Curious Capitalist

Grading China’s Communist Party Meeting: Big Talk, But C- Work

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Amy Eckert / Getty Images

Governments always play catch up with markets. Today, China’s Communist Party ended its third plenum meeting laying out the country’s future development path, announcing that markets would have a “decisive” role in allocating resources. At the same time, Chinese shoppers were racking up the world’s biggest online shopping day in history—not just in China, but anywhere. Whatever the Party’s press communiqués might herald, markets are already at the heart of the Chinese economy: private firms represent 80% of urban employment, and 90% of new job creation in the country.

The information that was sorely missing from the Party’s 5,000-word wrap up memo was whether they are finally going to start getting the government priority they deserve. As Brookings China expert Cheng Li laid out in a recent analysis of the plenary, the dominant economic trend in China over the last few years as been what the Chinese call “the state advances as the private sector retreats.” It’s a trend that’s led to growing inequality, slower productivity growth, and a housing bubble, as TIME reported on this cover from 2011.

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Unfortunately, the Third Plenum communiqué didn’t signal a major shift in that direction, and actually included a call to further “consolidate and develop the state sector.” As Mark William, Capital Economics chief Asia economist puts it, “reformers will struggle to push piecemeal efforts against the opposition of vested interests.” Which is too bad, because China has represented the majority of the world’s new growth since the financial crisis. Here are three reforms that could help spur more of it, both in the Middle Kingdom, and the rest of the world:

1. Market reform. One of the reasons that China has a $10 trillion housing bubble is that people have no where to put their money except into state owned banks which pay low interest rates, and lend money mainly to unproductive state owned enterprises. If cities in particular could raise money in local municipal bond markets, they could find ways to fund growth that don’t further inflate a real estate bubble.

2. Land reform. While the communiqué included some mention of the need for equal treatment of rural and urban land, the truth is that Chinese peasants haven’t received their fair share of the wealth creation from land development. If proper prices were paid for land, and peasants were allowed to own and sell it, it would be what many economists have called the greatest wealth transfer in history. It would also radically shift and potentially destabilize China’s political landscape, which is one reason the Party is proceeding with caution.

3. Hukou reform. In China, rural people have radically different rights than urban dwellers. If they move from their villages to cities, they don’t have access to heath care, pensions, or education for their children. Yet in order for China to continue to grow, hundreds of millions more will have to do just that. It’s a problem that wasn’t mentioned explicitly in the communiqué, but China experts like Standard Chartered Bank believe hukou reform is still on the government’s agenda. Watch this space.

6 comments
KhandkerArmim
KhandkerArmim

Zorrolist is one of the most advanced HTML5 Responsive Social Networks for Trading exists (June 2013), inspired by Google Freedom, Google+ Mobile standards and society, Facebook's society, Tripadvisor modesty, Groupon Marketing, Craigslist Simplicity, Wix Websites for all, Zillow's RE network and Marketing.

 

BajieZhu
BajieZhu

Rana is so silly.  So if Beijing deserves a C-, what about the Shah's government - y'know, the one that was so loved by Americans?  How about Washington itself?

 Is this grading on a curve?  If Beijing with a sustained 7.5% growth rate warrants only a C-, nobody else gets above a D- or even a F.  

CR13
CR13

You are not in a position to give the grade. But nice joke.

quatra
quatra

Hmmm, at least they can do long term-planning. Not political flim-flamming every 4 or 8 years with a cost of billions to their citizens. Give the Chinese 20-30 years and they will rule the world (read about their military ambitions). And Africa, which is the richest continent, is already theirs.



writingspot
writingspot

The reforms must be implemented not only for the sake of economic growth but the fundamental fairness for all.  Those privileged few abused their power to gain land ownership while it is supposed to belong to the farmers is outright steal.  

A government without common decency and a society without common fairness cannot stand.

ChasL
ChasL

Rana, I wonder how you'd grade our own government under the same criteria. I mean did the second rate C-grade Chinese government ever shutdown like our first rate A-grade government?