China’s Starts To Detail Its Long-Term Economic Reforms

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.

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One response to “China’s Starts To Detail Its Long-Term Economic Reforms

  1. Pingback: Facing A Slower Chinese Economy, Xi Needs A Wining Party Plenum | China Bystander

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