China’s Economic Reforms Are More Sweeping Than Anybody Realized

But it remains unclear if change will go deep enough to solidify the country’s economic miracle.

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Kevin Lamarque / Reuters

Chinese President Xi Jinping during a meeting with President Barack Obama at Sunnylands in Rancho Mirage, Calif., in June 2013

After an important Communist Party plenum wrapped up on Tuesday, many observers (including myself) feared that the results showed President Xi Jinping was unwilling to launch the drastic reforms necessary to fix the economy. On Friday, more details emerged on what exactly Beijing’s top leaders approved during their conference, and the pledged reforms are much meatier and potentially more powerful than anything previously suggested, and tackle some of the worst ills of the economy.

Most notably, there is finally talk about reforming China’s dominant state-owned enterprises, or SOEs. These behemoths suck up the nation’s resources and crowd out the private sector, though they are bloated, inefficient and hamper the development of the economy. Now Xi is planning to do something about that. Beijing pledged to end some monopolies, improve SOE management and allow the private sector to invest in projects with SOEs. Such steps could make SOEs more competitive and allow greater scope for more productive private enterprise. Xi also plans to liberalize prices on commodities like water and natural gas, as well as in transport and telecom; speed deregulation of interest rates and capital flows; reduce curbs on foreign investment; and allow private investors to set up small banks. All of this will expand the role of the private sector in the economy and permit resources to be allocated more intelligently.

The concern earlier in the week was that Xi and his team seemed to dodge the reforms that were most pressing, either because they were unwilling to take on the special interests that would get hurt as a result, or they didn’t see the need or urgency. Now it is clear the Xi does appreciate the weaknesses of the Chinese economy – excess capacity, rising debt, a distorted financial sector, a lack of competition – and appears willing to confront them head on. However, what remains to be seen is how quickly these announced reforms will become reality, and how far they will really go. Some of this stuff has been talked about for a while – such as financial deregulation and market opening – but the pace of actual change has been glacial. In other areas, such as SOE reform, it is uncertain right now how much power the state is really willing to cede to the market and private enterprise.

How you see Xi’s reform efforts depends very much on how you see the health of China. If you believe that the Chinese economy is generally sound and requires no more than an extension of previous reform efforts to propel the economy forward, then you’ll believe Xi is on the right track. If you believe (like I do) that the Chinese state-led development model is fundamentally broken and a drastic break with past practices is necessary to move forward, then you’d believe Xi is not doing enough. Hopefully for China’s economic future, Xi will move beyond his promises and introduce some real change.

8 comments
Francis51
Francis51

The childishness of Joseph Lee post is apparent to sundry and all. He has no other consideration than his mantra of "Free Vote". Free votes in a country which is backward and underdeveloped just allow for "Free Manipulation" A corrupt Oligarch then sits on the Top of a Mass of Poor People. The result is Stagnation and enduring Misery for them. For Joseph Lee, I would say go back, read more and think more before you post useless epithet like Free Vote. Nothing in this world is for Free. Such philosophical saying is beyond your "waif like mind" thinking process.

Jadry
Jadry

I think China will be bettre,I believe in Chinese Government!

btt1943
btt1943

A fair and objective deliberation. I believe Beijing would prefer to make further necessary observations and wait for some more time before embarking on any serious economic reform. 

(boonteetan)

JosephLee
JosephLee

Vote for National Congress/National President...


china was called the """" sick man of asia/century of shame""""


1911/1949:  last emperor Puyi to chicken mao.  china replaced last emperor Puyi to """ red emperor/blue ants""" chicken mao.


Vote in korea

Vote in japan

Vote in philippines

Vote in Taiwan

Vote in Singapore

Vote in Europe

Vote in Europe

Vote in USA

Free Vote for National Congress.

Free Vote for National  President

These people cannot be """appointed by the chicken party""""  They can only have their jobs by Free Vote.

 Free Vote for National Congress.

Free Vote for National President.

Free Vote for All people/Free Vote for all Nations.


 

 


Clarence
Clarence

the right facts,the wrong conclusions

dong
dong

OH, COME ON, Your tone is totally different from what you were talking about two days ago. It is not because you fear Xi is unwilling to have a real reform, it is because you don't understand the basic political procedure of CCP, though you were working for 16 years in Asia. Please learn from John Pomfret, he is a real China expert. 

JoeMontana
JoeMontana

Reads more like a propaganda piece for China's government and Wall Street investors eager to charge exorbitant interest rates. Did any critical thinking go into writing this piece at all?

duduong
duduong

@JoeMontana 

You obviously have no idea who Michael Schuman is. He is such a firm believer of the superiority of democracy and free market that he once wrote an article crediting South Korea's economic development on its recent adoption of democratic system, even though most of the growth there occurred before the turn to democracy. To call Mr. Schuman a propaganda mouthpiece for China's government is like accusing Fox News of being a communist sympathizer. It only serves to make yourself appear incredibly stupid.