China's new plan for growth—and less government
On November 9-12, the Third Plenum of China's Communist Party will convene in Beijing. It will outline the broad contours of China's economic policies for years ahead — and it will have global implications.
What makes this meeting different, however, is that it will initiate the long-waited series of reforms that represent a paradigm shift in China's economy.
The '383 Plan' – a paradigm shift
While the reform proposals have been shaped by numerous Chinese think tanks, it has two primary authors: Li Wei, a former secretary of the former premier Zhu Rongji, who was known for liberal reforms and toughness; and Liu He, a veteran liberal reformer who now serves as the key economic adviser to President Xi Jinping.
Dubbed the "383 Plan," the Third Plenum proposals are said to focus on tripartite reforms, eight core sectors and three packages.
The triple reforms comprise the market, government and corporations. Each dimension of the 383 Plan seeks to recalibrate and reduce the government's role in the economy.
The eight core sectors include finance, taxation, state assets, social welfare, land, foreign investment, innovation and good governance.
Finally, the reform blueprint seeks to relax control over market access, establish a basic social security package and allowing sales of collectively-owned rural land. In the course of massive urbanization, the old household registration system (hukou), which continues to discourage migration, will be gradually phased out.
These reform initiatives do not reflect "business as usual," but a paradigm shift.
China's new growth model
The new reform initiatives are expected to move in parallel with increasing financial deregulation, which, in turn, is supported by the recent creation of Shanghai's free-trade zone.
While the free-trade zone advocates seek to make the renminbi fully convertible in the next few years, Beijing's reformers hope to make the Chinese currency into a major international and a reserve currency within a decade.
China's new growth model draws from policy blueprints that have been shaped by economist Liu He whose team had been working on the "China 2030" project with the Chinese State Council and the World Bank. However, the timeline of the 383 Plan is medium-term, extending to 2020.
At its most abstract level, this model is predicated on a shift from an investment-driven growth to consumption, which is predicated on the expansion of social security and health services. In the private sector, it means a shift from cost efficiencies toward innovation. It requires sustainable development, better local governance and new momentum in the integration of China into the world economy.
While the final reform outline and its execution are likely to differ from the original proposals, the thrust of the reforms is driven by a decisive consensus in Beijing and broad popular support in the mainland.
In the past two years, too many analysts have got the reform preparations consistently wrong. In spring 2012, there was much debate on China's economic doom as most analysts thought that China was heading toward a "hard landing," or already stuck in one. In reality, stability and growth in the mainland was ensured toward the end of the Hu Jintao-Wen Jiabao era.
The gradual shift toward financial reforms and deregulation took a major step already in summer 2012. Further, China's economy has been recovering since the government's monetary loosening in fall 2011.
Despite gradual gains in China, skeptics continued to predict its economic and political collapse. However, hard data indicated that, in the aftermath of a soft landing, China was transitioning toward recovery.
During the Chinese leadership transition, most analysts in the West argued that reformers had lost in Beijing, while reforms had been sold out. The consensus was that China would be led by hardline conservatives. In reality, Beijing opted for tough leaders who could execute broad reforms.
Certainly, China remains haunted by many challenges. In particular, Beijing must manage its growth transition, while containing local debt that soared as collateral damage from the 2009 stimulus package.
However, the alternatives to reforms are few. As Premier Li Keqiang said recently. "Without structural transformation and upgrading, we will not be able to sustain economic growth."
Dan Steinbock is Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore). See also www.differencegroup.net.