Tim Summers
Senior Consulting Fellow, Asia Programme (based in Hong Kong)

There is an ongoing debate about reform in China which centres around questions of how far and how fast reform – political and economic – might go

Political reform – at least in most western discussions – encapsulates the possibility of changes to China’s political system. Under the country's new leaders there is little sign of fundamental shifts so far, though there are campaigns to clean up the bureaucracy and make the Party-state more responsive. 

Economic reform is often reduced to greater marketization and a reduction in the state’s role in the economy. This has been prompted partly by a sense that state-owned enterprises have become too powerful, that the private sector has insufficient space to develop, and that factor markets are still too much in the hands of government officials. 

Reform in motion 

The coming months will see further debate, inside and outside China, about what sort of reforms China’s new leadership might consider. President Xi Jinping confirmed to Barack Obama in California in June that the Party machine was working on a medium and long-term policy plan for comprehensive economic reforms, and precedent suggests that this will be unveiled at this autumn’s Party Plenum. 

In fact, the new leadership has already set in train some elements of a reform programme. At the National People’s Congress (NPC) in March it was agreed that the railways ministry would be reduced to a policy administration and its operations would be fully corporatized. Other changes to government structure included the establishment of a new, stronger agency for food safety, symbolic of the desire to respond to growing popular concerns.

After a meeting of the State Council (cabinet) in May, a subsequent policy document set out the most comprehensive statement of government priorities for economic reform this year since the NPC. Some of these are economic: reforms to the fiscal system, financial sector reform such as further marketization of interest rates and internationalization of the currency, encouraging more private and flexible investment, and freeing up the pricing of resources. There do not appear to be plans to shake up state-owned enterprises. Other points address livelihood issues, such as low income protection, ensuring food and medicine safety, and dealing with the environment.

The highlight so far is administrative reform, in particular reducing government approvals needed in certain areas and devolving other responsibilities from the centre to the provinces. These reforms amount to making the government more responsive and efficient, but without changing the fundamental political structures. Part of the motivation is to help stimulate innovation and economic efficiency, but there is also a social element in the suggestion that these reforms could improve the delivery of public services. 

Social element

Less noticed is the extent to which social and livelihood issues feature. Even when it comes to resource pricing, for example, there are aims to differentiate pricing in electricity, water and gas (planned for some time) to support livelihoods.

Indeed, the 'economic reform' document for 2013 has as its guiding principle dealing with the state’s relationship not just with the market, but also with society. A reference to 'reform dividends' benefiting people 'more justly' highlights the social element. This is not a manifesto for economic efficiency alone.  

Social issues have also been prominent on the agenda of the State Council, under new Premier Li Keqiang. According to official accounts of its meetings, major issues discussed over recent months include air pollution, developing the solar panel industry, safety in (industrial) production, providing safe and high quality milk powder, managing the agricultural sector to ensure supply and stable prices, and dealing with the earthquake which hit Sichuan in April. 

A social policy emphasis makes a lot of sense. While economists and investors have stressed their desire for market-oriented economic reforms to improve efficiency, from a political perspective the most pressing issues the leadership faces are social and popular concerns. 

There were hints of this as soon as Xi Jinping took over from Hu Jintao as head of the Chinese Communist Party back in November. Xi’s first public comments highlighted people’s desire for 'better education, stable jobs, more income, greater social security, better medical and health care, improved housing conditions and a better environment'.

All of this suggests we should rethink the way we understand 'reform' in the Chinese context. Social, or livelihood, issues are at the forefront of Chinese policy making. And economic reform does not just mean the economics of efficiency (to borrow a phrase from Joe Studwell's How Asia Works), but also addressing social and livelihood issues through the economics of equity. 

Tim will talk further on China's new leadership at a Nominees Breakfast meeting on 17 July.

More on China.