When top leaders from the Chinese Communist Party (CCP) made their annual pilgrimage to the seaside resort of Beidaihe last month, they turned to an old master for economic advice, people with knowledge of the matter said.
The leadership consulted former Chinese premier Zhu Rongji (朱鎔基), said the people, who asked not to be identified because the talks were private. Zhu, 86, has been hailed for his role in transforming the nation’s economy nearly two decades ago. Specifically, they wanted the retired leader’s thoughts on Chinese President Xi Jinping’s (習近平) plan for overhauling the country’s US$16 trillion state-run industrial sector, one of the people said.
The last time China launched such a shakeup, the charge was led by Zhu: About 60,000 firms were closed and 40 million workers let go, according to government data. It remains to be seen whether today’s leaders will stomach such change, given that the reform blueprint released on Sunday still centers around state control.
“In the 1990s under Zhu Rongji, there was a clear vision that the state sector had to be radically downsized and focused on a relatively small number of truly strategic sectors; everything else could be let go,” said Arthur Kroeber, founding partner and managing director at research firm Gavekal Dragonomics. “Today, there is no apparent belief that the state has to give up anything.”
While it is not known what Zhu said when his advice was sought, it is clear his influence looms large in Xi’s administration. Officials who worked under him are in key positions: People’s Bank of China Governor Zhou Xiaochuan (周小川) was a deputy governor from 1996 to 1998 and Minister of Finance Lou Jiwei (樓繼偉) was a vice minister from 1998 to 2007.
The Beidaihe meetings date back to the era of Mao Zedong (毛澤東). There, incumbent leaders discuss among themselves and with former senior officials the most pressing issues facing the party and nation.
Under the new plans, the government aims to sell shares of some state-owned enterprises (SOE) and consolidate others.
Authorities want to reform unproductive “zombie enterprises” while encouraging a “blending” between state-owned capital and private investments, government agencies overseeing the plan said in statements on Monday.
By overhauling bloated and debt-ridden companies, China hopes to remove a brake on growth in the world’s second-largest economy, which is set to expand this year at its slowest pace in 25 years.
Underscoring the drag, the value added by SOEs declined last month from a year earlier for the first time since 2008, according to data compiled by Bloomberg.
State-owned firms in China do everything from running power plants and tourism kiosks to building spacecraft and trading silk.
SOEs accounted for 40 percent of industrial assets and 18 percent of urban employment in 2013, down from 69 percent and 51 percent in 1998, according to Bloomberg Intelligence.
The latest round of SOE reform could be a “game-changer” for the economy as the government is repositioned as a capital investor rather than operator of state businesses, Australia & New Zealand Banking Group Ltd economists wrote in a report this month.
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