China in 2030
Image Credit: Robert S. Donovan

China in 2030

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This week, the World Bank issued “China in 2030,” a major report that calls for dramatic economic reforms to maintain China’s current rate of growth. In his opening remarks at the launch conference in Beijing on February 27, World Bank chief Robert Zoellick noted that China faces a number of challenges in the coming years, including a rapidly aging population, resource pressures, environmental issues, and rising inequality. 

The report warns that China is at a “turning point in its development path,” and needs a new development strategy. It calls for six changes:

1.      Structural economic reforms

2.      Focus on innovation;

3.      Emphasis on “green” development

4.      Improve social security system;

5.      Strengthen the fiscal system; and

6.      Become a more active global stakeholder. 

One of the major takeaways of the report, and one covered by the international media, has been its recommendation to reduce the influence of state-owned enterprises. The implementation of this idea, of course, will face significant counter pressures from vested interests in China. 

One aspect of the report that I would like to highlight, given my bailiwick, is its recommendations for land reform in its Supporting Report 1, Structural Reforms.

On a general level, the report calls for more efficient land use, a stronger legal framework, and better enforcement mechanisms. One of its bolder suggestions is that China “reconsider the state’s unique monopoly power in the primary land market,” perhaps transitioning into a “market regulator, administrator and service provider, and enforcer of rules.”  It’s a lofty idea, but based on the local government’s heavy dependence on land sales, this is unlikely to happen in the near future.

The report also suggests that rural households be given stronger land rights, in great part to prevent land expropriation and ensuing social unrest.

These are very smart and focused recommendations, especially as they highlight the problem of compulsory land acquisition and subtly hint at what could be accomplished by these reforms: a happier, more secure, and thus less restive rural population.

The report also covers the issue of the intersection of land policy and local government finances, noting the use of land as collateral for loans (dangerous when land prices fall) and suggesting the implementation of an annual property tax. In fact, a property tax is currently in the works in China: in January 2011, Chongqing and Shanghai became the first municipalities to launch a property tax in an initial test run, and more cities are expected to be added to the experiment this year.

The report, at nearly 500 pages, is ambitious, to say the least. The ideas presented aren’t particularly revolutionary, but taken together they form a rather groundbreaking roadmap for China over the next 20 years or so. Of course, as they say, you can lead a horse to water, but you can’t make him drink – what parts of this plan will actually be implemented? Political will and capability are certainly issues here, both in terms of the central government’s willingness to pursue these reforms and their ability to implement these reforms at all levels of government. This is a particularly interesting question in light of the impending leadership transition. 

According to Zoellick’s speech, the idea for the report was conceived a year and a half ago at a meeting between himself and current Vice Premier Li Keqiang, who will likely be taking over as second in command this autumn. The involvement of Li has positive implications for the likelihood of future economic reforms. In the end, whether or not these reforms are adopted will be determined by the crises the Chinese leadership faces, i.e. if/when social unrest bubbles up due to the lack of a social safety net, then social security reforms will take place. The Chinese government has been reactive, not proactive, which is what this World Bank report hopes to change.

Comments
5
John Chan
March 7, 2012 at 01:34

A direct elected monitor body that has the right to monitor and to question, while the local government is mandate to answer. I think it should be a good start to satisfy #3 to make local officials more accountable to the local people without dismantling the hierarchy of the CCP.

Chris
March 5, 2012 at 07:41

Trashcan, what you say is not necessarily true.

China’s system does have institutional oversight, running along the entire vertical stratification in fact, and the horizontal relationships act as de facto oversight mechanisms. The problem is more of “who will oversee the overseers?”, which is an infinite regress that isn’t a feature unique to just the PRC. It is structural oversight that is missing, and structural reforms that are needed. Given the complexities of centre/local relationships in the Chinese system this is a much more intricate problem, but that doesn’t mean it is an impossible one.

The Chinese judiciary may also be strengthened without prying it from the CCP. Separation of powers is not the only method available. Just for starters, the judiciary could begin to perhaps actually follow its own laws.

Given the nature of the post-Dengist political system in China, I would say that #3 is probably the most difficult, simply because I don’t really see how the incentive of local leaders to maximize extraction can be overcome without dismantling the hierarchy of the CCP itself.

Trashcan
March 4, 2012 at 20:19

@John Chan

I think #3 is possbile under more liberal politicians such as Wang Yang. #1 and #2 are highly unlikely, however. The most likely way for #1 to occur would be for other governments to become more corrupt, not for China to become less corrupt, because corruption is so endemic in a system without oversight. And Wu Bangguo has promised that no separation of powers will take place, so #2 is basically impossible.

John Chan
March 4, 2012 at 06:58

The report should add the following changes:
1. Improve China’s standing on the Corruption Perceptions Index from Transparency International.
2. Strengthen the independence of the juridical system.
3. Make local officials more accountable to the local people.

Oro Invictus
March 3, 2012 at 08:33

While the report does offer, as a whole, a fairly well thought out and direct piece, I am pessimistic as to how much will actually be adopted by the CPC; virtually all the points either directly or, as part of support reforms needed for those named, require the party relinquishing fairly vast control over the PRC. Indeed, if it were to implement all the policies recommended, the PRC would be, at most, a single-party government in nothing but name. Even the possibility of the PRC implementing some of the policies rather than all of them is questionable, given the “hole in the dam” mentality the CPC takes to authority.

I agree wholeheartedly though that the most likely instigator by which reform will occur is crisis response; this fits well with the model established by both the PRC’s and other authoritarian governments’ history of governance. Indeed, if we assume the CPC continues to be characterized by reactionary response mechanisms (as it has in the past and even increasingly moreso now), it actually makes the issue of forming predictive models much simpler and, on a geopolitical scale, give us a better sense of “where things are going”.

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