China cabinet seeks ambitious economic reform agenda: advisers

BEIJING Sun Oct 21, 2012 5:34pm EDT

1 of 4. China's Premier Wen Jiabao waits for a question at his annual news conference following the closing session of the National People's Congress (NPC), or parliament, at the Great Hall of the People in Beijing March 14, 2011.

Credit: Reuters/Jason Lee/Files

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BEIJING (Reuters) - China's top leaders have asked policy think-tanks to draw up their most ambitious economic reform proposals in decades that could curb the power of state firms and give more freedom to the setting of interest rates and the yuan currency.

But after almost 10 years of delay to painful structural reforms by the outgoing leadership, some of the authors of the proposals told Reuters they fear a nascent rebound in economic growth could derail the recommended agenda.

"China is approaching a stage when the government must embrace more fundamental reforms," said Shi Xiaomin, vice president of the China Society of Economic Reform, a think-tank under the National Development and Reform Commission, the top economic planning body.

China's once-in-a-decade leadership change will be finalized next month at the ruling Communist Party's 18th congress. Vice President Xi Jinping is set to take over from Hu Jintao as president and Li Keqiang will replace Wen Jiabao as premier at the meeting, which opens on November 8.

The congress convenes as the economy heads for its weakest annual growth rate in at least 13 years after three decades of near 10 percent annual expansion in the wake of sweeping reforms launched by former leader Deng Xiaoping.

Reuters interviewed five policy advisers involved in drawing up the reform proposals. They said the order for the agenda came from members of the State Council, or cabinet, although they declined to give specifics for fear of repercussions.

Significantly, planning sources said cabinet members had signaled an interest in seeing proposals from policy advisers outside Beijing, in the provincial hinterland, implying that a nationwide consensus is being sought on the content and timetable for painful structural reform.

High on the list drawn up by the advisers is how to contain the government's meddling in the economy and clip the wings of more than 100,000 state-owned enterprises (SOEs) which enjoy enormous privileges, including preferential access to bank lending and government contracts.

Other reforms include allowing the market to set the cost of bank credit, land and various natural resources.

Credit is currently basically allocated by the central government. It tells state-backed banks how much to lend and when - mainly to other big state-controlled businesses and projects. Meanwhile all land and basic resources are owned by the state, with private ownership limited to temporary leased rights to usage.

Analysts say reform of these two areas would bring fundamental change to China's economic structure, even more so than making the yuan currency more convertible - also on the table as part of a package of proposals to liberalize capital markets and boost the yuan's use in global trade settlement.

Reform to China's complex tax structures, under which the central government commands the lion's share of receipts while local governments do most of the spending, is needed if serious progress is to be made cleaning up local government debt that stood at 10.7 trillion yuan ($1.7 trillion) at the end of 2010.

"I think a consensus on reforms has been formed at the central level, even though people may have different considerations on when and how to implement reforms," said Wang Jun, senior economist at the China Centre for International Economic Exchanges, a top government think-tank in Beijing.


Experts say Chinese leaders must unlock fresh growth potential and put the economy on a more sustainable path to avoid the "middle-income trap", where wealth creation stagnates as market share is lost to lower cost competitors and the attainment of high-income country status stays out of reach.

The World Bank says China's GDP per capita was $5,500 last year, versus $22,400 in South Korea, $34,500 in Hong Kong and $46,200 in Singapore, which all avoided the middle-income trap.

There has been soul searching among Chinese academics about the 4 trillion yuan ($640 billion) stimulus package unveiled in late 2008, which led to excessive investment in white elephant projects, created mountains of local government debt and sent house prices rocketing in big cities.

The stimulus helped state-owned firms stage a comeback at the cost of private businesses.

SOEs have repeatedly fought off Beijing's plans to get them to pay higher dividends to state coffers and have sought to delay reforms on income distribution systems, which could imply capping hefty wages in monopoly sectors, government sources say.

The reforms aim to require SOEs to pay more dividends to the government to meet a funding shortfall in social welfare.

