A “deepening” role for the market was proclaimed by China’s ruling elite as it concluded the third plenum of the party’s 18th Central Committee. While the final statement predictably lacked specificity, it reinforced the reformist agenda of President Xi Jinping and signalled a gradual diminution of state control of all aspects of the economy in favour market influenced prices.
The importance of the plenum was always about the message it would send about momentum in the reform agenda and the ability of the new leadership to overcome resistance to reform. Beginning with an anti-corruption campaign that effectively discredited political opponents, most notably Bo Xilai, and generated popular support, the government has progressed reforms in foreign direct investment policy and interest rate deregulation. It has also had the confidence to permit an economic slowdown. The board pronouncements from the plenum indicate that this momentum will be sustained.
The report signals the development of a more balanced policy towards the public and private sectors; the maintenance of government to commitment to state owned enterprises combined with the development of “fair, open and transparent” market rules for the economy.
Exceeding expectations, the texts from the plenum show the government understands that systemic reform is a pre-requisite for making China’s economic system more sustainable. Judicial structural reform is called for along with changes to the Party’s internal oversight processes, thereby enhancing the role of central Party authorities. Enhancing the power of the judiciary’s at local levels could provide the government with a more effective mechanism to address corruption and force local implementation of policy directives, which would be positive for reform in the medium to long term.
Impediments posed by the two-tier land ownership system and the concept of equal land rights were also raised. At present, farmers moving to urban areas are unable to sell their land, in contrast to urban dwellers who are able to buy and sell property. It is anticipated that the distinction between urban and rural land will be abolished, a significant reform, that will take China a step further towards an economy driven by market forces.
While businesses can take many positives from pledges, albeit ambiguous, to protect the private economy, the crucial issues of interest rates, the floating of the renminbi or banking sector reform, were not publicly mentioned. This shouldn’t be interpreted as a sign that no action will be taken; rather that the government is leaving itself significant room for manoeuvre to implement policy reform in accordance with political and economic necessity.
While the pledge of greater protection for the private sector is a positive announcement from the leaders of the world’s second largest economy, many risks remain inherent in transacting business in country that lacks an independent judiciary and vibrant civil society.