The first steps in the long, hard slog to implement giving markets a “decisive” role in China’s economy have been taken with the publication of a raft of detailed measures that flesh out the communique issued after the Third Party Plenum. While easing the one-child policy and ending labor camps are grabbing the international headlines, the overwhelming majority of the measures directly affect the economy. These include:
- moving ahead with interest rate liberalization, establishing a bond market and further opening capital markets;
- speeding up moves towards full capital-account convertibility;
- allowing privately-owned small- and medium-sized banks to open up the banking system and bring some of the shadow banking system into the mainstream;
- moving towards market-pricing of water, oil, natural gas, electricity, telecoms and transport;
- raising the remittance of profits from state-owned enterprises to central government to 30% from the current zero-15%;
- requiring state-owned enterprises to diversify their ownership and allowing private investment in joint ventures with state-owned enterprises and letting employees of mixed-ownership enterprises hold shares in those companies;
- strengthening protection of intellectual property rights (IPR), including possibly setting up an IPR court;
- property tax reform;
- giving farmers more property rights and hastening the loosening of “hukou” or residency permit system by scrapping it in small cities and townships and then gradually eliminating it middle-sized cities.
These are all areas where the party leadership has forged a broad political consensus, though within each there are still considerable differences between reformers and conservatives to resolve. The dual mandate that came out of the plenum — giving markets a decisive role and strengthening the role of state enterprises — gives both sides a rallying call for their cause. There is plenty of scope for backsliding as those various ideological and political struggles are fought out. Such a transformative economic to-do list carries political risks for President Xi Jinping and Prime Minister Li Keqiang. They will move cautiously, and the various fronts of the reforms will move at different paces.