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Society & Culture

China’s New Leaders Face More Reform Challenges

Mar 19 , 2013

The conclusion of the 12th National People’s Congress (NPC) last week marks the formal completion of China’s leadership transition. Mr. Xi Jinping, appointed to the post of the general secretary of the Communist Party, has now assumed the position of the president of the People’s Republic (a largely ceremonial post) while Mr. Li Keqiang has taken over as the new premier (China’s chief economic policy-maker).  In addition, the NPC has also approved China’s new cabinet. The most notable appointments include Wang Yang (a vice premier), Ma Kai (another vice premier), Lou Jiwei, (the new finance minister), and Xu Shaoshi (chairman of the powerful National Development and Reform Commission). The incumbent central bank governor, Mr. Zhou Xiaochuan, highly respected technocrat, will continue his long-tenure.

On the whole, the new economic team may lift hopes for financial sector reforms. Mr. Zhou Xiaochuan has been a strong advocate for more exchange rate flexibility and liberalization of interest rates. Mr. Wang Yang, the new vice-premier whose portfolio likely includes the financial sector and foreign trade, has a reputation of a reformer (although he has yet to establish a solid record). The appointment of Mr. Lou as the new finance minister raises the possibility that the new leadership team could implement much-needed reforms in China’s dysfunctional fiscal system (which channels the bulk of the revenues to Beijing and forces local governments to rely excessively on land sales to generate income). Mr. Lou, a dynamic and experienced technocrat who played an important role in the fiscal reform of the mid-1990s, will be among the most qualified to push for a dramatic transformation of China’s fiscal system.

The much-publicized re-organization of the State Council (the cabinet), however, sends mixed signals. On the one hand, the elimination of the railway ministry, the only bureaucracy that owns and operates vast economic assets, may qualify as a step forward. The merger of the national family-planning commission and the ministry of health should also be welcomed, mainly because this reform implies the end of the disastrous one-child policy. Although official spokespersons have consistently denied that the government will abandon such a policy, the disappearance of the national family-planning commission as an independent bureaucracy and a strong advocate for the continuation of a draconian policy suggests that the new leadership will greatly relax this policy, if not abolishing it altogether, in the coming years.

On the other hand, those hoping that the new leadership will make a bold reform statement will likely be disappointed. There was no indication that the new leadership will take on the powerful state-owned enterprises (SOEs). The National Development and Reform Commission (NDRC), perhaps China’s most powerful economic bureaucracy charged with planning industrial policy, approving investments, setting prices, and formulating regulations, remains intact. Before the NPC, advocates of reform urged the new leadership to split the NDRC and re-establish an independent commission of economic reform. Such a step would have underscored the new leadership’s commitment to economic reform and reduced the power of the NDRC (which is viewed as ideologically conservative and biased in favor of SOEs). However, such a proposal was not adopted.

If the message on the front of economic reform is rather mixed, the signal on political reform sent by the new leadership is quite clear. Mr. Yu Zhengsheng, a member of the new seven-member Politburo Standing Committee (the Communist Party’s top decision-making group) and the new head of the Chinese People’s Political Consultative Council (a top advisory institution), announced in his inauguration speech that China “would never copy the Western political system,” implying a rejection of democracy. This statement merely reiterates the Communist Party’s long-standing principle. However, since its formal installation last November, China’s new leadership has taken pains to avoid using such strong language to dash hopes of political reform – even though they have also been careful not to raise any expectations of such reforms. From this perspective, Mr. Yu’s pledge can only dampen optimisms for greater political openness under the new leadership.

Based on the ambiguous messages sent by the NPC, outside observers can only conclude that China’s new leaders have a long way to go before they can convince both the Chinese public and the international community that they are committed to a bold course of economic and political reforms (the two sets of reforms are intricately linked because without changing the system of governance it would be hard to make the economy more market-oriented and growth more inclusive).

Fortunately, Beijing has another opportunity to do so. In the fall, the ruling Communist Party will convene a plenum of the new Central Committee. Traditionally, Chinese leaders announce important policy objectives and initiatives at such a gathering. If the new leadership gets an incomplete for the outcomes from the NPC, it should strive for a much better grade in the fall.

Minxin Pei is a professor of government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States.

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