China vows 'decisive' role for markets, results by 2020

BEIJING Tue Nov 12, 2013 10:21am EST

1 of 6. A worker wields a hammer at a demolition site in front of new residential buildings in Hefei, Anhui province, October 19, 2013.

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BEIJING (Reuters) - China's leaders pledged to let markets play a "decisive" role in the economy as they unveiled a reform agenda for the next decade on Tuesday, looking to secure new drivers of future growth.

China aims to achieve "decisive results" in its reform push by 2020, with economic changes in focus, the ruling Communist Party said in a communiqué released by state media at the end of a four-day conclave of its 205-member Central Committee.

The self-imposed deadline for progress - rare for Beijing to lay out in such clear terms - together with the creation of a top-level working group and an emphasis on "top-level design", suggest a more decisive reform push by the administration of President Xi Jinping and Premier Li Keqiang than under the previous leadership.

They must unleash new sources of growth as the economy, after three decades of breakneck expansion, begins to sputter, burdened by industrial overcapacity, piles of debt and eroding competitiveness.

"You should look back in history. When Deng Xiaoping started the reform and opening movement, he actually did something very similar in nature, creating a very powerful working group," said Steve Wang, China chief economist with The Reorient Group in Hong Kong.

"These guys report direct into the power center of the Communist Party. This is definitely not something to be looked at as another layer of bureaucracy, this is something to speed things up, to make things more efficient."

The leaders also set up a state committee to improve security as Beijing seeks to tackle growing social unrest and unify the powers of a disparate security apparatus in the face of growing challenges at home and abroad.

While the statement was short on details, which prompted disappointment on social media, it is expected to kick off specific measures by state agencies over the coming years to gradually reduce the role of the state in the economy.

Historically, such third plenary sessions of a newly installed Central Committee have acted as a springboard for key economic reforms, and the follow-up to this meeting will serve as a first test of the new leadership's commitment to reform.

CAUTIOUS ON STATE-OWNED ENTERPRISES

While the party effectively upgraded the importance of markets in its philosophy - previous policy statements often described markets as playing only a "basic" role in allocating resources - it also made clear that it had no plans to radically reduce the role of the state in the economy.

State-owned enterprises, which now control large swathes of the economy, will continue to play a leading role, even while the government creates more room for private enterprise by opening up more industries to private capital, it said.

Among the issues singled out for change, the party said it would work to deepen fiscal and tax reform, establish a unified land market in cities and the countryside, give farmers more property rights, and develop a sustainable social security system - all seen as necessary for putting the world's second-largest economy on a more stable footing.

Today, expanding the urban population to help transform the economy to one that is led more by consumption is being thwarted in part by a rigid residence registration system.

The system ties entitlement to public services, such as pension, healthcare insurance and free public schooling, to home villages and towns.

That makes it hard for the migrant workers that Beijing wants to encourage to move and work in cities to become full-fledged urban dwellers and consumers.

Restrictions on farmers from selling their land also impede this process, leaving many caught between the city and village.

HUNGRY FOR DETAILS

Out of a long list of areas the meeting had been expected to tackle, most analysts singled out a push towards a greater role for markets in the financial sector and reforms to public finances as those most likely to get immediate attention.

As part of that, Beijing is expected to push forward with freeing up the movement of capital in and out of China. The 2020 target date for making significant strides on reform could fuel expectations the government will be looking to achieve breakthroughs in freeing up the closely managed yuan by then.

Still, some observers were skeptical about just how far its efforts would go.

"Top billing is given to granting markets a 'decisive' role in resource allocation, which could mean a great deal, or very little," Mark Williams, chief Asia Economist with Capital Economics in London, wrote in a note.

The reaction on Chinese social media was broadly of disappointment over the lack of details.

"What is there to be said about the third plenum? Having read it, it feels like not having read it at all - there are no details, no regulations," said one user named Yu Chunxi, who says he works for a state-run asset management company.

Even with its new focus on central co-ordination of reform efforts, Beijing will likely face stiff resistance from those who benefit from the status quo - powerful heads of state companies to local officials who can benefit, often through graft, from the current focus on land sales and infrastructure investment.

Few China watchers had expected Xi and Li to take on powerful state monopolies, judging that the political costs of doing so were just too high. Many economists argue that other reforms will have only limited success if the big state-owned firms' stranglehold on key markets is not tackled.

But instead, the focus will be on indirect steps to limit the power of state behemoths and open up space for nimbler, private and foreign rivals - opening up markets to private and foreign investment and deregulation tested in free trade zones.

Beijing also predictably drew a line in the sand about how far it was willing to go on reforms - while it would move towards a more market-oriented economy and seek to weed out corruption and onerous bureaucracy, it would not entertain serious political reforms, or "change the flag", as it put it.

(Additional reporting by Aileen Wang, Natalie Thomas, Shao Xiaoyi and Li Ran in BEIJING, Fayen Wong in SHANGHAI, and Hong Kong newsroom; Writing by Jason Subler and Tomasz Janowski; Editing by Neil Fullick)

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Comments (7)
tmc wrote:
Stiff resistance? Really? That’s a western concept. I doubt it will be of any major importance to the Chinese. The USCA’s game of monopoly is finally coming to a close. A new game is beginning.

Nov 12, 2013 6:41am EST  --  Report as abuse
coolsun wrote:
We are heading for a short cover rally over the next week as temperature forecasts continue to deteriorate toward lower projections. Bentek is forecasting prices to increase at the henry hub to 3.65 over next week as demand starts to increase with winter heating. A drawdown in supply is expected into december. Noaa forecasts are still holding on to their pipe dream of warmer than usual winter weather as geopolitics continue to negate actual models in other more reliable weather centers across the nation. Expect natural gas to retest 3.75 midweek with a early december breakout to 4

Nov 12, 2013 8:41am EST  --  Report as abuse
coolsun wrote:
I dont believe that we will see 3.38 again. period. I think the trading range will go up and 3.75 will be the new bottom. Population increases and new demand is coming online monthly. New homes need heat and production is having a hard time keeping up with demand in this new economy. As the dow reaches 16k natural gas demand will jump with a new manufacturing boom in north america. coupled with wicked winter lows and short covering will shall see 4 by december.

Nov 12, 2013 11:53am EST  --  Report as abuse
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