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2013.11.19

China's Lost Decade : Redux

JBPress on November 15, 2013

  • Kunihiko Miyake
  • Research Director
    Kunihiko Miyake
  • [Expertise]
    Foreign Affairs and National Security

The communiqué released on November 12 by the third plenum of the 18th Central Committee of the CCP (Chinese Communist Party) was once again a typical product of their infamous bureaucratic turf war. Its reform plan is not only metaphysically dull but also virtually unattainable.

I remember something similar to this document as far back as January 1985 when I first saw a draft of the Japanese Prime Minister's Annual Policy Speech (Japan's "State of the Union" address) to be delivered at the beginning of the regular session of the Diet (Japan's Parliament).

At the time, I was an assistant director for Middle Eastern affairs at the Japanese Foreign Ministry. I was naively surprised to find the draft speech for the Prime Minister to be just a compilation of many short sentences, each of which had been proposed by relevant ministries and agencies.

The Prime Minister's office tried to shorten the speech but no bureaucrats were willing to voluntarily give up the sometimes mutually inconsistent policy lines they had proudly drafted. So the speech was getting longer and longer and, quite naturally, increasingly ambiguous.

Similarly, the CCP Central Committee's communiqué must have been drafted and finalized as the result of a fierce battle for compromise among the reformist, Maoist and vested interests groups inside the CCP. Let us take a look at some of the plenum's "major achievements."

The communiqué states that, "The core issue is to straighten out the relationship between government and the market, allowing the market to play a decisive role in allocating resources and improving the government's role."

I beg your pardon? Didn't the CCP say in the past that the market plays a basic role in allocating resources? Now they claim that the market's role was philosophically upgraded. Oh, is that so? And, if so, how and to what extent? Nobody seems to have an answer to this question.

The document also states that the CCP will set up a central team for "comprehensively deepening reform," responsible for "designing reform on an overall basis, arranging and co-ordinating reform, supervising the implementation of reform plans" to achieve "decisive results" by 2020.

Very fine. However, wasn't reform already comprehensive 10 years ago? How could you deepen already comprehensive reform? And, if you say you can and should, why don't you just do it now? You don't need another team and decade to get results.

As for SOEs (state-owned enterprises), the Communist Party did not publicize any concrete reform plans, instead insisting that, while "upgrading" the role of the market, the "public sector's" dominance in the economy should be maintained.

The party also claimed that it would work to set up a sustainable social security system, deepen fiscal and tax reform, establish a unified land market in cities and the countryside, and give farmers more property rights. Aren't these all important challenges from the last decade?

We should not be naive, as I was 30 years ago, and imagine that President Xi Jinping and Prime Minister Li Keqiang will start a series of robust measures to "comprehensively deepen reform," taking into account that the political costs of doing so are still high. This is not the question.

The real question is how long can the CCP continue to postpone the moment of truth. Reportedly, many economists specializing in China argue that other reforms will have only limited success if the dominance of huge SOEs in key markets is to be maintained.

This is deja-vu for me. Japan's old LDP (the Liberal Democratic Party of Japan), which used to be a nest of major vested interests, was forced to step down from power in 1993. The voters supported reform, which was eventually taken up as a slogan by major political parties in Japan.

China watchers in the world's markets all know that serious reforms in China would face resistance from powerful interest groups in national or local governments or in SOE monopolies. However, as in the case of Japan's LDP, the ruling party should transform itself if it wishes to stay in power.

The real question here is whether the CCP can change itself without losing power, and not whether it can skillfully put off, through beautiful rhetorical compromise, the "moment of truth" when people rise and say "No" to the CCP's more than 60 years of authoritarian rule.

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