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2018.03.20

China's economic policy has gotten underway as government officials overcome the hesitation for fear of the anti-corruption campaign -After the 19th Party's Congress, the Xi administration begins policy management in earnest-

An article published in February 20, 2018

  • Kiyoyuki SEGUCHI
  • Research Director
    Kiyoyuki SEGUCHI
  • [Expertise]
    Chinese Economy and Relations among Japan/China and the United States
In the first phase of the Xi Administration, the Central Committee's Third Plenary Session attracts public attention

At the 18th National Congress of the Communist Party of China in November 2012, Xi Jinping was elected as the Party's General Secretary, launching the first Xi administration. One year later, in the Third Plenary Session of the Central Committee of the Communist Party, held in November 2013, an important decision that gained the attention of the world was announced.

This decision aimed at deepening the structural reform of the Chinese economy in all aspects by introducing market mechanisms actively. Since the policy management policy advocated in the decision was more ambitious in nature than had been predicted, expectations for the new administration's determination to carry out the structural reform resolutely grew.

Certainly, the decisive actions to reveal corruption among politicians, army officers, bureaucrats, and the like through anti-corruption campaigns were unprecedented. This led President Xi to solidify his political foundation.

At the same time, the Xi administration announced its basic policy for policy management, including the slogan of "new normal" and "reform of the supply side," and took measures to reduce excessive equipment and inventory as well as financial leverage, all of which had encouraged them.

As a result, in macroeconomic terms, both employment and prices have long remained stable for the first time in recent years, and the Chinese economy has achieved the highest level of stability since it started to shift to market economy in the first half of the 1990s.



  Actual policy management is slightly disappointing

The policy management during the first phase was slightly disappointing, however. The administration has made little progress in introducing privatization and a mixed ownership system, both centerpieces of reform of state-owned enterprises.

In terms of financial liberalization, partly under strong pressure from the United States for high yuan value, the government could not help but become cautious when liberalizing the movement of capital, which was highly likely to depreciate the Chinese currency, though yuan was included in the SDR basket.

It was expected that it would be essentially difficult to abolish various disparities, including those in income, between rural and urban areas, and between regions, and as expected, there has been no remarkable improvement in these areas.

In addressing environmental problems, the administration has produced certain results as exemplified by the fact that people in Beijing and Shanghai came to really feel tangible improvements as the PM2.5 level substantially declined and they had more and more days with clear skies.

At the national level, however, many provincial cities are still suffering from serious environmental problems such as air pollution and water contamination, indicating that drastic improvements that satisfy many people have not been achieved.

As described above, the basic policy management policy presented at the Third Plenary Session of the Central Committee in the first phase of the Xi administration was ambitious, and expectations for its implementation were rising. In fact, however, the results of subsequent policy management did not live up to the expectations of many people.

As part of its policy promises, the Xi administration aims at realizing a "moderately prosperous society" in which people can live with a sense of economic security by 2020.

In order to ensure that the majority of people really feel that the goal has been achieved, the government needs to further step up and accelerate policy implementation to abolish income disparities, make environmental improvements, and take other measures in the remaining short period of time.

At the 19th Party Congress held in October 2017, President Xi emphasized that China would shift its top priority issue from the expansion of production capacity to correction of economic imbalances, upgrading of economic quality, and improvement of economic inefficiency.

This major shift in the basic economic policy is thought to be based on the understanding of the present situation described above.



  A new change began in the policy management of leading provincial governments

From late January to early February, I visited Beijing, Chengdu, and Shanghai on a regular business trip to China, and had meetings with central and provincial government officials, Chinese economists, and senior managers stationed at Japanese government agencies and Japanese businesses.

In Beijing, I focused on analysis of the current macroeconomic situation and forecasts of the Chinese economy when I gathered information, and partly because of this approach, I did not feel a particularly significant change in the policy to manage economic policy.

When I had meetings with senior managers of the Sichuan provincial government in Chengdu, however, it seemed that the provincial government was clearly more active in its stance to attract Japanese businesses than before.

In addition, the government's proactive stance toward policy management based on new infrastructures and system designs such as full-scale utilization of a Eurasian transcontinental railroad which directly connects Chengdu and major European cities and the start of pilot free-trade zones in Chengdu was noteworthy.

Furthermore, in Shanghai, too, a new wide-area policy plan had gotten under way.

Mr. Li Qiang, who had taken office as Communist Party secretary of Shanghai immediately after the National Congress of the Communist Party in October 2017, took leadership in announcing a plan to integrate one city and three provinces: the City of Shanghai and the Provinces of Jiangsu, Zhejiang, and Anhui.

