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Implementation key to success of reforms
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China’s quick release of a surprisingly detailed national reform plan shows leaders are serious about economic change, according to analysts, but uncertainties remain over its implementation.
Just days after an initial outline announced at the end of a closely watched Party meeting was largely panned as vague, China added weight to the framework for change in the world’s second-largest economy.
Reforms approved at the meeting include requiring powerful state-owned companies to pay larger dividends to the government to beef up a weak social security system.
China will also encourage a bigger role for the private sector, further champion interest rate reform, loosen currency controls and allow farmers more room to profit from state-owned land they currently till on contract.
“The new leaders really delivered and promised a number of concrete changes,” Hong Kong-based Societe Generale economist Yao Wei wrote in a report.
The lengthy and detailed final “decision” document released late last Friday was “encouragingly specific” compared with the initial communique three days earlier, she wrote.
State-owned businesses will have to pay 30 percent of their profits into the Social Security Fund by 2020, up from a current maximum of 20 percent, and Yao said: “This ratio may not impress everyone, but it is laudable that the leaders are willing to set this target explicitly.”
While analysts mostly expressed pleasant surprise at the final plan’s contents, they stressed its ultimate success can only be judged based on implementation, which will be complex.
ÔEssentially positive’
“I would take it as essentially positive,” said Christopher Balding, who teaches economics at Peking University’s HSBC Business School in south China’s Shenzhen.
“I think the concern is going to be when the rubber hits the road,” he said, citing the nuts, bolts and speed of how it is carried out, including the issue of when it becomes law. “China has been talking about rebalancing the economy for upwards of a decade, and there’s really been no progress.”
The country’s leaders have said its credit-fueled state investment model must yield to one where consumers and private businesses drive demand, as in advanced economies such as the United States, Europe and Japan.
Annual growth rates above 10 percent were once common during China’s metamorphosis from a command economy to the state-private hybrid unleashed by reforms introduced by Deng Xiaoping in the late 1970s.
In the process, hundreds of millions of Chinese were lifted out of poverty as the economy enjoyed a decades-long boom, becoming a linchpin of global commerce and influencing everything from Australian iron ore prices to US interest rates.
But with economic growth slowing — last year’s 7.7 percent expansion was the weakest since 1999 — the impetus to find new engines to keep the huge ship sailing forward grows ever more acute.
London-based Capital Economics analysts Mark Williams and Wang Qinwei called the final plan “the most impressive statement of reform intentions that we’ve seen this century.” Though they emphasized words are one thing, action another.
Shoring up optimism
“A policy document, however weighty and well put-together, does not in itself change anything on the ground,” they wrote.
“Whether or not the plenum ends up a turning point in China’s development depends on how well reforms are implemented.”
Helping shore up optimism among some was what they saw as the strong hand of President Xi Jinping.
“The bold reform package is a powerful demonstration of President Xi Jinping’s personal authority within the system after only a year at the helm,” Christopher Johnson of the Center for Strategic and International Studies in Washington said in a report.
Now the emphatic public declaration of the pledges is likely to heighten expectations on the Party to deliver.
“It does put them on the spot,” Peking University’s Balding said.
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