15 April 2014
Dr Tim Summers

Dr Tim Summers

Senior Consulting Fellow, Asia-Pacific Programme (based in Hong Kong)

20140415ChinaLi KeqiangWB.jpg

World Bank Group President Jim Yong Kim shakes hands with Chinese Premier Li Keqiang. Photo: Wu Zhiyi / World Bank
World Bank Group President Jim Yong Kim shakes hands with Chinese Premier Li Keqiang. Photo: Wu Zhiyi / World Bank


Last November, a major meeting of the senior echelons of China's ruling party (the Third Plenum of the 18th Central Committee of the Chinese Communist Party) put 'reform' at the top of the policy agenda in China. The meeting both demonstrated the political centrality of further reform under China's new leadership, and hinted at a number of policy changes to come.

The implications of potential reform will be significant beyond China because of the impact of the future development of the Chinese economy and society on global markets, international security and issues such as climate change. Six months on from the Third Plenum, and a month after Premier Li Keqiang delivered his first annual government work report, what are the prospects for this reform agenda?

Firstly, it is clear that the agenda – officially termed the 'comprehensive deepening of reform' – is both broad and substantive. 'Comprehensive' may be the most important word. While a key part of the reform agenda is giving the market a ‘decisive’ role in the allocation of resources, the agenda is not just about the economy but covers areas from social insurance to national defence. 

Second, Chinese policy making tends to be exhortative, as high-level rhetoric shapes the policy making process and filters down into provincial and ministerial work plans. But the implementation of this reform agenda began even before the Third Plenum. Over the last year there has been a steady drip-feed of policy announcements, from the removal of a floor on interest rates to plans to unify rural and urban old-age insurance schemes. 

One of the more interesting policy frameworks is the urbanization plan which combines ambition to improve the urban experience with the reshaping of the country’s economic geography. This area of policy could have the greatest social implications over the coming years if it leads to more urban residents enjoying full access to urban public services, or the cementing of major urban clusters as economic drivers.

One of the most significant areas of policy change to date is reducing the role of the government, such that the primary means of delivering 'more market' is 'less state'. Under Li Keqiang, the government has reduced the number of administrative approvals needed and devolved responsibility to lower levels of government. If the authorities can put into practice the much talked-about 'negative list' approach, which means that investments and other business decisions are permitted unless further approval is explicitly required, then the economic and commercial dividends of reform could be substantial.

All of this reflects a gradual, low-key and managerial approach to delivering reform, rather than one built around major announcements or radical changes. Even last November’s Third Plenum was more of a comprehensive political statement of intent than a list of specific measures. 

Evaluating this approach depends on an assessment of the motivations for reform. On one level, 'reform' simply means 'change', an opportunity to address the many problems which have been identified, and to send a message of hope that the new leadership will do things differently. 

Looking in more depth, the comprehensive nature of the agenda suggests that the issues facing policy-makers are wide-ranging. Most accounts - including Party General Secretary Xi Jinping's own list of the many problems facing China delivered at the Third Plenum - suggest that without reform, crisis will come sooner or later. This links to another theme of the reform agenda: better governance, and with it a desire to address problems of legitimacy facing the Party. The high-profile and drawn-out anti-corruption campaign should be seen in this context too. 

There is another motivation for reform, glimpses of which were given in Li's March speech. Li referred to a desire to catch up with and overtake global leaders in a number of sectors, ranging from mobile telecommunications to new materials. The idea here seems to be that China might take on characteristics of a global 'leading economy', not necessarily replacing the US but alongside it, maybe as part of a multipolar economic world order. By its nature, this motivation speaks to the medium term, and helps make sense of the 2020 deadline which was mentioned for delivering reform at the Third Plenum and is reflected in other plans, such as that on urbanization.

The implementation of elements of the reform agenda has begun, in a gradual and managerial way. The rate and effectiveness of progress will vary from issue to issue, and one risk point is the lack of prioritization within this ‘comprehensive’ agenda. Another challenge to implementation is the need for a broader cultural transformation in the way the Party thinks and operates - this change management programme for China's cadres and officials could be the most difficult element of reform for the leadership. But with 'reform' the driving concept for policy, their credibility now depends on their ability to deliver.

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