of the message it is trying to get across. The Plenum will be the first major opportunity under this new leadership to see how they plan to approach these two major goals.
It will also be the first major occasion to see what consensus exists within the Party itself over the structural challenges in the Chinese economy that Li Keqiang has talked most about over the last few years, both as Vice Premier from 2008 and then Premier from this year. He has referred to four key problems that are the key to creating `fast sustainable growth’ – low consumption in China, low service sector as proportion of GDP, relatively low urbanization, and high capital investment. In all of these areas, China is out of kilter not only with developed economies, but also with developing ones. Li has referred to creating `new spaces for growth’ as the key government challenge.
Addressing each of these four areas would involve major political decisions. Urbanisation means looking hard at household registration reform and removing the remaining differences between rural and city inhabitants that still exist now. Rising consumption would mean doing something radical about social welfare so that citizens are less inclined to save and feel secure enough to spend. Capital investment reduction means changing the role of the state in the economy from its very privileged and central role at the moment and handing more over to different kinds of enterprise and economic actors. Supporting service sector development in essence means developing stronger rule of law, something financial markets are reliant on. Any of these issues taken in isolation would be major challenges to deliver. All of them, taken at once, present the new leadership with a massive hurdle. It is clear that there is wide awareness in China that things have to change and the economy needs to move from export orientated manufacturing towards a different, more diverse model. But after this, there is widespread disagreement. The plenum will give some hints of where the differences currently are and where mainstream elite opinion in China might be inclined to take the country. For that reason, it is a meeting that may well have lasting significance.
Kerry Brown, PhD is the Executive Director of the China Studies Centre and a Professor of Chinese Politics at the University of Sydney.