How China plans its next reform phase

China’s political tradition has it that the third plenary session of the Central Committee of the Communist Party of China (CPC) is always the most important – the first and second plenaries decide the new party leadership and the shape of the new government, while the third decides the issues that will determine the nation’s future. In December 1978, it was the Central Committee’s third plenary that laid out the framework of China’s reform and its opening to the outside world, and in November 1993 the third session of the 14^th Central Committee designated the “socialist market economy” as the key to transforming China’s economic system.

Last November, the third plenary approved a document entitled “Decision on Major Issues Concerning Comprehensively Deepening Reforms” that marks the first important step by Xi Jinping’s new leadership. It ranges from the basic economic system to the role of the government, and covers fiscal and tax reforms, urban-rural development, ever-greater opening to the outside world, political reform, the rule of law, the supervision and checks and balances of power, China’s cultural system, social services, the environment and national defence.

In all, there are over 300 specific measures, but the particularly noteworthy ones include:

• The role of the market in allocating resources will be upgraded from “fundamental” to “decisive”;
• The so-called ‘one-child policy’ will be altered to allow couples a second child if either the husband or the wife is an only child;
• A new state security committee will strengthen national security;
• The percentage of profits of state-owned enterprises (SOEs) to be handed over to the state will be raised gradually to 30% by 2020;
• Mixed public-private ownership of SOEs is to be promoted with private enterprise encouraged to participate in the reform of SOEs;
• Restrictions on the household registration system will be relaxed so that more farmers can exchange “rural status” for “urban status”;
• An effort will be made to increase free trade and investment agreements with other countries, and to set up more domestic free trade zones inside China;
• The laojiao system – re-education through labour – is being abolished;
• A feasibility study to determine whether the retirement age can be raised;
• A new system governing officials’ residences is to be initiated with the aim of curbing corruption.

Feedback from Chinese opinion-formers, scholars and citizens suggests these measures have already won very positive responses. Many believe they will usher in another ‘revolution’ in China.

China’s reforms have achieved remarkable progress. Angus Maddison’s celebrated statistics of the history of the world economy have led some Chinese economists to note that, from the 1880s to the 1930s, the average Briton would enjoy no more than a 56% rise in living standards during his or her lifetime; and from 1920 to 1975, Americans’ living standards went up by 100% in the space of the average lifetime; for a Japanese from 1950 to 2010 by a factor of 10 times and for a Chinese born in 1981, if his life expectancy is 68 years, based on the economic growth rate during 1981-2011, his or her living standards might by 2049 have grown by 73 times. That’s the date, of course, when the People’s Republic will celebrate its centenary.

To sustain this momentum and realise what has been labelled “the Chinese Dream”, China will need to deepen its reforms and correct its shortcomings. But the road ahead is far from smooth.

In any country, reforms meet with obstacles. Many Chinese believe that one of the major challenges for the reforms initiated by Deng Xiaoping three decades ago was to be found in the mentality of Chinese people both toward reform and also to China’s opening to the outside world. That was why Deng Xiaoping repeatedly called for the liberalising of people’s minds. Compared with the situation back then, the major impediment today is the resistance of various interest groups that don’t want to see their advantages vanish with the deepening of reform.

Fresh reforms will also face the daunting task of effectively implementing the plenum’s new decisions at different levels of government. Experience over the last 30 years has shown that the process of passing orders from the top authorities to local government isn’t easy. The misinterpretation of policies as well as outright resistance to reform is frequent at China’s lower-levels government. There is a widespread view that if the government’s orders to shut down inefficient steel mills had actually been implemented there would have been no overcapacity in the sector.

The planned new reforms will have a tremendous spillover effect on social development. China’s Gini coefficient shows the gap between rich and poor is already very wide, with social tensions now rising at an alarming rate. How to distribute the benefits of future reforms to everybody in China and reduce costs should also be on the agenda of the CPC and the central government.

To protect the nation’s ecological environment from still more damage is another daunting task for the new reform programme. Chinese citizens increasingly recognise the precious value of clean air and food safety, so there’s widespread agreement with President Xi Jinping that China needs clean water and green mountains, because they are more valuable than the “golden mountains” of greater wealth.

Around the world, many people are interested not only in China’s economic change, but also in its political reforms. Some westerners even appear to wish that deepening economic reform will force China to transform its political system. As the Chinese proverb goes, “only the foot knows whether the shoe fits or not.” The Chinese themselves firmly believe that the unique characteristics of China are such that only the CPC can lead the nation in its socialist modernisation while maintaining political stability.

But that doesn’t mean that everything is perfect. It was significant that an entire section of the document listing the recent decisions is devoted to China’s political system. According to this, “efforts are to be made to uphold and improve the People’s Congress system, the CPC-led multi-party cooperative system and political consultative system, the system of autonomous government in ethnic areas, and the system of grassroots-level mass autonomous government.”

So those who might wish to see China’s political system drastically transformed will be disappointed. There are two red lines that will not be crossed. One is that political reform must proceed under the leadership of the CPC, the other is that public ownership will continue to be a dominant component of the economic system, even if the development of other forms of ownership will be encouraged.

As the world’s largest emerging economy, China is increasingly seen as an important player on the world stage. It won’t be long before China’s GDP in terms of purchasing power parity (PPP) will overtake the U.S. to become the largest in the world. But while history teaches us that a powerful nation can easily become a hegemon, this is a rule that China is determined to break.

China is still a developing nation, with more than 130m of its inhabitants still living in poverty. Some Chinese economists think that number is too low, and cite a more probable figure of 200m if the international poverty standard is used.

A second reason for thinking China won’t become a global hegemon is that it has long been a peace-loving nation. From the distant past till today, China has never invaded another nation. In the first half of the 15^th century, for instance, the celebrated Chinese sailor Zheng He made seven expeditions overseas, yet China did not seek to colonise an inch of foreign land.

The philosophy that guides China’s foreign policy is based on harmony and justice, not on the law of the jungle. As British philosopher Bertrand Russell said more than 90 years ago in The problem of China, when civil conflict was so rife, “But perhaps something may be preserved, something of the ethical qualities in which China is supreme, and which the modern world most desperately needs. Among these qualities I place first the pacific temper, which seeks to settle disputes on grounds of justice rather than by force.”

It is in any case in China’s interest to maintain peace. Without peace, China would be unable to accomplish its own modernisation, and this is something that has been recognised by every Chinese leader from Deng Xiaoping to Xi Jinping.

The whole process of deepening its reforms means China will also be integrating its economy internationally by opening wider to the outside world. Europe will play a more important role than ever in China’s new reform program. “The two sides are committed to promoting the China-EU Comprehensive Strategic Partnership in the next decade,” predicts The China-EU 2020 Strategic Agenda for Cooperation, approved by the 16th China-EU Summit in November 2013.

China’s new leadership seems to have recognised the fact that China and the EU, as the world’s biggest developing country and the largest union of developed nations, are two major players on the world stage that can make a great contribution to world peace and the strengthening of global governance by deepening their own bilateral relationship.