Mei Xinyu

The Third Plenary Session of the 18th Communist Party of China (CPC) Central Committee, as expected, attracted much domestic and global attention upon its conclusion on November 12. On the release of the official communique, one of the major questions being asked by media and analysts is what the session means to the world economy.

A year after the 18th CPC National Congress, China’s top leadership has upheld the principle of making steady progress and solving problems while seeking development. As the communique reports, “China must build on the paramount reality that it remains in the primary stage of socialism and will long remain so while pursuing comprehensive, deeper reform. China must stick to the strategic judgment that development is still the key to solving all problems in China.”

In today’s world, where the future of the global economy is uncertain and emerging economies are facing increasing risks, confirmation that the world’s second largest economy is maintaining the same path is good news to ensure stable growth of the global economy.

The session outcome demonstrates that China’s core leadership is committed to and capable of executing reforms. It also has the ability to overcome impediments from interest groups to push forward reforms that conform to long-term interests of the state and people. The communique says the leadership will play the leading role of economic reform to promote sustainable and sound development of the economy and society. It also mentions the establishment of a central leading team, which will be in charge of designing, coordinating and supervising implementation of reforms.

Good news for foreign investors is that the plenum again is committed to supporting development of an open economy. According to the communique, to adapt to the new situation of economic globalization, China must advance opening up by facilitating a better combination of “bringing in” investment as well as “going out” with investment, and promote an orderly and free flow of international and domestic factors of production and an efficient allocation of resources and deep market integration.

The communique reports that China is to relax investment restrictions and accelerate construction of free trade zones, with opening up further expanded in inland and border areas.

Since China is the world’s largest exporter, second largest importer and a fast-growing foreign direct investor, its attitude toward an open economy decides, to a great extent, the openness of the world economy. While many countries are regressing to trade protectionism, the plenum’s commitment to developing an open economy and expanding opening up will be powerful support to the global free trade system.

Expanding the opening up of inland and border areas is important for China to promote balanced development between regions. China’s eastern region has already been highly developed, with levels of economic prosperity and people’s living standards reaching those in moderately developed countries. Therefore the inland areas deserve more attention from foreign investors. In fact, during the past decade, China’s central, western and northeastern regions have recorded higher growth rates than the eastern region in fixed-asset investment, GDP, industrial output and foreign trade.

In China, foreign investors can have a longer industrial life cycle, because China has a vast territory and the regional development is imbalanced. Such a long life cycle is unlikely in most small and medium-sized countries. Regional development policies and guidance of industrial transfers by the Chinese Government will fully expand this advantage in an orderly way.

Also of good news to foreign investors is that the plenum pledged to accelerate transformation of government functions and reduce direct intervention in the micro-economy.

According to the communique, China must accelerate the establishment of a modern market system under which businesses are allowed to operate independently and compete fairly, consumers are free to choose and spend, and merchandise and factors of production can be traded freely and equally. The CPC has pledged to clear barriers in the market and improve the efficiency and fairness in the allocation of resources. It will also create fair, open and transparent market rules and improve the market pricing mechanism. Land in cities and the countryside, which can be used for construction, will be pooled in one market, the financial market system will be improved, and reform of the science and technology system will be deepened. These aspects mean that China’s soft environment for investment will be further improved, and its public services will remain efficient and continue to be improved.

Many innovative practices China created in attracting foreign investment have become examples for other countries to follow. To end some extreme practices, such as providing “super-national treatment” to foreign companies, does not mean China will completely reject previous practices. On the contrary, China will continue to abolish unnecessary administrative approval, expand market access, provide national treatment to foreign investors and improve public services. With the completion of industrialization, industrial upgrades and urbanization will offer broad space for both domestic and foreign investors.

That China expands market access to foreign investors does not mean it guarantees profits, but only offers more opportunities for free competition. It is the investors’ competitiveness that decides whether they will make profits or lose money and be washed out of the market.

In China’s process of rapidly improving people’s wellbeing, the welfare crisis in Europe will not be repeated.

As an inevitable outcome of reform, China’s wage levels keep rising. The Chinese Government is committed to ensuring that all its people share in the country’s development, and with the ongoing rise in wage levels, the country will not use low-income workers who reduce manufacturing costs, as an advantage in international competition

The goal of reform is to share the country’s achievements with all people, although this goal has to be realized step by step. Against a bigger backdrop, one of the essential features of socialism is common prosperity, while social welfare and social security are among the means to share achievements of reform and development and realize common prosperity.

In a poll taken by Global Times before the plenum, 79.1 percent of responders said they expected “reform of social welfare and social security system,” and 54.7 percent expected “reform of income distribution system.” The result indicates that emphasizing the goal of common prosperity is in line with public opinion.

However, every coin has two sides, as does China’s growth of resident income and improvement of welfare. On the one hand, it helps to expand effective demand and the scale of China’s domestic market and then enhance the attraction of that market; on the other hand, excessively high incomes will damage international competitiveness of a country. From the heavily indebted countries in Europe we can learn this lesson. Therefore we should not have overly high expectations about the level of social welfare and social security.

The communique says that there will be an improvement in the system and mechanism promoting employment and entrepreneurship, formation of an income distribution structure that is reasonable and orderly and establishment of a social security system that is fairer and more sustainable. This indicates that the top leadership is aware of the above-mentioned risks and committed to realizing sustainable development. In the decade under Hu Jintao, the Chinese Government had already begun the reform process of income distribution and adopted some of these measures. The measures adopted in the last decade centered on getting rid of poverty and remarkable progress has been made.

In the coming decade, government measures will focus on expanding the middle-income group. What is more important should be creating job opportunities with reasonable incomes, not just raising social welfare and security benefits.

(The author is a researcher at the Chinese Academy of International Trade and Economic Cooperation)