The third plenum of the ruling Chinese Communist Party (CCP) central committee, which concluded on November 12th, has left many observers disappointed. After months of efforts by the senior leadership to promote the meeting as a major reform landmark, its final report came as something of a let-down. However, it was broadly in line with The Economist Intelligence Unit’s very modest expectations. We continue to believe that the government’s proposals are too tame and that its approach, especially its refusal to contemplate political reform, remains too conservative.
The plenum confirmed that the CCP leadership is moving towards a new approach when it comes to the government’s management of the economy. The main element of this strategy seems to be a shift away from direct state intervention in the economy towards more indirect forms of influence – but without substantial loss of control over economic affairs. The communiqué released at the close of the meeting spotlighted this shift by calling for the market to play a “decisive” role in governing the allocation of resources, a significant upgrade from the CCP’s previous line that the market should play a “basic” role in doing so.
State ownership: here to stay
Despite this theoretical gain for economic liberals, there was no apparent shift in the way the CCP is talking about the state sector itself. The report backs the “dominant role of the public-ownership system” and the “leading role of the state-owned economy”. This would suggest that hopes that the government is about to downscale the role or power of the main state-owned enterprises (SOEs) are wide of the mark. It is becoming clearer that the leadership would prefer instead to improve the efficiency of SOEs through reforms that liberalized prices for factor inputs (including utilities), reduce distortions in the financial sector (notably through interest-rate reform) and increase competition from private-sector firms.
Although there is probably room for some marginal improvement through such measures, we remain very dubious that these moves represent a credible long-term approach. In the end, the productivity of the powerful state sector is likely to remain hobbled by politics, making it a significant drag on the economy’s growth potential.
On other important economic topics there was little clarity. Land reform, realignment of local government financing, financial reforms, urbanization and environmental issues were all touched on briefly in the end-of-plenum communiqué, but in such a vague and standardized fashion as to give little indication of any decisions that had been reached. This is not wholly surprising – plenums have not usually been a platform for publicly promoting major new policies. Nonetheless, these issues are likely to have been discussed, and over the coming months the approach backed by the central committee will probably be fleshed out with new policies.
A new power base
The most intriguing announcement contained in the plenum’s report was the establishment of a new leading small group (LSG) to promote comprehensive reform. The implications of this are obscure, but could be far-reaching. The comprehensive remit of the LSG suggests that its authority will extend beyond economic reform, and LSGs are traditionally among the most powerful entities in policy setting.
There have been some suggestions in the press that the new body could be designed to circumvent opposition to reform in the National Development and Reform Commission (the economic planning body), but this is to underestimate its authority. Instead, it looks more likely to usurp the influence of the Politburo standing committee (PSC, China’s most powerful political body). It appears that the LSG could be used to circumvent conservatives on the PSC, but if that turns out to be the case there are likely to be some explosive factional battles within the ruling party. Much will depend on the make-up of the body, but China does not usually publish membership of LSGs, which will make it tough to work out who dominates.
One thing that did emerge clearly from the plenum was the CCP leadership’s focus on social issues. This gives confirmation, if more was needed, that they view maintaining social stability as their main challenge in the next few years. The establishment of a State Security Commission was the most obvious of the policies linked to this goal. Although this will deal with external issues – its Chinese name bears similarities to the US National Security Council – the way it is referred to in the communiqué suggests that its main focus may be domestic. The recent suicide attack in Tiananmen Square, in the capital, Beijing, by militants from Xinjiang spotlighted the type of issue that the new commission will be expected to manage.
However, the plenum also addressed other topics that will need to be tackled if wider social stability is to be maintained. It noted in unusually forceful language that the “dual structure of town and country is the main obstacle restraining the integration of urban and rural development”. This suggests that reform of the household registration (hukou) system will begin with dissolving the difference between rural and urban hukous. This will probably be tremendously difficult, given the vast disparity in the social welfare offered to the two types of hukou holder, but the CCP looks determined to move ahead.
More subtly, the communiqué also talked about improving the judicial system to make it more independent and fair. In a risky move, it re-aired the controversial topic of constitutionalism by noting that the authority of the law and the constitution should be safeguarded – China’s constitution contains many safeguards for individual rights and liberties that are often breached with impunity by the authorities. Improving the rule of law and making officials more accountable to the judiciary could help to alleviate many of the social problems facing China at present. However, the government’s reluctance to make the judiciary independent, or to make the CCP accountable under law to the judiciary, has historically blocked progress on this front. Despite the communiqué’s wording, it still seems unlikely that the party will bite that particular bullet.
Same old story
The staid language of the plenum communiqué may say as much about the meeting’s outcome as any of the actual words. For all the government’s efforts to spin its program as a radical reform agenda, the proposals under consideration are relatively tame. The document calls for “decisive results” on its agenda by 2020 – a date that is far away, for a policy program that is so vague that one wonders why they bothered putting a deadline in at all.
The absence of any hint of political reform proposals shows that the CCP’s thinking remains deeply conservative. Although we do not expect China to experience significant economic or political instability over the next five years, the government’s entrenched approach suggests that the country’s rigid political system would not deal well with an unexpected crisis.
At heart, the CCP still seems wedded to its existing model of state control and one-party leadership. To be fair, its communiqué makes clear that the party leadership is aware of the growing scale of the challenges facing the country. However, the agenda being contemplated does not present a credible set of policies for long-term economic growth. The best that can be said for it is that it may buy a few more extra years during which support within the CCP for other changes may gather momentum.Source: The Economist/Intelligence Unit – Post-plenum blues?
- Three Sensitive Reforms Discussed at the Third Plenum in Beijing (theepochtimes.com)
- China to unveil 10-year reform plan, expectations toned down (chinadailymail.com)
- Disappointment With Third Plenum Is Premature (thediplomat.com)
- New Chinese agency to ‘manage’ social unrest (chinadailymail.com)
- Was China’s Third Plenum a Bust? (thediplomat.com)
- Third Plenum Communique (whilechinarising.wordpress.com)
- China Pledges to Increase Market Role in Economy (ictsd.org)
- China’s Leaders Miss Chance to Make Economic History (world.time.com)