China’s trade war with the US is spurring some Chinese entrepreneurs, government advisers and think tanks to call for faster reforms in the world’s second-largest economy, and the freeing of a private sector stifled by state controls.
The calls for change have become louder as China celebrates a key anniversary, although there are no signs that the government is planning to shift any key policies.
Today marks the 40th anniversary of the opening-up of China’s economy by former leader Deng Xiaoping (鄧小平), and the start of a series of landmark capitalist experiments that lifted much of the country out of poverty and turned it into an economic powerhouse.
China has long said that it would further liberalize its vast market at its own pace.
However, a growing number of government advisers feel that now is the time to do so, saying that reforms would defuse trade tensions with the US and at the same time secure China’s long-term economic ascent.
The US has demanded that China shift away from its state-led model by cutting industrial subsidies, opening up its market to US goods, and cracking down on intellectual property theft and forced technology transfers.
“This could be an opportunity for China, as the pressure from the United States could be turned into a driving force for reforms,” an adviser to the government said. “The pressure on China is very big and we should have long-term preparations.”
US President Donald Trump and Chinese President Xi Jinping (習近平) at the beginning of the month agreed to a truce that delayed a planned Jan. 1 increase of US tariffs to 25 percent from 10 percent on US$200 billion of Chinese goods while they negotiate a trade deal.
To clinch a deal, China could make some concessions, including further opening up its market to US goods, scaling back subsidies and improving intellectual property protection, policy insiders said.
However, they added that China would not ditch industrial development plans that are vital to its competitiveness.
“The United States has requested China quicken reforms, which are also in line with our interests,” a second government adviser said. “We will push for market-oriented reforms, but we cannot be too hasty and we won’t completely copy the Western model.”
The Chinese State Council, the country’s Cabinet, did not respond to a faxed request for comment.
In June, China unveiled a long-anticipated easing of curbs on foreign investment in banking, agriculture, automotive and heavy industries as it moved to show that it would fulfil pledges to open its markets further.
Xi is today expected to give a major speech in Beijing to mark the anniversary of “reform and opening up,” diplomatic sources said.
There is widespread disappointment among some Chinese economists over the pace of reforms, after top leaders unveiled sweeping plans in 2013 to let the market play a decisive role in resource allocation.
Discontent over an increased presence by the Chinese Communist Party in all types of businesses has been growing over the past few months.
“There is still too much government intervention. I haven’t felt any relaxation for the time being and don’t think the government will relax,” said Sam Yu (俞丁山), general manager at Mentechs, an industrial equipment manufacturer in Changzhou in China’s Jiangsu Province.
“I think external factors are needed to promote internal reforms,” he added, referring to the trade dispute.
Wu Jinglian (吳敬璉), a prominent government economist, has called on Chinese leaders to show “greater political courage and wisdom” to fulfil their promises to carry out reforms vital to China’s development and transformation.
Levin Zhu (朱雲來), son of former premier Zhu Rongji (朱鎔基), who spearheaded painful reforms in the 1990s to tackle the bloated state sector, made a similar call at a recent finance forum in Beijing.
“It will be very difficult for a society to maintain systematic progress if there is no reform and opening up,” Zhu said.
Speaking at the same forum, China Development Research Foundation vice chairman Liu Shijin (劉世錦), an adviser to the central bank, said that reforms to improve China’s “imperfect” market economy and further opening up would help it cope with trade frictions with the US.
The constraints on China’s private firms, seen by many as the key to sustained economic growth, contrast with the increased power of state-owned enterprises, which staged a comeback during the 2008 global crisis, riding on a huge government stimulus package.
Underlining a trend known as “the state sector advances, the private sector retreats,” government entities have acquired or said that they are planning to acquire controlling stakes in at least 31 listed private firms in the year to date, a Reuters review of corporate disclosures showed.
That outpaces the handful of such purchases last year.
Xi has pledged financing and tax support for financial firms, as part of measures to ward off a sharper slowdown in the economy, but private businesses are lobbying for a level playing field between them and state firms.
However, there is little sign that Xi could take bolder action to clip the wings of state firms.
In October, People’s Bank of China Governor Yi Gang (易綱) said that China planned to adopt the principle of “competitive neutrality” to create a level playing field between state-owned and private firms.
However, analysts said they believe that the pledge is merely symbolic given the close ties between the government and state firms.
“Reform is the only way. Previous reforms did not touch on politics, but there is no more room,” another adviser said. “We’ve reached a bottleneck if we only do economic reforms without changing politics.”
Additional reporting by Zhang Min, Ben Blanchard and Reuters’ Beijing newsroom
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