Gear change

'Sustainable development', 'decisive role for markets' are the new buzzwords for Chinese economy

Decisive reforms in key areas and allowing the markets to play a bigger role will help China achieve sustainable growth and stabilize the global economy, experts say.

By signaling their intent to achieve tangible results by 2020, policymakers seem to be clear that the way forward for China is not speedy, but slow and steady growth. In many ways, that also seems to be the core message of the four-day Third Plenum of the Communist Party of China's 18th Central Committee, which ended in Beijing on Nov 12.

The key highlights of the session are the specialized high-level group that will oversee the reform and opening-up process for the next decade and the decision to allow the markets to play a decisive role in allocating resources.

"The reform package clearly shows that the government is keen to advance market-based reforms to achieve quality growth," says Wang Haifeng, a researcher at the Institute for International Economic Research of the National Development and Reform Commission.

"Slower but steady growth in China means more for the global economy, compared with highly fluctuating growth," Wang says.

The new Central Reform Leading Group is likely to be an even higher-level body than the former economic reform commission, says Liu Fuhuan, of the Academy of Macroeconomic Research under the National Development and Reform Commission.

The new leading group will probably be positioned at the same level as the Central Finance and Economy Leading Group, he says.

Part of the new group's duties, apart from economic reform, is to plan and carry out reform on modernizing China's "governance system" and "governance capability".

Wang Yukai, a professor at the Chinese Academy of Governance, says administrative reforms will be a major plank in China's next round of reforms, and that it will also result in less interference with the market.

In a communique that mentioned the word "market" 22 times, Chinese leaders attributed the "decisive role" of the market economy in allocating resources. The communique, released at the end of the four-day session, pledged to speed up the building of China's modern market system, its macroeconomic stewardship and its open economic system.

Market forces

Indicating that reform of the economic system is the core of a broader reform agenda, policymakers have stressed the need to let the market to play a decisive role in allocating resources, and allowing the government better fulfill its role.

The role of the market has been taken to an unprecedented level in China since it adopted a socialist market economy in 1993, when the Party tentatively defined the market's role as "basic" in allocating resources.

The new emphasis is expected to bring more market vitality, competition and equal access in otherwise monopolized sectors, analysts say.

Zhang Zhuoyuan, an economist at the Chinese Academy of Social Sciences who attended the meeting, says the "decisive role of the market" is the most important reform measure outlined in the statement.

"It is apparent that the market will have more say in the allocation of resources, while less room is left for the government," he says.

The communique released after the 1993 Third Plenum recognized the "basic role" of the market, but Zhang says it was a compromise reached at a time when the consensus for a market economy was insufficient.

"It is time to break away from excessive government control and allow the market to take the lead. The market should be entrusted with the role it deserves in a market economy," he says.

Global ratings agency Standard & Poor's has indicated that the current reforms will have a positive bearing on China's long-term sovereign credit ratings.

"An increasingly market-driven economy plus a government with better governance could help the country sustain per-capita real GDP growth at above-average rates," S&P credit analyst Kim Eng Tan said in a statement.

"At the same time, it would reduce the country's reliance on credit-driven investment spending as a source of economic growth, which could also assimilate the financial risks that have built up over recent years."

The more decisive market role will involve areas such as interest rate liberalization, moves to remove administrative barriers to private capital, and other forms of financial liberalization.

State role

It was also emphasized, for the first time, that both private and state-owned enterprises are the foundations of China's economic development.

"This is ... to instill some confidence in China's private entrepreneurs who have complained about a worsening operating environment after the global financial crisis, with the state advancing and the private sector receding," Liu Ligang, chief economist of the Australia-focused lender ANZ Banking Group, says.

Xu Xiang, a private entrepreneur who runs a leather export company in Zhejiang province, however, believes that the enhanced role for markets will help businesses. "For us, the less government intervention, the better."