"We could see serious problems if we don't reform," said Zuo Xuejin, head of the Institute of Economics at the Shanghai Academy of Social Sciences, which advises the local government in China's financial hub.

Still, some government advisers fear signs of a recovery in the economy could ease the pressure to act.

China's annual economic growth slowed to 7.4 percent in the third quarter from 7.6 percent in the second - the seventh consecutive quarter of slower expansion, but government officials have flagged signs of a modest rebound in September.

Industrial production, retail sales and investment data were all slightly ahead of forecasts in September and quarter-on-quarter GDP growth was strong, suggesting the worst may be over and the world's No.2 economy will pick up in the final quarter.

"They may have to change if there is an economic crisis, but they may choose to muddle through if the economy recovers," said an economist with a top government think-tank in Beijing, who requested anonymity due to the sensitivity of the issue.


Past changes tend to support the anonymous economist's view.

Deng Xiaoping launched economic reforms in the late 1970s to rescue an economy on the verge of collapse after Mao Zedong's disastrous Cultural Revolution.

He made his famous tour of southern China in 1992 to jumpstart the second stage of reforms when the economy nosedived in the aftermath of the 1989 Tiananmen Square crackdown. And sweeping market measures spearheaded by former Premier Zhu Rongji were introduced after the Asian financial crisis in the late 1990s.

Chinese leaders have acknowledged that three decades of 10 percent average annual GDP expansion are over and that the economy needs fresh drivers, analysts say.

In February, the World Bank said in a report with the cabinet think-tank, endorsed by presumptive-premier Li, that Beijing must implement deep reforms to avert a crisis.

The World Bank said China's annual economic growth may slow to 5 percent a year by 2026-2030, from 8.5 percent in 2011-2015.

The mainstream view in Beijing is to blame the global financial crisis for China's slowdown, which also reflects diminishing gains from past reforms and market opening spurred by China's entry into the World Trade Organisation a decade ago.

Even fresh reforms may not deliver a swift turnaround.

"The easiest part of the reforms were carried out in the past 30 years, so we don't have many areas where reforms can deliver quick results," said Zuo at the Shanghai think-tank.

(Editing by Nick Edwards and Dean Yates)

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Comments (10)
DeanMJackson wrote:
The article reads, ‘”China is approaching a stage when the government must embrace more fundamental reforms,” said Shi Xiaomin, vice president of the China Society of Economic Reform, a think-tank under the National Development and Reform Commission, the top economic planning body.”

As I’ve been saying for some time now ladies and gentlemen, here comes the planned-for “reforms” that will take on a life of their own, leading to the prepared and planned-for collapse of the Communist government in China:

“Since at least the early 1970s, the Communist party of China has been poised to create a spectacular but controlled “democratization” at any appropriate time. The party had by then spent two decades consolidating its power, building a network of informants and agents that permeate every aspect of Chinese life, both in the cities and in the countryside. Government control is now so complete that it will not be seriously disturbed by free speech and democratic elections; power can now be exerted through the all-pervasive but largely invisible infrastructure of control. A transition to an apparently new system, using dialectical tactics, is now starting to occur.”

In order to understand the World Communist threat to our liberties, one must understand Communist strategy:

“Lenin advised the Communists that they must be prepared to “resort to all sorts of stratagems, maneuvers, illegal methods, evasions and subterfuge” to achieve their objectives. This advice was given on the eve of his reintroduction of limited capitalism in Russia, in his work Left Wing Communism, an Infantile Disorder.

… Another speech of Lenin’s … in July 1921 is again highly relevant to understanding “perestroika.” “Our only strategy at present,” wrote Lenin, “is to become stronger and, therefore, wiser, more reasonable, more opportunistic. The more opportunistic, the sooner will you again assemble the masses round you. When we have won over the masses by our reasonable approach, we shall then apply offensive tactics in the strictest sense of the word.”

