On December 18, 1978, when the Communist Party of China’s 11th Central Committee held its Third Plenum at a non-descript hotel in Beijing, the meeting sparked off headlines across the world. The plenum heralded the beginning of China’s ‘Reform and Opening Up’ policy, and was widely seen as the moment when Deng Xiaoping became the paramount leader of China. Deng’s economic reform and open-door policy prioritised a new brand of modernisation for China that was “ruthlessly pragmatic”. The plenum was widely seen as the catalyst for the transformation of what was an economic backwater into the world’s second-largest economy. Generations of Chinese leaders have kept up with tradition since then and used the Third Plenum to launch far-reaching reforms and unveil path-breaking policies. As the Third Plenum of the 18th Central Committee began November 9, in Beijing, 1.3 billion citizens in the People’s Republic of China are hoping that it takes them closer to the so-called ‘Chinese dream’ articulated by President Xi Jinping early this year. The world will also be watching eagerly and scanning hints and guesses trickling from the plenum to verify whether the new Chinese leadership is ready to walk the talk on reforms.
The Third Plenum: Concept and Significance
The Central Committee of the Communist Party of China (CPC) is the Party’s key decision-making body. Policies, reforms and other decisions are, therefore, discussed and debated by members via a series of meetings know as Plenary Sessions or Plenums. Plenums generally take place behind closed doors and are often widely analysed events because they are seen to have fundamentally changed the course of history in China.
Plenums are of three kinds. A Central Committee’s First Plenum serves as an introduction to the country’s new leadership while the Second Plenum tends to be about internal party affairs. Traditionally, reforms are expected at the Third Plenum, because new leaders are seen as having had time to consolidate power, study various proposals and reach consensus. Among the most significant Third Plenums are the 11th Central Committee’s meet in 1978, during which China formally embarked on a project of Chinese economic reforms under Deng Xiaoping and the 14th Central Committee’s third plenum in 1993 when Jiang Zemin and Zhu Rongji approved Deng’s concept of building a “socialist market economy” for China.
This year’s Third Plenum is the third sitting of the Xi Jinping-led 18th Central Committee and will last from November 9 to November 12. The meeting is being held under tight security at Beijing and attended by 376 members of the Central Committee. Details of the discussions taking place will be made public on the final day when China’s official news agency Xinhua will release a report on what has been agreed. This year’s plenum, which comes one year after Xi Jinping became the Communist Party’s chairman, is widely seen as his opportunity to offer a more detailed road map for China’s future and unveil his “blueprint of comprehensive reform.”
The Big Agenda
Yu Zhengsheng, a senior Communist Party official, had said last month that “unprecedented” economic and social reforms would be discussed at the meeting. Chinese leaders are allegedly working on a combination of reform proposals at the plenum that will help push China into the next phase of its economic growth and realise their Chinese dream. Discussions at the third plenum are, therefore, likely to focus on reforms in the following sectors:
I) Banking sector: The Chinese banking system is monopolised by large state-owned institutions that favour funding state-owned enterprises instead of smaller private businesses. “State-owned banks are more interested in lending to state-owned enterprises because this is politically safer. Leaders of state-owned banks are more interested in political promotions rather than profitability of the bank,” says Zhu Guozhong, professor at Peking University’s Guanghua School of Management. Interest rates are, therefore, kept low, which limits Chinese savers’ options for investment and consumption. In order to spur more spending from consumers, Chinese leaders are likely to engage in discussions about diversifying the banking sector and instilling an increased degree of efficiency in the system.
Another sore point with China’s citizenry is high deposit rates charged by banks. China still keeps a ceiling on bank deposit rates, helping bank profits but hurting consumers. Discussions at the Plenum, say analysts, are likely to focus on eliminating that ceiling to prompt banks to compete for deposits and give consumers higher returns, helping China’s long-term efforts at creating a more consumer-driven economy.
II) Fiscal and tax system: The current taxation system in China was reorganized in the 1990s by then premier Zhu Rongji to redistribute tax revenues in favour of the central government. At the time, the move was seen as an attempt to avoid local corruption, but analysts agree that the system has now run its course. This is largely because limited access to tax proceeds have forced local governments to resort to other ways to meet their budgetary goals and increased social-service obligations, like increasing land sales to developers, ultimately leading to widespread resentment and anger among local residents.
The biggest challenge remains installing a better tax system that will allow for easy and increased transfer of funds to local governments. Looser restrictions on local borrowing would ultimately help these smaller governments finance their debt and lead to a better redistribution of fiscal revenues – a point very likely to be discussed by the Central Committee.
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II) Greater liberalisation: One of the greatest debates in China has been achieving that complex balance between liberalisation and state control over capital. Easing of capital controls by China has paved the way for loosening the government’s grip on flows of money in and out of the country leading to increased growth. While capital controls have helped cushion China from making impulsive decisions on global fund flows and weather events like the Asian financial crisis, they have also contributed to severe distortions in the economic system. Greater liberalisation, say analysts, would help in lowering barriers for foreign investment in Chinese stock and bond markets and ease some of this distortion. However, the Chinese leadership has often balked at ceding state control in favour of liberalisation.
IV) State-owned enterprises: The Chinese Government enjoys a huge monopoly over most sectors ranging from energy, banking and telecommunications. Many analysts have argued that this has largely led to inefficiency and poor services. “State-owned companies, especially industrial state-owned companies, are generally in debt. This is unfair because they take up a lot of state resources, such as land and loans,” explains Sheng Hong, director of the Unirule Institute of Economics, a private think tank based in Beijing. “They haven’t made profits in about two decades, but those officials receive unlimited salaries and bonuses. Chinese people hand resources to this group of people but they don’t reward the people at all.” The plenum is likely to focus on this recognised need to lower barriers for the entry of private players in these industries to spur competition without inviting resistance from state-owned enterprises
V) Hukou: Internal migration in China has often been dubbed the largest migration in history. The glitz and glamour of more ‘globalized’ and ‘urbanised’ lifestyles lures many a youth from China’s rural countryside to look for jobs in the cities. Reel and real world combined, have largely painted the picture that it’s the urban centres in China that are the place to be! Education, water and sanitation, better economic opportunities – the cities have it all. However, China’s household registration system keeps rural residents from migrating to urban areas unless they hold a Hukou, a household registration certificate, from those urban areas. While many urban dwellers fear encroachment on already limited facilities, there is no doubt that the Hukou reform could foster increased growth from consumption without a bitter fight on resources. Hukou reform is expected to be high on the plenum’s agenda this time around.
VI) Land reform – Land collectivisation in the 1950s took farmers’ property rights to the land and transferred them to communes, managed by local party officials. Rural land in China is collectively owned, with farmers unable to sell the land they work on. Reforms could give them greater ability to sell or lease out their land. The recognised need for land reforms is likely to resonate at the Plenum and committee members are likely to discuss how people in the rural countryside could be empowered by allowing them to sell rural land and properties at market value.
Need for a holistic approach
Clearly, the leaders of the 18th Central Committee have a lot of ground to cover in order to sustain the PRC’s economic growth and to promote social justice among its citizens. However, a mere announcement of new reforms and policies is not going to do the trick. China’s economic and social history is already coloured with failed policy initiatives like the ‘1000 plan’ programme and its attempt at adopting a ‘Green GDP’. What is now needed is a holistic approach to realise the Chinese dream of “national rejuvenation, improvement of people’s livelihoods, prosperity, construction of a better society and military strengthening. The Central Committee leaders at the 18th Third Plenum know only too well that that any announcement on new reforms is only going to mark the beginning of a very long process of negotiating between competing interests.
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