China’s 18th Party Congress: The Long March towards Reform

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Quentin Cheung's picture

The 18th Party Congress represents one of the most transformative, ambitious reform programs in the CPC, characterized by both Xi’s bold statement for a ‘great rejuvenation of the Chinese nation’, and the sheer scale of the Third Plenary reforms itself, which encompass a myriad of areas in society, state, and economy. While proposed reforms reflect a strong signal for the development of the market-oriented state with strong regulatory function, its application will likely be met with of difficulties and challenges. This paper explores such difficulties and factors, first focusing on the nature of reform, followed with elaboration on what I believe to be the three main barriers to the reform package: political vision, coping strategies, and peasant issues, finally concluding with a brief review of the current reform momentum.

 

What Reforms?

Despite no English document to be published, summaries have been distributed on Chinese news sources such as Beijing-review and Xinhuanet. Economic reforms can be broadly summarized by a robust impetus for market-liberalization, including financial and fiscal reform, changes to the judicial system, stronger land rights for farmers, crackdown on corruption, and the liberalization of the capital account. These are clear signs that the CPC is committed to the opening up of China to foreign participation and the development of domestic markets externally, akin to Deng Xiaoping’s Open Door Policy.  

 

Specific articles of interest include Section 8, which encourages state sector to reduce all kinds of intangible barriers and obstructions for private enterprise, including entry into ‘franchised areas’[1], but also the sections 24-25, which promote the creation of free trade zones and the lowering of restrictions to foreign investment, telling again of the strong market-liberal reform approach.

 

Political Vision and Coherency: Top-down Reforms?

Thus, it must be understood firstly that the imposition of such ‘comprehensive reforms’, must require a coherent political vision extending from the top, to community level politics. From here, an immediate political structural and vision-related challenge emerges.

 

In the top-level, there are fractional divides between the ‘Populist’ groups and the ‘Princeling’ camp, which refer to leaders that are either descendants of senior and powerful communist officials, and Tuanpai, or those whom originate from the communist youth league. From Tunapai group are leaders such as Hu Jingtao, now succeeded by Primer Li Keqiang, while hereditary power centers on the Jiang Zemin camp, led by President Xi[2]. Collective agreement in the Politburo Standing Committee requires consensus on policy direction and priorities, and while Li Keqiang may notionally have stronger power as both premier and party secretary of the State Council, the chief state administrative organ, members from the hereditary class outnumber members of the CYL six to one. Resistance may arise from the strong interest financial groups and circles that the Princelings are associated with. While Li cites signs of compromise between two groups through the formation of the Shanghai FTZ, it may be interpreted as a pandering to the Princeling’s power, which is both centralized in Shanghai[3] and linked to the development of industry there.

 

An effective implementation of the Third Plenary reform would also necessitate a strong political view to, at every junction and space, create incentive and discipline local governments towards the market-oriented direction. This is a conflict of interest for local governments, which were once responsible for their own market creation and obtaining financial investment, but are now directed to create a ‘level-playing field’ and play the role of market-creators and regulators through developing a non-discrimination (i.e. no more local protectionism) environment, and punish monopolistic behaviors. Most local governments and leaders rely on their power and ability to sell and lease land, create local government financing platforms (LGFPs) and other financing vehicles[4] for revenue. With greater responsibility for the government to perform more regulatory function but culled monetary ability, it will be demanding to make sure that all levels of government comply.

 

The Problem of the State Owned Enterprises (SOE) and Special Interest

Aside from the difficulties of promulgating a coherent, unified political vision, the imposed reforms will be disruptive for many special and vested interest groups. As mentioned briefly in the previous paragraph, SOEs play a large role in the benefit of local governments and the officials within them, serving as primary sources of both income and development of cities, subsequently establishing greater basis for beaucratic promotion and to strengthen connections to powerful families[5].

 

This has culminated in a mixing of SOE function in wealth and power. Public policy has sometimes been executed through such vehicles, with major telecommunications, transport and commodity companies displaying through investment their social responsibility and benefit. With reform sentiments suggestive of liberalization- including an opening of the banking sector, which once exclusively provided low-cost leasing to SOEs, this could become detrimental by reducing loan supply. Xi’s measures for introducing private ownership could also introduce private and outside interest within these enterprises, diluting their core interest and functions. The opening up of ‘franchised sectors’- oligopolied market areas to foreign firms will be negatively received, forcing them to become efficient and competitive without the use of special rights conferred by government connections.

