Most important, economic outcomes are becoming increasingly aligned with the authorities’ goals. Services already account for more output and employment than industry — the Internet company Alibaba, for example, is empowering consumers and smaller companies on a previously unimaginable scale — and recent growth has been driven by domestic demand rather than net exports. Reform is not just a plan; it is already happening.
Economic openings to Central Asia and to ASEAN (specifically to Vietnam) are well underway and reform will include further international opening. The third plenum’s decisions follow the launch in September of the Shanghai Free-Trade Zone, which will open new sectors to foreign investment and permit largely market-based financial transactions and capital flows. The liberalization of capital flows is intended to be a gradual national policy, channeled through trusted institutions in Shanghai.
For trade in goods, the new free-trade zone is intended to compete directly with Singapore and Hong Kong. China fears dependence on those entrepots in the event of conflict. For foreign investors, the policy will be to expand greatly the range of opportunities, while curtailing foreign control; foreign companies, for example, may hold minority stakes in the telecom sector, while dominant foreign companies like Monsanto will face constraints.
Chinese President Xi Jinping (習近平) faces the politically risky task of pushing the CCP’s reform agenda against fierce opposition while the economy slows. By emphasizing party control — through a crackdown on SOEs, government opponents, and critics in the media and academia — Xi seeks to maximize his ability to impose economic reforms, while minimizing the risk of a challenge from conservative forces.
Above all, he is determined to avoid the fate of previous Chinese leaders such as Hu Yaobang (胡耀邦) and Zhao Ziyang (趙紫陽), who lost their jobs after a critical mass of their opponents came to believe that economic and political reform jeopardized party control. China will focus on another great wave of economic reform, whereas political reform will mostly be limited to reorganization of government agencies to boost efficiency and strengthen efforts to reduce corruption.
And yet China will find it increasingly difficult to postpone stronger measures that would appease popular demands for fairness, including the establishment of an independent judiciary, which could prove to be no less an imperative than structural economic reforms. Likewise, the leaders must either accept much of the information revolution’s swamping of controls or engage in far more costly repression.
Hopes for political reform rest on the possibility that Xi’s second term will see the accession to top leadership of reformers like politburo member Wang Yang (汪洋) and Vice President Li Yuanchao (李源潮). However, for now, China will focus on another great wave of economic reform.
William Overholt is a senior fellow at the Fung Global Institute and the Harvard University Asia Center.
Copyright: Project Syndicate