If you examine the backgrounds of prominent Russian figures, you will find that they have long Communist Party/ KGB or Komsomol pedigrees. Yet for some inexplicable reason, the Western media have accepted their sudden, orchestrated, mass “conversion” to Western-style norms of behavior, their endless talk of “democracy,” and their acceptance of “capitalism,” as genuine. “Scratch these new, instant Soviet “democrats,” “anti-Communists,” and “nationalists” who have sprouted out of nowhere, and underneath will be found secret Party members or KGB agents,” Golitsyn writes on page 123 of his new book [The Perestroika Deception]. In accepting at face value the “transformation” of these Leninist revolutionary Communists into “instant democrats,” the West automatically accepts as genuine the false “Break with the Past” — the single lie upon which the entire deception is based.

In short, the “former” Soviet Union — and the East European countries as well — are all run by people who are steeped in the dialectical modus operandi of Lenin. Without exception, they are all active Leninist revolutionaries, working collectively towards the establishment of a world Communist government, which, by definition, will be a world dictatorship.

It is difficult for the West to understand the Leninist Hegelian dialectical method — the creation of competing or successive opposites in order to achieve an intended outcome. Equally difficult for us to comprehend is the fact that these Leninist revolutionaries plan their strategies over decades and generations. This extraordinary behavior is naturally alien to Western politicians, who can see no further than the next election. Western politicians usually react to events. Leninist revolutionaries create events, in order to control reactions to them and manipulate their outcomes.” — KGB defector Major Anatoliy Golitsyn (his 1984 book, “New Lies for Old” can be read at Internet Archive).

You ask, what does Golitsyn mean when he says, “Leninist Hegelian dialectical method — the creation of competing or successive opposites in order to achieve an intended outcome”?

Simply explained, and on a tactical level, it’s called the “Scissors Strategy”, where one blade represents (for example) Putin & Company, however the other blade of the scissors–the leadership of the political “opposition” to Putin & Company–is actually controlled by Putin & Company*, which leaves the genuine opposition in the middle wondering why political change isn’t taking place. Understand this simple strategy?

On a strategic level, back in the 1960s the USSR and China played the “Scissors Strategy”, by pretending to be enemies. This strategy allowed one side to play off against the other with the West, thereby gaining political advantages from the West, which neither Communist giant could have achieved if it was believed they were united. Clever, huh?

Keep Golitsyn’s words in mind.
*(1) the Russian electorate these 21 years have inexplicably only been electing for President and Prime Minister Soviet era Communist Party Quislings, persons who persecuted and terrorized the majority Christian population:

Boris Nikolayevich Yeltsin – July 10, 1991 – December 31, 1999 – Communist.

Vladimir Vladimirovich Putin – 31 December 1999 – 7 May 2000 (Acting) and May 7, 2000 – May 7, 2008 – Communist.

Dmitry Anatolyevich Medvedev – May 7, 2008 – May 7, 2012, during his studies at the University he joined the Communist Party.

Vladimir Vladimirovich Putin – May 7, 2012 – Present, Communist.

(2) there was no de-Communization program initiated after the “collapse” of the USSR to ferret out Soviet era Communist agents still in power;

(3) not one “crime against humanity” indictment of the thousands of Soviet era criminals still alive;

(4) the refusal of the Russian Navy to remove the hated Communist Red Star from the bows of vessels, and the refusal of the Russian Air Force to remove the Communist Red Star from the wings of Russian military aircraft, not to mention placing the hated Communist Red Star on all new Naval vessels and military aircraft; and

(5) Lenin’s tomb still exists in Red Square!

Oct 21, 2012 6:39pm EDT  --  Report as abuse
tomhe wrote:
I am quite sure there are a number of Chinese guys think as you try to depict. But, how many were they 30 years ago? And how many are they right now?

Oct 22, 2012 2:45am EDT  --  Report as abuse
Neurochuck wrote:
Fans or pans of Dean M Jackson might also like this Der Spiegel cover:

Oct 22, 2012 5:30am EDT  --  Report as abuse
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