 

With such a convoluted area- both SOE and governments provide cross subsiding in resource prices and business approvals, putting local governments and business executives off their dependency on land development revenues and corporate tax will be met with frowns. Attempts to control SOEs by financial policy are also limited as there are “simply too few instruments”[6], as central bank rates are still dependent on top-level government permission. As witnessed by the media exposition of Bo Xilai and Zhou Yongkang, we see that interests can be high in the government chain.

 

Peasant Reform or Revolution?

The question of peasant land reforms is also problematic for the regime. Within the rural sector, there have been very extensive talks on the rights of peasants, which have become a heated topic. Under decollectivization, agriculture has shifted from collective-operations, towards smaller scale, household based production. However, land is still formally owned by the communes or rural collective economic organizations such as village ownerships (TVEs).  Reforms pointing to empowering farmers to sell or lease their land, through vehicles such as shareholding and the agglomeration of farming operations (so that they can become easier to regulate) will firstly be strongly opposed by local governments or the collective institutions they belong to, as they are main income source. However, studies done in rural china have also pointed out strong resistance towards moving into the cities and selling land, as many of the peasantry are unwilling to move to cities (where they face unemployment and high costs of living) and lose their livelihood in the farms[7]. Incidents of village riots to land grabs such as the Wukan incident and the forcible moving of farmers through disaster-capitalism in the Sichuan earthquake are reflexive of these sentiments.

 

Current Momentum in Reform:

I hope that I have provided a strong case for the main obstacles to the Third Plenum reforms. Firstly, there must be strong, directed political vision and commitment to reform. Secondly, there are need to be coping strategies to overcome problems with power and interest in top, local government and SOEs. Lastly, the trend to move rural peoples within the city to stimulate domestic consumption will become a contested topic as land and agricultural production has historically been very collectivist.

 

Given the lofty ambitions of the reforms, pessimism and query is therefore sensible- not only has the past decade shown us that many of reform documents tend to only serve as guidelines for interpretation, but continuity  in ideology and economic policy as past generations of leaders have often stuck with conservative, state-centered changes. This past opposition to change- such as the monopolistic practices of state-banks in prohibitively giving loans to small enterprises, and strong private sector approach has culminated in many of China’s contemporary problems, including shadow banking, real estate bubbles, large local debt, and property/ commodity bubbles.

 

Nevertheless, the salience of the reforms- which can propel China into a sustainable economy through the market as basis of resource allocation, are central to the CPC’s longevity and legitimacy as a party and director of the state. With already three SOE senior ministers expelled (tough crackdowns on corruption), revamped pensions, hukou and one-child policy, it appears that Xi is powerfully committed to his ‘Chinese Dream’ mandate to develop a middle-class China, ready to either remove persons or breakdown institutions stymieing its progress. Not only do these reforms cement his and his camp’s political relevance, but this may mark the strongest reform program since the ‘Reform and Opening’ doctrine of 1997.

 

[1] Direct Chinese translation- terms with single apostrophes refers to phrases pulled from the Chinese 18th Party Congress Report, The Decision on Major Issues Concerning Comprehensibly Deepening Reforms

[2] Li et Al., Pessimism about China’s Third Plenum is Unwarranted

[3] Ibid

[4] Lu, Local Government Financing Problems in China: A Fortune or Misfortune?, 4.

[5] Naughton, The Narrow Road to Reform, 3.

[6] Ibid

[7] Unger, The Transformation of Rural China, 115

References: 

Works Cited:

Li, Cheng. “Pessimism about China’s Third Plenum is Unwarranted”, China-US Focus, The Brookings Institution, 2004. DOJ: http://www.chinausfocus.com/political-social-development/pessimism-about...

Naughton, Barry. “The Narrow Road to Reform”, China Leadership Monitor no.42, Hoover Institution, 2013. DOJ: http://www.hoover.org/publications/china-leadership-monitor/article/158556

Lu, Yinqiu, “Local Government Financing Platforms in China: A Fortune or Misfortune”, International Monetary Foundation, 2013. DOJ: http://www.imfbookstore.org/ProdDetails.asp?ID=9781475599671

Unger, Jonathan, “The Transformation of Rural China”, M.E Sharpe, 2001. Print.