China

Big Reforms on the Way for China's Economy?

As Beijing prepares for a major political meeting, its leaders are thought to be planning the country's most significant economic changes since 1978.

By Damien Ma
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Jason Lee/Reuters

Six months after the 18th Communist Party Congress, debate and bickering over reforms in China rages on. Both inside and outside the country, opinions remain divided over whether Beijing will strategically push forward an ambitious economic reform agenda or squander the opportunity once again. A corollary is that even assuming Zhongnanhai will take on a reform agenda, it is usually an assumption riddled with caveats about the scope and extent of such reforms. For many of the skeptics, whatever reforms that may emerge will be weak and perhaps too little too late.

But for internal champions of economic reforms, things may in fact be looking up. According to the estimable John Garnaut of the Sydney Morning Herald, some potentially serious changes are in the works, a point corroborated by the New York Times as well. Garnaut writes:

China is drawing up a blueprint for sweeping reforms aimed at averting an economic crisis, sources with close ties to the leadership say.

The reforms are aimed at revitalising the world's second-largest economy amid deepening fears about a trend of rising corruption, wasteful investment and local government debt.

Liu He, who leads the party's Central Leading Group on Financial and Economic Affairs, has been given the task of preparing a seven-point blueprint for the Third Plenum of the 18th Communist Party Congress, which is due in about October, according to a source with close ties to several members of the Politburo Standing Committee.

A few points are worth noting. First, appointing Liu He to the task of creating a "reform plan" should generally be interpreted as a positive sign. Liu is no stranger to such herculean efforts, having been widely rumored as a leading architect of China's 12th Five-Year Plan, a blueprint that most observers laud as a formidable, if overly ambitious, plan to achieve China's economic transition. Second, the timing of the Third Plenum, if true, reaffirms previous speculation that the new leadership is hoping to imbue their reform rollout with historical import. As Evan Feigenbaum and I wrote recently in Foreign Affairs:

If Chinese leaders do choose the third plenum as the place to announce new reforms, it will be because it is pregnant with political symbolism: it was at another third plenum, in 1978, that Deng Xiaoping, the architect of China's market reforms, won consensus around the vision that set China on its course to becoming the world's second-largest economy.

For casual China observers, something as obscure as a Communist Party event such as a plenum may mean absolutely nothing. But it in fact carries considerable historical weight. At the time in 1978, Chinese patriarch Deng understood clearly that simply having an economic reform plan was necessary but insufficient. What also was needed was an enduring political consensus to move the plan forward to the execution stage. The politics of that time were decidedly more complicated. The entire Chinese nation was barely coming to grips with the post-Mao Zedong era and awakening from a decade of the brutish politics of the Cultural Revolution. It was a toxic environment in which to even suggest market reforms, and it could have easily been derailed. As one account from Bao Tong, a former high level party official and close confidante of Zhao Ziyang, has it:

Sometimes, history resonates with itself. In 1969, as the Communist Party was preparing for the Ninth Party Congress, Lin Biao put forward the view that the process of continuous revolution should be stopped, and the Party should turn its attention instead to ways to develop productivity. If Mao had been receptive to this idea, then maybe Lin Biao would have gone on to become the next Deng Xiaoping.

But the opposite occurred, because the suggestion angered Mao deeply, causing the rift between them. Fast forward to 1978, and the Third Plenum, where Deng Xiaoping thought the same thing, that the continuous process of revolution should be stopped, and that the whole Party should turn its attention to building a modern China. Luckily, Hua Guofeng wasn't Mao, and fortunately he accepted Deng's suggestion.

Hua and Deng agreed ahead of the Third Plenum that it would look forwards rather than backwards and avoid getting tangled up in "problems left over by history." (By this, they meant that it wouldn't concern itself with debating the issue of all the trumped-up or mistaken political charges against people.) They decided that what was needed was "unity to face the future."
That unity wasn't preordained nor was the political equilibrium easily maintained. It took Deng and his supporters considerable political acumen to sustain the momentum and justification behind reforms. At the time, Deng seemed to fully grasp that the grandiose task of Chinese "modernization", however defined, would take longer than his lifetime. His solution? Personally select two generations of leaders -- Jiang Zemin and Hu Jintao -- that would continue the nation-building he began for another 20 years.

When Deng passed away in 1997, the Chinese economy was just under $1 trillion. It is now an $8 trillion-plus behemoth with far-reaching global interests. The reforms of today, whatever shape they make take, will necessarily be different from those more than 30 years ago, because China itself has transformed dramatically. The expectation of change must also be tethered to the reality of today's institutional interests and political dynamics. Under the initial burst of reforms, changes were profound both in their scope and speed, largely because China was starting from such a low base.    

That said, a new leadership appears to once again seek to instill historical purpose into their reform agenda, in large part to shape the political environment in which these reforms must be carried out. They have appealed to national rejuvenation and greatness -- a time-honored tactic to mobilize a popular mandate -- to continue the project of Chinese modernization.  

Can the new leadership now relieve the pressures that it, deliberately or not, has created by making a closing argument on reform at the Third Plenum? Either way, the fall conclave just got a whole lot more interesting.


About the Author

Damien Ma is a fellow at the Paulson Institute, where he focuses on investment and policy programs, and on the Institute's research and think-tank activities. Previously, he was a lead China analyst at Eurasia Group, a political risk research and advisory firm.