The author is head of Greater China research at Standard Chartered, Stephen Green
The Chinese Communist Party’s (CCP) Third Plenum delivered. It laid out the biggest package of market economic reforms since the early 1990s – and delivered a clear sense that the leadership is fully committed to implementation.
The half-personal, half-official document from Xi Jinping himself delivered a clear message: he stands behind these reforms. Given the Party Secretary’s authority in the system, compared with his predecessor, this raises the chances of meaningful implementation.
Mr. Xi claims a clear lineage back to Deng Xiaoping’s 1992 reforms in his explanatory note to the Plenum document. This package is just the next step in the same direction.
Market reforms and opening up have been enormously successful, he says, but there are still some big problems: uneven development, uncoordinated policy, unsustainable growth, rising inequality and rising social contradictions.
This diagnosis of the economy’s ailments is almost exactly the same as the former leaders’. With this backdrop of growing crisis, Xi argues that further reforms are essential. The alternative: a dead end.
Key to the Plenum was a landmark decision for the market to allocate resources. Party Secretary Xi listed this issue as the first he wanted to explain in detail.
He writes that over the last 35 years, the Party has been searching for the right relationship between the government and the market. In 1992, the CCP decided that the market was "foundational" (jichu), but now has determined that conditions are ripe for the market to be "decisive" (juedingxing).
This might sound like linguistic jujitsu, but it is code for the next thing that Xi writes: "Theory and practice prove that the market is the most efficient way to allocate resources".
Marxists among our readership might be taken aback at this line: state allocation of resources via controlled prices and public ownership are the two core tenets of Marxian thought. One of these tenets has now been officially buried.
The government is now (officially) a second-best allocator of resources. The ramifications of this statement could and should run very wide: the market should set most prices (utility pricing is the obvious place to start), state subsidies should be limited, private property should be respected, etc.
Much of this spirit runs through the document – and in the coming debates, it could act as the North Star for policy detail.
This is a big win for reformers.
However, this win is diluted by the next priority Mr. Xi discusses: "sustaining and perfecting the basic economic model [which is] public ownership in the main, with all types of ownership developing together".
State-owned enterprise (SOEs) reform has been one of the most contentious areas of reform. Over the summer, the received wisdom in Beijing was that the issue of SOE reform was too difficult to tackle this year, and would be put off for another time.
The key to all the proposed reforms, including many other sectors and areas, will be implementation. But we now have a road map of sorts, so we are cautiously optimistic about the prospects for this economy during the next few years.
(The article has been edited for clarity)
