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China, promising reforms, pushes enterpreneurship

China’s Premier, Li Keqiang, presented his annual Work Report to the National People’s Congress on Wednesday, and the media dutifully reported the big ticket items: a 7.5% GDP growth target for 2014 and…

Chinese Premier Li Keqiang took to the stage Wednesday to present a blue-print for further market reforms. EPA/Wu Hong

China’s Premier, Li Keqiang, presented his annual Work Report to the National People’s Congress on Wednesday, and the media dutifully reported the big ticket items: a 7.5% GDP growth target for 2014 and an acceleration of free trade negotiations with Australia.

But Li Keqiang’s extensive report had a number of more nuanced key messages aimed at several clear audiences.

The report provides reassurances for an international audience wary of a slowdown in growth. It highlights the government’s commitment to pollution and corruption reduction for domestic consumers.

The most interesting messages are reserved for China’s political and business elite.

The report is a blueprint for an ambitious and comprehensive reform agenda that could impact huge swathes of the economy from breaking up government monopolies to corporatising financial services.

If implemented, it would be a big step towards giving China a better market economy and a more transparent system of governance.

Beijing calling

Li Keqiang’s message to his international audience is that China will maintain sustainable economic growth and a stable society.

Li explicitly acknowledged concerns in the West that China’s economy may be in for a “hard landing”. In response, he committed the government to deficit reduction, spending cuts and allowing the renminbi to fluctuate in a wider band.

Foreign trade is planned to increase by 7.5%, conditions for foreign investors will be improved and approval procedures for outbound investment streamlined.

Delegates at the National Peoples Congress listen to a speech by Chinese Premier Li Keqiang. EPA/Adrian Bradshaw

For the audience at home, Li Keqiang’s message was about the competence of the government.

the Work Report reads in places like the election platform of a political party aiming to show that it is in full control of a huge reform agenda and that people can trust the government’s ability to solve problems as diverse as poverty, pollution, inequality and official corruption.

A Chinese Reagan?

But speaking to China’s business and politician class, Li Keqiang produced an elaborate blueprint for wideranging market and fiscal reforms that promise to be the foundation for a deregulated and liberalised economy.

The reform priorities – marketisation, entrepreneurship and public finance – were outlined by President Xi Jinping at a policy meeting, the Third Plenum, last November.

The Premier’s report converts these policy priorities into a deregulation agenda that includes abolition of government monopolies, opening state-controlled industries to private capital and the corporatisation of the banking sector.

Private entrepreneurship is recognised for its contribution to innovation and employment creation. The private sector is to benefit from better access to bank finance and protection of intellectual property rights. New markets in services and other areas will be open to foreign participants.

So far most of these reforms are on paper, although some are being trialled in local experiments as is normal procedure in China.

These deep structural reforms are to be accompanied by social welfare reforms – including granting millions of people the right to live and work in cities – aiming to reduce the gap between urban and rural living standards.

Li Keqiang announced a plan to grant urban residency rights to nearly 100 million rural people to help close the gap between cities and regions. EPA/Wu Hong

Li Keqiang’s reform agenda has the potential to make history. It is the most ambitious and comprehensive reform agenda formulated since economic reforms began in China 35 years ago.

The dilemmas these reforms are attempting to address have long been known, including how the banking monopoly prevents private enterprises from accessing bank credit or how the system of local public finance forces local governments into debt.

Xi Jinping put these problems on the agenda. Li Keqiang’s report draws up a policy framework.

For the first time, a comprehensive new government system is emerging that incorporates private entrepreneurship and a market-based fiscal system.

In international historical perspective, this agenda is comparable to the deregulation Australia undertook during the Hawke and Keating years.

Li Keqiang‘s report does not directly address headline issues like shadow banking and local government debt because these are subsumed under broader reform agendas. And the report doesn’t mention a timeline for implementation.

While the reform agenda is conceptually radical, implementation will be conservative as changes are phased in slowly following local trials. It’s unlikely major changes will be in place in just one year.

A more likely scenario is that Li Keqiang is beginning the groundwork for the next Five Year Plan, from 2016 to 2020. But even if the wait is till then, this is the best indication yet that the Chinese government wants a better market economy and a better system of governance.

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5 Comments sorted by

  1. Gary Stainton
    Gary Stainton is a Friend of The Conversation.

    Instructor at BERLITZ

    Yet in some areas it is just the same old China story.

    Yesterday Hong Kongers were told that they just cannot be trusted to pick the right candidates for the 2017 Chief Executive election. Beijing has to vet them first. Nothing like trusting your own citizens.

    I anticipate a great deal of social unrest in Hong Kong between now and 2017. It will be fascinating to study. The two groups opposed to democracy in Hong Kong are obviously first the Chinese Government.

    But secondly, the other source of opposition comes from the six tycoon families who have done very, very well out of the current imposed system and are not prepared to share it with anyone.

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    1. Garry Baker

      researcher

      In reply to Gary Stainton

      Yes, Hong Kong is rapidly proving to be the Canary in the mine for these new Chinese policies - and Hong Kong-ers don't like it one bit - given they have been near the cutting edge of free markets for a long long time.

      Hong Kong Press freedoms in particular are being squeezed right now for the coming whitewash story the Central Committee want to sell to the world

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  2. Raine S Ferdinands

    Education at Education

    An impressive Work Report…. laying the foundation for the next five year plan. It is very possible for China to achieve what it desires. That's because of its autocratic, hierarchical political structure. Corruption may well be its Achilles' heel. If China manages to minimise its corruption, it will be a nation to watch out for. However, I doubt this. China is no Singapore….. too massive and too many vested interests. I do wish, though, that it would succeed in becoming more transparent … a precursor for free-market in its real sense.
    Hong Kong will always remain a thorn in its flesh, though. It is in China's best interest to keep nurturing that thorn than to do away with it. Inventing or creating a substitute HK in mainland may not be in China's long term interest. I suspect China is smart enough to begrudgingly concede.

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    1. Gary Stainton
      Gary Stainton is a Friend of The Conversation.

      Instructor at BERLITZ

      In reply to Raine S Ferdinands

      "Hong Kong will always remain a thorn in its flesh, though. It is in China's best interest to keep nurturing that thorn than to do away with it."

      I hope you are correct. However, having lived in Hong Kong for two years now, the rhetoric from the Mainland often seems contrary. One thing that has made Hong Kong strong is its retention of an independent Judiciary and English common law. Many international companies will not do business in China unless the contract is written in Hong Kong.

      Yet just before Christmas, China's chief law maker in a speech to the Hong Kong Law Society made it quite clear that courts in China have the right to overturn decisions made by the Final Court of Appeal in Hong Kong. Statements like that really spook international business.

      There is also a big push from China to extend the current Hong Kong/ Macau free trade zone to all of Guangdong Province as far north as the city of Guangzhou. If that happens Hong Kong ceases to exist.

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    2. Raine S Ferdinands

      Education at Education

      In reply to Gary Stainton

      "Hong Kong ceases to exist" A frightening thought, Gary. Guangdong is no Hong Kong … try as they may. Even Shanghai could never come close. I am wondering about all that investment in HK by the elite (mostly politicians) from China. Wonder if the vested interest of the PRC elite would offer some protection for HK. I hope so.

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