x Abu Dhabi, UAEMonday 22 January 2018

China’s third plenum to set out agenda for deeper reforms

The leaders of the world's second-largest economy are meeting this week with a view to overhauling financial and business practices and regulations as Beijing looks to move away from a reliance on exports to domestic consumption.

The Shanghai Free Trade Zone in Pudong district. It is expected the plenum would expand free trade zones to other places. Carlos Barria / Reuters
The Shanghai Free Trade Zone in Pudong district. It is expected the plenum would expand free trade zones to other places. Carlos Barria / Reuters

This week the ruling Communist Party is holding a key party plenum that should be the forum for China’s new leadership to detail its plans to “comprehensively deepen” financial reform.

The third plenary session gathers the politburo’s seven-member standing committee, plus the 200-odd members of the central committee, which was selected at the party congress in November last year.

To give it its full title, it is the third plenary session of the 18th central committee of the Communist Party of China (CPC).

It was the third plenum in 1978 that saw Deng Xiaoping’s economic liberalisations emerge, which have formed the basis of China’s economic rise, as well as the launch of Zhu Rongji’s socialist market economy in 1993.

The 1978 plenum ushered in market-oriented policies that spurred average annual growth of more than 10 per cent for 30 years.

“We will see a new round of comprehensive economic and also political reforms in the coming years which will put China on a more solid foundation for sustainable growth,” Li Daokui, a professor at Tsinghua University and former adviser to China’s central bank, told Bloomberg.

Topping the agenda will be a discussion “on comprehensively deepening reform,” the official Xinhua News Agency said yesterday to announce the start of the meeting.

The plenum will “deliberate on a draft decision” of the party’s central committee on “major issues concerning comprehensively deepening reforms,” it said, without giving details.

Xinhua used the phrase “comprehensively deepening reform” three times in the four-paragraph report, according to Bloomberg.

“We must properly handle the relations between reform, development and stability, and with greater political courage and wisdom, further open our minds, unleash and develop social productivity, and enhance the creative forces of the society,” the current president Xi Jinping told overseas business executives last week.

According to a central committee political bureau statement, “the realisation of the Chinese dream of national rejuvenation requires comprehensively deepening reforms and boosting confidence, theory and the system of socialism with Chinese characteristics”, while “various malpractices in systems and mechanisms must be cleared”.

The premier Li Keqiang has promised to cut the state’s role in the economy, rejuvenate the financial and fiscal systems and overhaul land and household registration rules to sustain economic growth.

Reform and opening up are a “great revolution” by the Chinese people under the CPC’s leadership in the new era. Deepening reforms requires the improvement and development of socialism with Chinese characteristics, according to the statement.

The scope and aggressiveness of the reform plan will be “unprecedented” and the impact on all aspects of the economy and society will be “profound”, said Yu Zhengsheng, the chairman of the Chinese people’s political consultative congress.

“The depth and strength of the reforms will be unprecedented and will promote profound changes in every area of the economy and society,” said Mr Yu.

China’s economy is in a gradual rebalancing phase, according to the government, and Beijing has repeatedly said it would accept slower growth as it tries to wean the country off dependence on investment and exports in favour of domestic consumption.

Since the third plenary session of the 11th CPC central committee 35 years ago, the party has promoted reforms concerning economic, political, cultural and social systems, as well as those on ecological progress and the institutional construction of the CPC. Opening up has continuously widened, the statement said.

The plenary session will see the CPC work to speed up development of the socialist market economy, democracy, cultural development, social harmony and environmental protection.

The tone of the statement is certainly upbeat.

“We should let labour, knowledge, technology, management and capital unleash their dynamism, let all sources of wealth spread and let all people enjoy more fruits of development fairly,” it said.

It added the Communist Party’s leadership must be strengthened and improved, “giving full play to the party’s core role that exercises overall leadership and coordinates all efforts to ensure success of the reforms”.

The respected writer, scholar and historian Zhang Lifan – whose father Zhang Naiqi was persecuted during the Anti-Rightist Campaign in the 1950s, and who suffered himself during the Cultural Revolution – believes the plenum will focus much more on the economy rather than politics.

“This plenum will be mainly economic reforms. For example, state-owned enterprises (SOEs) will give some space to private companies. Second, the free trade zone will expand from Shanghai to other places. Thirdly, there will be some land reforms in the rural areas,” said Mr Zhang.

“They will make a framework at the plenum, but won’t be an exact route how to do it. Politically, I don’t think there will be any reforms. It will be still to maintain the role and position of the Communist Party. There might be some reform of the administrative system. On the whole, it is politics left, economic right.”

Reform of the SOEs is looking very likely.

“The upcoming [plenum] will make new arrangements to deepen reforms of the state-owned enterprises,” Huang Shuhe, vice chairman of the State-owned Assets Supervision and Administration Commission (Sasac), was quoted as saying in Caijing magazine recently.

He indicated the direction of the meeting should be “a departure of government functions from enterprise management and capital”.

SOEs would be encouraged to introduce private and strategic investors in pushing ahead with shareholding reforms, he said, while supervision of the state assets should be beefed up to stimulate growth of the SOEs.

Mr Huang also warned of a slowdown of the SOEs in the first eight months, which he blamed largely on slack demand externally and overcapacity in some industries domestically.

SOEs are suffering – profits fell 2.9 per cent year-on-year in the first eight months, Sasac data show.

The “hukou” residence permit system is also expected to be relaxed further. Currently many benefits are tied to one’s place of residence, which is a big disincentive to moving. Reform of the hukou system would allow more migrant workers to come to the cities to work, giving fresh impetus to the pace of urbanisation.

A key element will be land reform. Chinese farmland is still held in collective ownership and farmers are not allowed to own the land they work and live on. But one possible reform could see land-use rights extended to millions of rural families.

In the policy document released ahead of the plenum, there were recommendations that would grant farmers the right to trade collectively owned land under a unified open market, which would equally value urban and rural land.