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Third Plenum to Promote Xi and Li’s New Ideas on Reform

Nov 08, 2013

Like it or not, any development in the United States or China has an impact on the whole world. The world audience is still reeling from the US debt ceiling crisis, and now a forthcoming meeting of China’s ruling party has grabbed their attention.

The Communist Party of China announced last week that its new Central Committee will hold its third plenum in early November. Interestingly, “third plenums” have been milestones in China’s economic and social development. The 11th Central Committee’s third plenum was noted for launching the reform and opening-up drive; the 12th third plenum initiated the concept of a “commodity economy based on public ownership”; the 14th session adopted the version of “market economy under government macro control”; and the 16th promised that the “market should play a greater role in allocating resources.”

What will the Third Plenum of the 18th Central Committee prescribe? This writer has noticed some signs of new development. First, both President Xi Jinping and Premier Li Keqiang recently expressed the idea of “giving market force a greater say in the economy” and most economists opined that “using massive investment to spur economic growth is no longer a sustainable development model.” The government has also implied a greater dependence on domestic consumption for economic growth. Second, President Xi raised six major issues at a meeting in Wuhan on July 24 for discussion, namely “establishing a unified market system across the country, multiplying the impetus for economic growth, improving macro-control of the national economy, invigorating social development, striving for social fairness and justice, and increasing the Party’s proficiency in state governing.” This indicates that China will push the cause of “reforming the socialist market economy system” while pushing forward Xi-Li administration’s innovative idea of “upgrading reform.”

The new plenum is expected to announce “eight new measures of administration.” First, market forces will be allowed a greater say in the banking sector. Interest rates will be reformed to benefit household savings, and the control over cross-border capital flow will be eased. Second, local governments will pay the lion’s share of social expenditure while they will be granted new taxation right so as to reduce their reliance on loans and land leasing. Third, farmers will be given greater freedom in land management. Fourth, the government will scrap its control over the prices of energy so as to reduce air pollution and let the market decide the price of gas and power. Fifth, the new government promises to cut the number of mandatory approvals by one third during its term of office in the reform of the administrative approval system. Sixth, there will be an effort to settle the problem of income inequality. Seventh, the resident registration system will be reformed to allow rural migrant workers enjoy the same welfare as urban residents do. Eighth, state-owned enterprises will be reformed to break their monopoly in the market and let the market decide on the allocation of resources.

However, reform brings both dividends and difficulty. On the one hand, if Xi and Li succeed in their strategies for a new round of reform, China will achieve a successful turn in its development model and become a powerful engine propelling the global economy towards recovery. On the other hand, the difficulties the new leadership has to overcome will be greater than ever before. There are four major problems. The first is the external pressure caused by the political challenges from the outside world and the impact of the sluggish global economy. The second is the “pressure of political reform” from both the right and left sides. Over a long period of time, China’s reform has been interfered by both rigid and liberal thoughts on such issues as “orientation of political reform”, “universal values” and “constitutionalism.” The third problem is rampant corruption. The privileged stratum’s insatiable pursuit of more interests and the public’s increasing resentment has posed serious challenges to reform. The fourth problem is bureaucracy. Indulgence in extravagant lifestyles and nonfeasance in office is rampant among officials. The Wall Street Journal said, “A mid-July move by China to increase the power of the market in the banking sector was a significant step in a plan to overhaul the country’s economic model. It may also have been the last easy win for China’s new leaders, whose reform program will likely run into stiff opposition.”

It’s not strange that the reform efforts “run into opposition,” for opposition has always been there. But the assertion of a “last easy win” is too pessimistic, for the new leaders’ determination, wisdom and ability have proven not to be underestimated. For instance, the speed with which the Shanghai free trade area was established was surprisingly fast, given the pressure from the TPP, TTIP and PSA. The birth of this free, open and innovation-oriented pilot area is like an economic nuclear explosion. The shock wave and radiation it generated is spreading across the country to stimulate reform and institutional renewal. The significance of the new area is as profound as the Shenzhen Special Economic Zone, which was set up in the early years of the reform and opening-up drive.

One has full reason to expect that the CPC Central Committee’s third plenum will inject new force into China’s development by reshaping its economy and lend a strong push to the world economy in its recovery.

Chen Qun is Former Vice President of the China Law Press.

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