China introduces boldest all-round reforms
Print Edition
China unwrapped its boldest set of economic and social reforms in nearly three decades yesterday, relaxing its one-child policy and further freeing up markets in order to put the world’s second-largest economy on a more stable footing.
A detailed reform document released by the Communist Party following a four-day conclave of its top leaders promised land and residence registration reforms needed to boost China’s urban population and allow its transition to a service and consumption-driven economy.
China would accelerate capital account convertibility, scrap residency restrictions in small cities and townships, integrate urban and rural social security systems and push forward with an environmental tax, among many other measures.
Pricing of fuels, electricity and other key resources — now a source of major distortions — would be mainly decided by markets, while China also pledged to speed up the opening up of its capital account and further financial liberalization.
“The reforms are unprecedented,” said Xu Hongcai, senior economist at the China Center for International Economic Exchanges, a well-connected Beijing think tank.
“Reforms in the 1990s were limited to some areas, now reforms are all-round.”
The plans include requiring state firms to pay larger dividends to the government and allowing private companies a bigger role in the economy.
The country will vigorously develop mixed ownership to improve the basic economic system, pledging to keep the dominant role of public ownership, with the state-owned economy playing a leading role while encouraging, supporting and guiding the non-public sector, enhancing its vitality and creativity, according to the document.
Non-state-owned capital will be allowed to take equity stakes in projects featuring investment by state-owned capital, and employees of multi-ownership enterprises will be able to hold shares in their companies.
The government will require 30 percent of earnings from “state capital” to be paid back to the public coffers and used for social security by 2020, it said.
At present, the proportion ranges from zero to 15 percent. The money will be used to improve people’s livelihood, said the decision.
China has 113 major state-owned enterprises directly under the central government.
“This will have an effect on facilitating a better competitive environment,” ANZ Banking Group economist Liu Ligang said, adding it would make cash-rich SOEs allocate funds more rationally.
China moved to shut down or merge loss-making state firms in the late 1990s, leaving a smaller number, but with immense power over large sectors of the economy.
Further reforms have been made difficult by opposition from the state sector, which has been enriched by close ties to the government and lack of competition.
In acknowledgement of private firms, China will allow private capital to take equity stakes in state-funded projects, the document said, without giving the proportion.
China will also allow the setup of smaller banks and financial institutions using private funds, the document said. The country currently has just a handful of private banks.
In the financial sphere, China will push forward liberalization of its interest rates and free convertibility of its yuan currency, the document said.
China currently sets deposit rates by administrative order, but the central bank began allowing banks to decide their own lending rates in July in a long-awaited move.
In an indication of looser control on capital flows, China will allow more overseas investment by companies and individuals.
The government has encouraged companies to make foreign acquisitions to find supplies of raw materials and secure market access.
The government will also expand a number of existing reforms now being carried out on a limited basis, including setting up more free trade zones, the document showed.
The document hinted that a property tax, now levied in Shanghai and Chongqing, could be expanded to more locations but gave no timetable.
High property prices are a major source of discontent among citizens, and authorities have sought for more than three years to control their rise.
Cash-strapped local governments will also be allowed to issue bonds, the document said. China currently allows just a few cities, including Shanghai, to issue municipal bonds.
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