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VOL.5 December 2013
Rallying Around Reform
China's latest reform blueprint builds deeper market understanding
By Zhou Xiaoyan

Yang Guanglin used to be a farmer in southwest China's Sichuan Province. Seven years ago his family said goodbye to their rural village life and made the move to the provincial capital Chengdu. Yang picked up work on construction projects while his wife waited tables in a small city restaurant. The migrant couple and their only son have been battling against the odds to put down roots in the city, but because of a piece of paper, they battled on in vain.

Despite the fact that the family can save around 20,000 yuan ($3,282) a year, they never feel a sense of belonging in the city. That's because they do not have an urban hukou (permanent household registration certificate), and can never be regarded as genuine urban dwellers.

"I don't have a Chengdu hukou, therefore I can only enjoy social security if my employer is willing to offer me that benefit. However, we construction workers are temporary workers who frequently move from project to project. No one is willing to buy us that [social security]. Things are similar for my wife. We don't dare to go to hospitals because we can't afford it," Yang told People's Daily.

The biggest headache for Yang, however, is his son's education. With the absence of local hukou, Yang has to pay a considerable amount of the socalled "sponsorship fees" to urban public schools before his eight-year-old boy can be enrolled, something the family cannot afford to do.

"There are also two primary schools for migrant workers' children, but they don't even have the [right] educational qualifications and the conditions are very poor."

Yang is just one of the hundreds of millions of migrant workers in China who flock to cities to seek a better life, and, despite their hard work, never feel welcome in their new urban locales.

However, a ray of hope shone through the gloom of migrant workers plight after the closure of the Third Plenary Session of the 18th Central Committee of the Communist Party of China (CPC), held from November 9 to 12 in the nation's capital of Beijing.

During the four-day closed-door session, Chinese leaders vowed to establish a more fair and sustainable social security system for both urban and rural residents. According to a communique released after the plenary session, more efforts will be made to improve social welfare and deepen institutional reforms to release social justice and equality.

The third plenary sessions of the CPC Central Committee often focus on reforms since the late 1970s. China's landmark reform started right after the Third Plenary Session of the 11th CPC Central Committee held in 1978. The reform and openingup policies ever since have brought China more than three decades of rapid economic expansion.

The recently concluded 205-member 18th CPC Central Committee plenary session, which has drawn attention from around the globe, marks the beginning of a new round of comprehensively deepening reforms in the world's second-largest economy.

The general objective of the reform is to improve and develop socialism with Chinese characteristics and push on with modernization of the country's governing system and capabilities, according to the communique.

This round of comprehensive reforms will go far beyond economic changes and will cover the socialist market economy, democracy, social harmony and ecological matters.

Issues singled out for change include establishing a central leading team for reform, giving the market a more important role in allocating resources, creating a better social security system, giving farmers more rights over the collectively owned rural land, establishing a unified land market in cities and countryside, setting up a national security committee, deepening fiscal and tax reform, cracking down on corruption, fostering judicial independence and more.

The pending reforms, like any reform in the world, are bound to face stiff resistance from vested interest groups. It's going to be an arduous task, said analysts.

Plenary highlights

China's top leaders have been emphatic about reforms and repeatedly called for comprehensively deepening reforms on many occasions.

Since the 18th CPC National Congress held in November 2012, when Xi Jinping and Li Keqiang were selected as top Party leaders, the two have made 17 inspection tours in the country, all leading to calls for the urgency of deepening reforms.

In July 2013, when on a visit to central China's Hubei Province, President Xi talked about the methodology of comprehensively intensifying reforms. Reform, he said, is a balance between creativity and reality, between urgent breakthroughs and comprehensiveness, between leadership and grassroots, between courage and care, and between reform, development and stability.

To that end, China will set up a central leading team for reform. The team will be in charge of designing reforms on a holistic basis; arranging, coordinating, and pushing forward reforms as a whole; as well as supervising the implementation of reform plans, according to the communique. A top-level team and an emphasis on "top-level design" suggest a more decisive reform push by the new leadership, said analysts.

Wang Yukai, a professor from the Chinese Academy of Governance, said such a team is vital for future comprehensive reform, which is bound to go well beyond economic changes.

Wang said China is currently facing four major risks - economic slowdown, mounting income disparity, a crisis of confidence and corruption.

"Only by deepening reform in an all-round manner can China solve those crises," said Wang.

"China's reform has reached a turning point, which requires concerted efforts in all areas, including economic, political, social, cultural and ecological reforms. It's imperative to have such a team for top-level institutional designs and overall coordination. With such a team, reforms of all areas will be carried out in a coordinated way, unlike only focusing on economic reforms in the past."

Another highlight of the Third Plenary Session is that a bigger role is promised to the market, in a time when the Chinese economy begins to show signs of slowing down after over three decades of breakneck expansion.

