As China faces growing calls for major reforms to prevent its slowing economy from derailing and keep its living standards rising, the response from Chinese leaders appears to be: “Not yet.”
In speeches, news conferences and meetings in the past 11 days during the annual session of the national legislature, Cabinet ministers have promised only gradual steps to help entrepreneurs and curtail the state companies that crowd out private business.
The response seems far below the challenge that even some senior Chinese leaders say the country faces: an urgent need to build a productive, self-sustaining economy or risk seeing growth stall, trapping China at middle-income levels. The World Bank, Chinese economists and the government’s own researchers have urged a drastic restructuring to curb the dominance of state industries, overhaul a wasteful banking system and promote consumer spending to reduce reliance on slowing exports.
“Given the amount of pressure from the weak external environment and internal pressure to rebalance, they don’t have much choice,” Societe Generale economist Wei Yao (姚煒) said. “They don’t have room to delay much more.”
Behind the foot-dragging lies politics.
The Communist Party leadership is in the midst of a transition to a younger generation of leaders and there was little talk during the past week’s ceremonial events of any political reforms that might erode the party’s monopoly on power.
However, it also remained unclear how committed the new leaders are to economic reform, whether they can agree on its future course and, if they do, whether they will summon the will to overcome vested interests from party factions to local leaders who get patronage by cosseting state industries.
It’s China’s version of the gridlock that hits Washington every four years as parties gear up for presidential elections.
Chinese leaders are not elected, but their political calendar — with once-a-decade handovers of power instituted in the 1990s to avoid Soviet-style stagnation — leads to similar distraction.
Chinese Vice President Xi Jinping (習近平) is in line to become the top leader, but the leadership has many other posts. As politicians move up, spots open at key ministries and important provinces. Factions are distracted by the haggling.
Even after the transition is complete, major reforms could take still longer, analysts say.
“Anyone with any political capital will spend it on positioning themselves, rather than arguing for some disruptive change in policy that could make enemies,” said Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing.
Xi, former party boss of the export-driven Zhejiang Province, is known for nurturing private business, a possible plus for reform. Other possible leadership candidates have ties to banks and state industries that might hamper reforms.
That means policy is drifting and the government is continuing unsustainable strategies, such as relying on investment to drive growth, possibly making the transition to a consumer-led economy more difficult, Chovanec said.
“There is a real risk of a hard landing,” he said.
Already, the ruling party faces public anger and frequent protests throughout the country over strains ranging from unemployment and seizures of farmland for redevelopment, to chronic corruption and a yawning wealth gap between a tiny elite and the poor majority.
China’s leaders have repeatedly pledged to rebalance their governnment-dominated economy by reducing reliance on exports and investment, boosting consumer spending and helping entrepreneurs who create new jobs and wealth.
However, government-backed companies still control industries from oil to steel to telecoms and receive the bulk of loans from banks, most of which are state-owned, too.
The World Bank and a Cabinet think tank, in a high-profile report, called for far-reaching reforms to promote free-market competition and reduce the dominance of these state-owned national champions. The report — issued just ahead of the legislative session — seemed timed to influence the agenda for the impending leadership transition and landed in the midst of a debate among Chinese academics and the media about the need for reform.
“China’s economy has reached its limits under this outdated model of development,” the prominent business magazine Caixin said in an editorial this month. “Whether or not the country can engineer a new path of growth and avoid the middle-income trap will depend on its determination to transform itself.”
Chinese Premier Wen Jiabao (溫家寶) repeated promises of change in a televised speech at the opening of the largely ceremonial National People’s Congress. Wen and other leaders pledged tax cuts for businesses and more social spending.
Wen gave no commitments, though, to basic changes many say are critical to any transformation. High on that list is restructuring the banking system so that households no longer receive low government-set deposit rates, in effect subsidizing cheap loans to state companies.
Chinese Commerce Minister Chen Deming (陳德銘) said last week that the World Bank recommendations “could be incorporated into a master plan.” However, he made clear the political limits to diminishing Beijing’s role in the economy.
“China’s basic economic system in which public ownership is dominant is unshakable,” he told reporters. “This is written into the supreme law, the constitution.”
FOX HUNT: To suppress dissent, Chinese living abroad that Xi Jinping sees as threats are told to either return to China or commit suicide, Christopher Wray said Chinese agents have been pursuing hundreds of Chinese nationals living in the US in an effort to force their return, as part of a global campaign against the country’s diaspora, known as Operation Fox Hunt, FBI Director Christopher Wray said on Tuesday. In a speech about the security threat posed by China, during which he said Beijing’s counterintelligence work was the “greatest long-term threat to our nation’s information and intellectual property, and to our economic vitality,” Wray gave the example of one Fox Hunt target who was given a choice of going back to China or killing themselves. Fox Hunt was launched
‘WOULD NOT COMPLY’: The company’s user data are kept in Singapore and it would not turn the data over to Beijing even if asked, TikTok chief executive Kevin Mayer said Social media app TikTok has distanced itself from Beijing after India banned 59 Chinese apps in the country, according to a correspondence seen by Reuters. In a letter to the Indian government dated on Sunday last week and seen by Reuters on Friday, TikTok chief executive Kevin Mayer said the Chinese government has never requested user data, nor would the company turn it over if asked. TikTok, which is not available in China, is owned by China’s ByteDance, but has sought to distance itself from its Chinese roots to appeal to a global audience. Along with 58 other Chinese apps, including Tencent
INTERNET CURBS: People are rushing to erase their digital footprints after police given powers over online activity, although it might take years for the full effect to be felt At midnight on Tuesday, the Great Firewall of China, the vast apparatus that limits the country’s Internet, appeared to descend on Hong Kong. Unveiling expanded police powers as part of contentious new national security legislation, the Hong Kong government enabled police to censor online speech, and force Internet service providers to hand over user information and shut down platforms. Many residents, already anxious since the legislation took effect last week, rushed to erase their digital footprint of any signs of dissent or support for the past year of protests. Hong Kong Legislator Charles Mok (莫乃光), a pro-democracy member of the Legislative
‘FIGHT FOR FREEDOM’: Hong Kongers will never bow to Beijing, the advocate said, while the US’ envoy to the territory called China’s new security law a ‘tragedy’ The world must stand in solidarity with Hong Kongers after Beijing imposed sweeping national security legislation on the semi-autonomous territory, advocate Joshua Wong (黃之鋒) said yesterday, vowing to continue campaigning for democracy. Wong, one of the territory’s most prominent young advocates and a figure loathed by Beijing, was speaking outside a court where he and fellow advocates are being prosecuted for involvement in last year’s pro-democracy protests. China last week enacted sweeping security legislation for the restless territory, banning acts of subversion, secession, terrorism and collusion with foreign forces. The legislation has sent a wave of fear through the territory, and criminalized dissenting