Following the release of the Third Plenum’s 60-point decisions here there is now less disbelief that the Xi leadership really wanted fundamental reforms. The question is to what extent these reforms may deliver a substantially transformed China by 2020.
Much recent scepticism misses how the Communist Party collectively works. There was considerable political gestation leading up to Xi’s installation as President. Any serious differences in direction had largely been ironed out. The Bo Xilai affair helped to concentrate the mind. There is now consensus in the top leadership that without urgent systemic reform, the whole Party boat would sink.
This reality was borne out in an earlier 468-page World Bank Report co-authored with the State Council’s Development Research Centre. The report, “China 2030: Building a Modern, Harmonious, and Creative High-Income Society” Click here recognizes that the country’s 30-year-old growth model has now reached a dead-end. Drastic structural changes are imperative to transit to a higher-income economy. The report was unveiled and discussed at a high-level national conference in February 2012 hosted by Li Keqiang as Executive Vice Premier. Many recommendations of the report are now embodied in the final decisions of the Third Plenum. Let’s now consider their practicability and impact.
First, modification to the One Child Policy is likely to ameliorate, if not immediately reverse, China’s looming aging demographics. Subsequent modification, perhaps even abolition, of the Policy cannot be ruled out. This should inject more young blood to enhance China’s productivity drive towards innovation and skilled services. This is supported by findings Click here that China now tops the world in filings of patents, trademarks and industrial designs. The Royal Society also predicts that China is likely to overtake the United States in the number of scientific citations this year Click here.
Second, as long-expected, the “hukou” (household registration) system will be reformed. This has created a massive urban under-class of rural migrant workers deprived of any social protection. To help break down the inequitable social divide is a bold rural land reform. This will enable peasants to mortgage, rent or transfer their land, of which they have so far enjoyed only user rights. The Plenum decisions also pledge to ensure a universal, if basic, access to healthcare, old-age pension and education. These measures will help and financially empower the massive number of rural migrants to integrate into the urban social fabric. They will in due course become part of a burgeoning middle class of consumers to help balance the economy’s over dependence on investment and exports.
Third, it is easy to be confused by the opening statement that “public ownership” would remain the “main body of China’s economy” here . While some of China’s giant state-owned enterprises have risen to the world’s top league by market capitalization, their productivity and global competitiveness leave a lot to be desired. Included changes are mixed ownership between public and private capital, transformation into state-owned investment companies (similar to Singapore’s Temasek), increasing state-owned sector’s tribute from 15% to 30% by 2020 for improving people’s livelihood, freeing up the pricing of water, electricity, oil, gas, transport and telecommunications, and allowing the formation of private banks. As noted in the Financial Times here, state-owned enterprises’ monopolistic privileges will be gradually “chipped away”.
Fourth, the Plenum decided to open further the finance, education, culture and medical sectors, while easing investment restrictions for nursery, pension, architecture, design, accounting, trade, logistics, and e-commerce. This is to be supported by free trade zones and investment facilitation policies. The RMB, the Chinese yuan, is to become a globally-traded currency by 2015 and to achieve capital account convertibility by 2020. This will be accompanied by interest rate liberalization. If realized, this is likely to make the RMB the world’s most traded currency. This is no surprise as China is the largest trading partner of 126 countries compared with 76 in the case of the United States. Six of the world’s top eight container ports are located on China’s eastern seaboard, a testimony to China’s pivotal position as the centre of the global trading and logistics hub. Indeed, there are already more currencies moving in tandem with the RMB instead of the dollar. Click here
Fifth, there is a consistent imperative to improve governance, including the enhancement of judiciary independence in lower courts by unifying authority over their staff and property at the provincial level, upholding the Constitution, protecting ethnic minorities’ rights, enhancing the power of people’s congresses (China’s parliaments) at all levels, promoting “consultative” and “grass-root” democracy including elections, abolishing the “labour re-education” system, reducing death penalty charges, empowering the Central Commission for Discipline Inspection in fighting corruption, reining in local government finances, and promoting the role of public monitoring and grass-root social organizations.
Sixth, a whole section of the Plenum’s decisions is devoted to the development of an “ecological civilization”. This features the strictest possible rules to enhance the conservation of natural resources, holding officials to account for a natural resources balance sheet, enforcing a polluter-pay system, and promoting the use of environmental tax, pricing and emission trading systems. This should help to achieve ambitious green energy targets tabled in the Chinese Academy of Science’s Roadmap to 2050 *, where fossil fuel usage is to decline from 92.7 % of total in 2007 to 45%, on par with renewable fuels rising from 6.5% to 45% by 2050, leaving 10% to be met by rising use of nuclear energy.
Naturally, overcoming entrenched interests and inertia would be a herculean task not to be under-estimated. However, China remains a one-party state noted for its executive efficiency. Party secretaries are now being assessed not only on GDP growth but on their ability to help realize the China’s Dream with a much broader social and environmental agenda. Moreover, the whole reform package, ambitious as it is, is no iconoclasm, let alone regime change. Vested interests are not so much broken but co-opted and channelled into the overall reform direction, albeit along a different path.
Like Deng Xiaoping’s initial Open Door Policy in 1978, what is being unleashed is a torrent of productivity of the nation’s vast human capital. The rural masses, nearly half of China’s 1.3 billion souls, will be financially and institutionally empowered to pursue their urban dreams. The expected total of 195 million university graduates by 2020, expected to outnumber the entire workforce of the United States, will have more room to play in both the state and the private sectors. The reform should enhance quality, innovation, market efficiency, governance, transparency, equity, social participation, and ecological sustainability, improving the Party’s legitimacy and the nation’s stability.
The test of the pudding remains in the eating. If the Party succeeds, as avowed, in loosening the ties between bureaucracy and enterprise, and putting power “under the sun” and “inside the cage of law”, the image of a Chinese poem ** by the renowned Tang Dynasty poet, Li Bai, would come to mind. Despite disturbing chatter on both banks and treacherous rocks along the way, the torrent of productivity, like the mighty Yangtze River, could conceivably carry the Party boat a thousand “li” downstream to a new milestone sooner than people think.
* Science and Technology in China: A Roadmap to 2050, Yong Xiang Lu, ed., Springer Heidelberg Dordrecht London New York, 2010, Table 3.1 p.42.
Amid sunrise aurora, White Emperor City, fare thee well!
Across a thousand miles to Jiangling in a day!
Chattering cliff monkeys on both banks, no end to their bawling.
A light heart and boat are leaving all the serried mountains behind.
(A translation of a poem by Li Bai (701-762 CE), Tang Dynasty)