More steps such as lowering the entry threshold in more sectors, interest rate and foreign exchange rate liberalization are necessary to rejuvenate businesses, Xu says.

Susan Shirk, former deputy assistant secretary of state in the Clinton administration in the United States, says the new moves will help China in its globalization.

"China has been dependent on foreign investment in the past as it had a very under-developed domestic capital market. A more developed domestic capital market with fair access to different types of firms inside China, as well as international firms, will be seen as a positive measure," she says.

Wang Zhengxu, a lecturer at the School of Contemporary Chinese Studies at the University of Nottingham in the UK, expects the new reforms to make the Chinese economy more dynamic, efficient, innovation-driven, consumption-driven and service-oriented.

"Foreign companies with the technologies and know-how in helping China achieve these goals will enjoy a wide range of opportunities in China," Wang says.

"In areas such as high value-added manufacturing - especially in electronics and machinery, pharmaceuticals and clean energy, among others - foreign firms have a lot to harness."

Liu from ANZ Banking, however, feels that the comprehensive reform package may weigh down China's economic growth in the short term.

"We maintain our view that the Chinese authorities could lower the growth target for the next year to 7 percent," Liu says. The target for this year is 7.5 percent.

Although China's growth rate will slow, it will not undermine its huge influence on the global economy, Liu says. The urbanization drive means that demand for housing, infrastructure, energy and agricultural products will continue to grow in China.

Nerve center

An important outcome of the Third Plenum was the decision to set up a state security committee to deal with the rising threats from home and abroad. Although very little information is available about the committee, experts say that it will form the highest level of security coordination in China.

The statement also urged the introduction of systems to effectively prevent and end social disputes and to further improve public security.

Li Wei, director of the anti-terrorism center at the China Institutes of Contemporary International Relations, says it is unlikely that the committee will remove power from existing state departments.

"Instead, it will probably be an organization that has the power to coordinate government organs at the highest level to respond to a major emergency and incidents that pose threats to national security, such as border conflicts and major terrorist attacks," he says.

Experts say China is facing increased social conflict due to a widening wealth gap and corruption. Threats from terrorism have also spread to the political heart of the country from remote border areas.

"China desperately needs an organization such as the committee to develop long-term national strategies to tackle the problem from its roots," Li from China Institutes says.

"Having a state security committee has become a must for big countries around the world," says a recent commentary carried by the overseas edition of the People's Daily.

The US set up its National Security Council in 1947, while many other countries, such as Russia, France and Israel, have similar institutions.

The article says that competition in comprehensive national power nowadays is not restricted to hard power but also "major countries' capabilities of policymaking, coordination and implementation of diplomatic and security affairs".

It says the committee will stress "initiative, timeliness and coordination" in handling the nation's major security affairs.

The body will become the "nerve center" of policymaking and coordination on national security issues, it says.

"China is growing from a regional power to a global power, and it is time for it to set up its national security concept and a corresponding mechanism," says Ruan Zongze, vice-president of the China Institute of International Studies.

The security committee will take the nation's interests in many areas into account, he says. "It will stand at a higher point and have a more comprehensive sight."

Luo Yuan, a retired major general and military expert, says it has been quite a long time since people started talking about establishing such a security body. He and some national law makers and political advisers have delivered such proposals. "Now the time is ripe to set up such a body."

Luo says in his proposal that the committee, led by major Chinese leaders, should cover "the comprehensive security system" that includes areas such as the military, domestic security, diplomacy, economy and finance.

Shada Islam from Friends of Europe, a Brussels-based think tank, says: "I think it's not a surprise that China wants to create one, especially in a complex international environment.

Contact the writers through huyuanyuan@chinadaily.com.cn

Zhao Yinan contributed to this story.

President Xi Jinping, Premier Li Keqiang and other members of the Standing Committee of the Political Bureau of the CPC Central Committee vote for a reform plan at the Third Plenum. Lan Hongguang / Xinhua

( China Daily Africa Weekly 11/15/2013 page1)