Moreover, this is not the kind of pipe dream often announced by Chinese provincial governments which lacks in clearly defined specific measures. A wide range of specific policies have gotten under way as follows:

First, an exhaustive survey of the actual condition of the economy is carried out under the direction of Secretary Li.

Second, the great rainbow bridge plan promotes industrial clusters with Shanghai's Rainbow Bridge (Hongqiao) area, an important center of transport where airports, high-speed railways, and major trunk roads concentrate, as a hub of the Yangtze River delta.

Third, the Hangzhou Bay economic zone plan aims at constructing a new economic development district along the Hangzhou Bay.

Fourth, plans call for unification of the social security systems, transport cards, phone numbers, and other services in the City of Shanghai and part of the Province of Zhejiang.

Furthermore, these policies are underpinned by a combination of a plan that has been worked out over the years and personnel who get the plan under way, and one characteristic of this is that they are managed in an extremely effective way.

For example, when President Xi was a Communist Party secretary of Zhejiang Province (November 2002 to March 2007), he advocated the Shanghai unification ("接軌上海") plan, which aimed at facilitating the unification of Zhejiang Province and Shanghai City.

Mr. Li, who assumed office as new Communist Party secretary of Shanghai, was then the chief secretary of the province's Politburo Standing Committee, who was an aide of Secretary Xi. Subsequently, he was appointed as the governor of Zhejiang Province, became the Communist Party secretary of Jiangsu, and took office as Communist Party secretary of Shanghai, the post he has held to the present day.

Essentially, Jiangsu Province has a strong sense of rivalry against Shanghai City, and it is clear that the provincial government is resistant to the plan for unification with the city.

But if Mr. Li, who was a Communist Party secretary of Jiangsu until recently, advocates the plan to integrate one city and three provinces as Party secretary of Shanghai, it would be difficult for Jiangsu to object to the plan.

The assignment of Mr. Li and his relationship with President Xi indicates that it is evident that the series of plans mentioned above are underpinned by the strong support of President Xi. Needless to say, this enhances the effectiveness of policy management.



  Scholars and corporate managers really feel changes in policy management

These changes in policy management in Shanghai City, Sichuan Province, and other local governments suggest that since the 19th National Congress of the Communist Party, backed by the strong support of President Xi, leading senior government officials have started to work in earnest, accelerating the policy management that has hitherto stagnated.

Many similar examples can be found in other provincial governments.

For example, the Xiong'an New Area, which is regarded as the core project in the second phase of the Xi administration, is expected to be constructed after the model of Shenzhen's development, and in April 2017, the former Party secretary of Shenzhen and its mayor was appointed to the post of the governor of Hebei Province, which supervises the Xiong'an New Area.

It is said that a comprehensive plan for development of the new area will be announced by the government of Hebei Province in a near future.

In Wuhan, the core city of Central China, Mr. Chen Yixin, who had been the deputy chief secretary of Zhejiang Province's Politburo Standing Committee (the chief secretary at that time was Shanghai Secretary Li) when Mr. Xi was the province's Communist Party secretary, was appointed as Communist Party secretary of Wuhan in December 2016. Secretary Chen is working powerfully and boldly to construct a new economic development area called the Yangtze River New City ("長江新城") and to attract enterprises to the district.

This assignment of personnel can be considered as aiming at linking the economic policy for Wuhan, located in the middle courses of the Yangtze River, and that for Shanghai, situated in the lower reaches of the river.

A distinguished Chinese political science scholar whom I interviewed during the recent business trip pointed out that one major change after the 19th National Congress of the Communist Party was that government officials who had long been cautious in implementing new policy started to move for the first time in several years.

In addition, a senior official stationed at a Japanese government agency told me that a Chinese corporate manager had said to him that he had thought that the decisions of the quinquennial National Congress of the Communist Party had nothing to do with his business, but that those of the recent 19th National Congress indicated the direction the Chinese economy should take in the future and that he felt that they were close to him.

During the past five years, as a hard-hitting anti-corruption campaign was carried out, government officials could not help but become deeply concerned about the risk of their past bribery being revealed and held back by others around them if they moved actively, and this situation made them extremely passive toward their jobs.

It was clearly recognized that this had serious adverse effects on policy management, but there was no move to reverse the situation.

It seems that since the 19th Party Congress in October of last year, a significant change has started to take place to such a stalemate.

There is no doubt that as it enters its second phase, the Xi administration is starting to move in earnest. Closer attention should be paid to its efforts to implement its policy in concrete terms in the years to come.


(This article was translated from the Japanese transcript of Mr. Seguchi's column published by JBpress on February 20, 2018.)

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