28 January 2020

Reading the plenum tea leaves

As a guide to the country’s reform path, the communiqué released after this week’s Communist Party Central Committee plenum is short on concrete details.

The full text of the plenum document may give more insight when it’s released next week but at least a few points are almost certain.

First, the communiqué is generally a source of disappointment, if not pessimism, in large part because of the failure to really address state monopolies. Despite acknowledging that the public and private sectors are both important components of the economy, the communiqué underlines the major role of public ownership. The wording shows that state monopolies in major sectors will not be broken. Even if the central government is keen to make breakthroughs in this area, progress will only be slow.

All this is proof that members of vested interest groups, many of whom are Central Committee members, are reluctant to allow reforms that threaten their interests.

Second, financial reforms are only given brief mention in the communiqué, and there’s no reference to specific goals or a timetable. But this does not necessarily mean these changes will be slow. Saying little about financial reforms probably means they have already been agreed upon and are under way.

Financial reforms have been a feature of the new administration since it assumed office in March. Interest rate liberalization, capital market development and capital account opening are expected to proceed and the only question is how quickly they will go ahead.

Third, there’s no certainty about the creation of a central reform leading group to advance change. There group is supposed to draft, coordinate, implement and oversee the reform process, and there is speculation that it will replace, or take some power from, the National Development and Reform Commission (NDRC).

Most observers believe that such a new body will drive reform but this may not be the case. China has many central leading groups, which are usually headed by one of the seven Standing Committee members. But these groups basically coordinate various departments instead of exercising real power so their roles are largely symbolic.

A reform leading group means an added layer of decision making and this may be a drag on efficiency. And even if a group does replace the NDRC in its central reform role, there is no guarantee it will perform well. The NDRC was established 10 years ago to replace the outdated planning agency, the State Development Planning Commission. It was supposed to carry reform forward but after a decade, the NDRC itself has become a big obstacle to economic change.

Fourth, the document underscores the role of development, signaling that growth continues to be a top priority. The communiqué says development is the key to solving all problems the country faces. The government will no doubt have a bottom line for growth because they fear that too little will lead to unemployment and social unrest.

But there are some caveats to this reading. A soft landing will not take a heavy toll on the job market if measures to reform and boost the service sector gather pace. China can generally create enough jobs for its massive but decreasing labor force — the real problem is structural in that there are not enough service-sector jobs for its increasingly better-educated workforce. In this sense, it is not the overall GDP growth rate that matters to the job market. What’s important is how fast the government will develop the service sector by cutting red tape, widening access to foreign and private investors and facilitating funding.

Fifth, the communiqué contains a pledge to open up the country. The promise to accelerate the building of free trade zones means top policymakers, especially Premier Li Keqiang, want to push for global economic integration to promote domestic reforms and force interest groups such as state-owned enterprises to change.

Zhang Xinmo, a commentator based in Beijing, has been a journalist for more than 10 years in China and Hong Kong. He writes mostly on China’s economic issues.

– Contact the writer at [email protected]



The writer is an economic commentator. He writes mostly on business issues in Greater China.