December 1, 2013 3:44 pm
Beijing must pull off a mix of Mao and markets
The plenum sets out a bold agenda and makes clear who is in charge, writes Robert Zoellick
The plenum in Beijing may be a landmark. Most early commentary has focused on its economic reforms. But it has been little noted that the political signal is a mix of Mao and markets.
The good news is that China’s leaders recognise that the country needs to make a structural shift in its growth model – from export and investment-led growth to increased consumption and a stronger service sector. No one should underestimate the plenum’s boldness. After 30 years of almost 10 per cent annual growth, it is no small matter to change plans. Most countries dither until crisis or slowdowns compel change. Of the 101 economies that the World Bank considered middle-income in 1960, only 13 were high-income by 2008.
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The not so good news is that the previous leaders also said the country needed to change. Vested interests resisted. So President Xi Jinping seems to have concluded that he needs a political plan to reverse the dissipation of Communist party and central power.
The economic building blocks of the plenum’s conclusions can be found in last year’s China 2030report that the World Bank prepared with the Development Research Center of China’s State Council. Premier Li Keqiang was the prime internal sponsor of the report and Mr Xi, then vice-president, welcomed it.
The plenum’s agenda is impressive, although its vagueness on timing will make details of implementation important. The decisive role of markets is supposed to limit the visible hand of special interests and cut the misuse of resources. Combined with anti-pollution priorities, markets will be used to clean up the environment and improve health. Changes in rural property rights, along with greater social support and freedom of movement, address inequities.
Policies to boost innovation and protect intellectual property are designed to help China’s workforce to move up the value added chain. Expanded financial markets, with more market pricing, will lead to a more efficient allocation of capital and remove subsidies for favoured enterprises. New fiscal powers will better align revenues with social spending without reliance on socially explosive land grabs.
Mr Li will unify the reforms through a push for urbanisation. Historically, urbanisation has been associated with boosts in income and an expansion of knowledge and service industries. The China 2030 report forecast that the urban population would jump from 50 to 70 per cent of the total by 2030. The McKinsey Global Institute points out that China’s movement to the cities is at 100 times the scale and 10 times the speed of the first mover – Britain.
The plan also praises the powerful state-owned enterprises, while chipping away at their advantages. The dividends paid by the SoEs to the government will be increased. Market prices for inputs will cut into implicit subsidies. So will the move to market prices for savings, loans and other sources of capital.
Yet Mr Xi has also reminded his countrymen that the Communist party is in charge – and that he leads it. Party members have been ordered to write “self-criticism”, an echo of past disciplinary directives. When combined with a vigorous anti-corruption campaign, it opens new avenues for power politics.
Mr Xi also chairs a smaller, seven-member, Standing Committee of the party. Reportedly, Hu Jintao, his predecessor, did not always sway his eight colleagues. The charismatic Mr Xi is moving in the other direction: He will lead a new National Security Council and a new Leading Small Group on Comprehensively Deepening Reform. Crackdowns on netizens suggest Mr Xi has no intention of permitting dissent at a time of possibly disruptive economic reforms. Mr Xi has studied the priorities of Deng Xiaoping and the methods of Mao.
Outsiders who believe the plenum’s economic reforms are important should recall one other star in the Chinese firmament: Zhu Rongji. In the 1990s, Premier Zhu used China’s World Trade Organisation accession to achieve internal reforms. Now reformers are asking how negotiations for bilateral investment treaties, WTO talks on services competition, and even eventual free trade deals could help implement the design sketched by the plenum. The US, EU and others need to translate technical negotiations into a decade of Chinese economic transformation. Then we will see whether a policy of Mao and the market proves internally consistent.
The writer is a former World Bank president, US trade representative and deputy secretary of state
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