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Long reform march from China’s Third Plenum

by Yu Yongding

Though China’s leadership succession was completed earlier this year, the policy agenda for the coming decade has only just been revealed. Following Chinese political tradition, the country’s new leadership had to wait for the Third Plenum of the Chinese Communist Party’s 18th Central Committee — held three to four quarters after the First Plenum, where the succession was sealed — to unveil its economic-policy priorities.

Third Plenums — and perhaps only Third Plenums — can bring about radical transformation. Indeed, it was at the Third Plenum of the CCP’s 11th Central Committee that Deng Xiaoping launched the reforms that opened up the Chinese economy and triggered more than three decades of rapid economic growth.

The Third Plenums of the CCP’s 14th and 16th Central Committees — held in 1993 and 2003, respectively — also stand out. At both meetings, CCP leaders put forward comprehensive plans for the creation and perfection of the so-called “socialist market economy” in China.

The 60-point “resolution” produced at the most recent Third Plenum covers six areas: the economy, the political system, the environment, culture, society and party capacity-building. This represents a significant departure from the agendas produced at previous Third Plenums, which focused exclusively on economic reform.

But when it comes to economic-reform objectives, the resolution is not overwhelmingly innovative. Indeed, most of the goals that it includes — like reform of state-owned enterprises (SOEs), development of private enterprise, reduction of government intervention, protection of property rights and creation of a modern market system — can be found in the resolution of the Third Plenum of the CCP’s 16th Central Committee.

Even the decision to redefine the market’s role in resource allocation as “decisive” was not the breakthrough that many observers have claimed. After all, the 2003 resolution had already defined the market as “fundamental” to resource allocation. Given this, the latest resolution’s most important implication is that it has dispelled any doubt about the new leadership’s commitment to the market-oriented reform that Deng initiated in 1978.

In line with tradition, the Third Plenum’s resolution did not discuss problems concerning growth and development, which one hopes the government will address in greater detail in the near future.

That said, some of the resolution’s specific provisions for economic reform represent much-needed progress.

• SOEs will be required to deliver 30 percent of their profits to the state, instead of keeping most — or even all — of their profits, as they’ve done for two decades.

• Farmers will be granted more property rights, allowing them, for example, to transfer and mortgage land-use rights, though the government understandably continues to exercise caution about rural-land privatization.

• A real-estate property tax will be introduced in order to suppress skyrocketing housing prices and reduce the vacancy rate — a controversial but perhaps necessary move.

• The one-child policy will be eased, allowing a couple to have two children if one parent is an only child. (Whether this change will be enough to reverse problematic demographic trends remains a topic of heated debate.)

• The government will “accelerate the reform of the household registration system” in an effort to facilitate urbanization. But emphasis seems to have shifted to encourage coordinated development between urban and rural areas. While rural migrant workers will be encouraged to settle in small and medium-size cities, migration to metropolises will remain tightly controlled — or even be more strictly regulated.

The resolution’s ground-breaking objectives lie in other areas. For starters, the resolution includes two potentially game-changing legal reforms:

(1) It emphasizes the government’s commitment to “respect and protect human rights,” prohibiting law-enforcement authorities from extracting confessions “by torture, corporal punishment or abuse” and abolishing widely criticized programs for “re-education through the labor system.”

(2) In order to strengthen judicial independence, the resolution includes a call “to explore the establishment of judicial jurisdiction systems that are suitably separated from administrative areas.”

In other words, the courts should be able to make decisions independently of the local governments that finance them.

In the political realm, the resolution includes measures to strengthen China’s so-called “consultative democracy.” While the concept of enhancing the role of non-CCP forces in Chinese politics is not new, its prominence in the resolution reflects the party’s willingness to adopt a more democratic political system — as long as it retains its dominant position, of course.

In a one-party system, meritocracy is a prerequisite for good governance, which in turn plays a central role in maintaining social stability. Unfortunately meritocracy has been eroded by a political culture of sycophancy and cynicism.

Designing a screening mechanism to minimize adverse selection in choosing bureaucrats and party officials has become one of the biggest challenges that China’s ruling elites confront.

Although the resolution’s general message is encouraging, a shopping list of reform objectives is not a strategic analysis of the contradictions that are undermining China’s development, let alone an action plan for responding to these contradictions.

Indeed, for China’s new leadership, the successful completion of the Third Plenum is only the first step in a new long march toward a more stable, prosperous future.

Yu Yongding, former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, has served on the Monetary Policy Committee of the People’s Bank of China. © 2013 Project Syndicate