For some time after 1949, the idea of a market had been associated with capitalism. Even after reform and opening up in 1978, the country had struggled to define the market and some dogmatists still questioned whether socialism could accommodate the market economy. It was not until the 14th CPC National Congress held in 1992, that a socialist market economy became a consensus. The Party agreed that the market, under state macroeconomic control, should be the "basic" means of allocating resources.

The Third Plenary Session of the 18th CPC Central Committee had a change of attitude toward the market, saying that it has a "decisive" role in allocating resources.

Experts say it is not only a change in wording, but more importantly, a breakthrough in China's market reform and highlights the importance of market power.

Xie Chuntao, a professor from the Party School of the CPC Central Committee, said a new definition of market showed the Party's in-depth understanding of what the market economy is and what role the government should play.

Xie said the market has played an increasing role in the domestic economy over the past two decades.

"The government did a good job but sometimes just intervened too much, which has led to high administrative costs, low efficiency and corruption," he said. "I think the leadership understands what the problems are."

The core of economic reform is a proper relationship between government and the market, according to the communique. The Party also pledged to open up the market to private and foreign investment with deregulation tested in free trade zones. This is in line with an array of reform measures carried out by the new Chinese leaders since taking office.

The new Central Government formed in March has been pushing forward an institutional reform to cut red tape and delegate power to lower levels. So far, it has abolished or transferred 221 administrative approval items to local governments.

Market reforms are under way as well. In July, China's central bank canceled the floor on lending rates. The Shanghai Pilot Free Trade Zone was launched in September as a testing ground for financial reforms, including the convertibility of the yuan and the deregulation of interest rates.

Decisions made at the Party plenary session also paved the way for China's long-anticipated new urbanization process, said analysts. The hukou system ties entitlement to public services, such as pension, healthcare insurance and free public schooling, to home villages and towns. Restrictions on farmers from selling their land also impede urbanization.

China's urban land is owned by the state, while rural land is collectively owned by farmers. Rural land is divided into two types - arable land, which is used for growing crops, and rural construction land, which is used for rural housing, rural infrastructure and rural factories. Farmers lack property rights over the collectively owned land, thus they are forbidden from gains of soaring land prices.

The communique said China will quicken efforts to give farmers more property rights and establish a unified urban and rural land sales market. Yi Peng, Director of the Urbanization Research Center under the International Finance Forum, an independent global think tank headquartered in Beijing, said this will give farmers more benefits from the increase of land prices and housing prices, which can to a large extent narrow the income gap between rural and urban residents.

Obstacles

Some netizens have complained that Party plenary session communiques are short on details and implementation timelines.

"The CPC Central Committee plenary session is only responsible for mapping out a reform orientation," said Wang Jianhui, Deputy Director of the Research Academy of the Beijing-based Capital Securities. "A slate of follow-up policies is expected to be released in the coming two years."

Zhao Xijun, a professor in finance at Renmin University of China in Beijing, said the implementation of reform measures is the key.

Zhao said China has now entered "deep-water reform," with no experience to learn from and no errors allowed.

"China should take unprecedented courage and determination to formulate specific reform measures and a clear timeline for the reform."

As the reform is bound to encroach on vested interest groups, the country is likely to confront stiff resistance from those who benefit from the status quo, including state-owned enterprises (SOEs), some government officials and some companies in the financial and real estate sectors.

Even President Xi admitted during the plenary session that the comprehensively deepening reforms are bound to be thwarted by outdated mindsets and vested interest groups.

"SOEs are responsible for 60 percent of China's investment, but produce only 20 percent of the GDP. Their staff, which only accounts for 5 percent of the total workforce, will do everything they can to compromise the reform," Wu Xihu, a professor from Peking University, wrote on his Sina Weibo page, the twitter-like micro-blogging service.

Chang Xiuze, a professor from the Macro Economic Research Institute of the National Development and Reform Commission, said the key issue confronting the proposed central leading team for reform would be coordinating different interest groups.

"The authority of the team should be strengthened. In the past, some good reform measures were poorly carried out. Therefore, in the future, the focus of the team's efforts should be harnessing those interest groups to make sure reform measures are smoothly carried out.

 

What's the third plenary session?

The CPC Central Committee, composed of China's top decision makers, is elected for a five-year term. During its five-year term, the committee holds a number of meetings, termed plenary sessions, where it discusses and approves major policy decisions. Traditionally, the new Party leadership is elected at the first plenary session; state organ personnel is recommended at the second plenary session, while the third plenary session focuses on the major policies the current central leadership is going to carry out in its term. In 1978, the Third Plenary Session of the 11th CPC Central Committee resolved to implement reform and opening up, facilitating China's inclusion into the global economy. The Third Plenary Session of the 14th CPC Central Committee in 1993 endorsed the socialist market economy, which laid the foundation for China's economic takeoff in the subsequent two decades.

 

 

 

 

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