It comes at a time when the pace of markets opening and the reduction of state control has slowed, following substantial reforms under former president Jiang Zemin (江澤民) and former premier Zhu Rongji (朱鎔基).
While outgoing President Hu Jintao (胡錦濤) and Premier Wen Jiabao (溫家寶) struck reformist chords in public statements, and in China’s 12th Five-Year Plan, many inside China — reportedly including Jiang — are disappointed.
Thus, Vice President Xi Jinping (習近平) and Vice Premier Li Keqiang (李克強) are being watched closely for signs of what they will do. It is rare for a successor — in business or in government — to usurp a former leader’s lame-duck status by tipping their hand. No one can yet say with any certainty whether the new leadership will push for a reformist leap forward or merely seek to maintain the “status quo.”
In addition to a new president and premier, other members of the Politburo Standing Committee have been named and a vast array of ministerial positions are being filled. With China’s “up or out” system for senior leaders, those who are not promoted will be replaced.
From the new governor of the People’s Bank of China to the Cabinet and leading regulators, the new cohort has an opportunity to move China forward by promoting competition, decreasing the power of state enterprises, boosting household consumption and reducing reliance on exports.
Earlier this year, the China Development Research Center of the State Council and the World Bank issued an excellent report on opportunities for, and challenges to, China’s policy agenda.
They concluded that China should complete its transition to a market economy with land, labor, financial and enterprise reforms.
Opening markets to greater competition and rebalancing the roles of government and markets is the most promising strategy to achieve high-income status in the coming decades. It would be hard to find a better framework for Xi and Li as they put their imprint on China’s economic policy.
In particular, Chinese consumption as a share of GDP is very low by international standards and relative to the historical experience of other countries at a similar stage of development.
Two important options for raising consumption are social insurance — which is developing, but too slowly — and reducing state-owned enterprises’ huge savings by paying dividends to citizens, much as privately owned companies routinely pay dividends to shareholders.
Managers, workers, consumers, investors and governments in every corner of the world — many reeling from their own economic problems — have a lot riding on China’s new leadership navigating reform sensibly, now and in years to come.
The world will soon know more about what to expect.
Michael Boskin, professor of economics at Stanford University and senior fellow at the Hoover Institution, was chairman of George H. W. Bush’s Council of Economic Advisers from 1989 to 1993.
Copyright: Project Syndicate