China's Hollow Reform Wish List
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China's Hollow Reform Wish List

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China's State Council is usually described as the nation's equivalent of a cabinet.  But when it comes to economic reform, its role often seems closer to that of the New York Times editorial board – a font of sensible liberal ideas that are unlikely to be implemented.  Its statement earlier this week on reducing income inequality probably falls into the latter category.

Formally, the Council, made up mostly of China's ministers, is the highest executive body of the Chinese government.  Although, being part of the government, it is subordinate to the highest echelons of the Party, the State Council is the body that implements Chinese law and thus has a great deal of power in writing regulations.

But in the last few years it has also made a number of grand statements of intent about matters it has proved not to be able to change – the “New 36 Clauses,” a 2010 set of policy goals to stimulate private investment in markets currently dominated by state-owned enterprises (SOEs), languished for years causing the state to issue new follow up documents last year. These failed reform efforts seem to have been a project of Prime Minister Wen Jiabao, who has in recent years made a number of statements calling for dramatic political and economic reform – sometimes to the extent of having his remarks censored inside China.  He has seemed increasingly like a lame duck.

Tuesday's “Opinions on Deepening Reform of the Income Distribution System” reads like a wish-list for liberals.  It calls for steps to encourage consumption: expanding social insurance and allowing banks to pay market interest rates on deposits, which would encourage Chinese savers to seek smaller nest eggs while making it easier to accumulate savings.  This would also reduce the pool of nearly free capital available to SOEs.  This is backed up proposals that would further level the playing field for non-SOE competitors: requiring SOEs to pay regular dividends and to bid for access to land and natural resources in an open auction.  It also calls for increasing the mandatory compensation paid in land seizures and making the tax system more progressive.

The document does include a few hard numbers.  It calls for SOEs to pay an additional 5 percent of their profits as dividends to the government by 2015 and proposes raising the minimum wage to 40 percent of the average in most regions.  But these policy goals would still have to be drafted into regulations to be carried out, and there is no particular reason to think that the ministries that have brushed off the State Council's previous demands to rein in SOEs will be more responsive to this one, especially given SOEs’ political power and the reality that China’s financial system relies on cheap capital and land to fund local governments.  Any economic reforms will have to find a way of disentangling this problem and of forcing recalcitrant officials to take the necessary risks.

At the same time, it seems clear that China's incoming leaders are interested in economic reform and are preparing to make a serious push for it – the best summary of the evidence comes from Barry Naughton at China’s Leadership Monitor, who includes a lot about incoming Prime Minister Li Keqiang as well as Xi Jinping. But the real question is how they plan to make changes happen, and we have so far no real evidence about this.

If these proposals are a guide to the hopes of the incoming administration, it appears that their vision of China's economic future is remarkably close to what international commentators are hoping for.  But they are inheriting a Central leadership from Hu Jintao that has often been held captive by massive economic interests. Without a political plan to accomplish reforms, it's too soon to start guessing what China's future will actually look like.

Comments
12
Jaques666
February 14, 2013 at 17:00

Haha! Try having a think about your history! For the last 1000 years, the Han only ruled China for just over a third of the time!! Conquered by the Manchu (non-Chinese) and occupied as one of many Imperial possessions (along with other new Manchu imperial territories such as Xinjiang, Mongolia, Inner Mongolia, and partially controlling Tibet) for several hundred years with garrisons in all major cities and humiliating conditions such as specific haircuts for the Chinese subjects.

Conquered by the Yuan (Mongols) and subjugated for another century.  Before the Yuan the north of the China was ruled by the Jin (Jurchen – another non-Chinese race) including China's Han heartland in the Yellow River areas.

Before the Jin in the north were the Liao (Khitans – again NOT Han!).

Most of the previous 1000 years of "continuous" Chinese history was not Chinese controlled.

And anyone who has read Sima Qian or ZuoZhuan might have a problem describing this as "history", considering it is mostly fictionalized versions of what went on before to suit the current leaders (Sima Qian was basically writing politically correct history to suit the Han Dynasty rulers, hence him being castrated and moaning on to Li Ling in those letters). Although much ancient greek history is roughly as reliable in the written form (although they have much more surviving archeological record, which is the only respected standard for things more than about 2000 years old.  Of course modern Chinese "history" as acceptable to the CCP is about as "historical" as much of the early stuff.  EG – Who started the Korean War… (hint: Soviet, South Korean, United Nations, Eastern European diplomatic and historical documents all prove that it was a North Korean invasion…China along with its ally North korea are the only ones who persist in the illusion that it was a South korean aggression.)

Finally, look at ancient Egyptian, ancient Babylonian, and Assyrian archeology, which is much richer than China's going back to the pre Roman Empire times. Yes there are cultural relics from these three OLDER than 5000 years old.

Having said all that, Jasoncur, there is nothing cultural about consumption patterns. It is to do with policies which affect consumption and saving patterns.  Consumption rates swing about across cultures and throughout history, culture is a poor explanation (presuming you mean culture by "DNA").  China is just not capable politically or socially of getting itself out of the trap created by years of such policies.

 

JohnX
February 13, 2013 at 13:44

Beway wrote "In the South, they continue to keep stolen war loot as in the case of Diaoyu Islands".

@Beway,

What war did Japan fight to take the Senkakus?

 

What battle did they fight? How many troops were landed on the island to take possesion?

 

I believe that Act has already found the answer, but maybe you are right so answer the questions.

 

If you fail too or are wrong in your information then please stop making this assertion as it is a falsehood.

a_canadian_observer
February 13, 2013 at 02:08

OH! Glorious china (not)!

Jasoncur
February 12, 2013 at 23:26

Hi,  how much are you paid for your racist postings?  Are the Chinese better then the rest of us?  This is the same attitude that the western powers had toward china in the 19th century.  If us barbarians are so inferior then why are you governed by western ideas?  Why do you profit from barbarian technologies?  You really think you are better but the truth is you are the same as us.  The verifiable history of china as a nation state goes back a little for then 2000 years.  I can take to roman and Greek ruins much older  then that.  I can give you books that were written nearly 3000 years ago in the west.  My own name  Jason is the same as a hero in a Greek myth that is more then 2500 years old.  The Old Testament which written in the west contains books that are more then 3000 years old.  The cities of Rome, Athens and Jerusalem are all nearly or more then 3000 years old.  Not to mention Egypt,Persia, India, Iraq, and  Ethiopia.  You know nothing of the history of the rest of the world.  Yes china is ancient so are many  other countries.  So china is like everyone else.  The oldest city in America is nearly 500 years old …st. Augustine, Florida.  Not to mention the fact that there were several advanced civilizations in meso and  South America that existed thousands of years ago.  So as a barbarian all I can say is you are wrong.  I can take you to a wall in Britain built by the Romans nearly 2000 years ago.  I have stood in and touched the walls of buildings that are 1000 years old.  I am not belittling Chinese history but I will not say nothing while you belittle the accomplishments of the west.  Which is hypocritical since you are using technology  developed in the west to belittle it.

Lnrds
February 12, 2013 at 08:11

China's wish list

- Get all of Asias rocks, islands, water, fish and little tiny beach crabs. To feed and fuel a massive population.

- Start a war with Japan, US and its allies

- Stir up trouble with Vietnam and Philippines on daily basis

- Boast how great China is to the world and its achievements in creating a lot of rip of technology from phones, cars and military tech

- More boasting to its people

- Teach its citizens so that the CCP's word is final and correct.

- Play the victim

Leonard R.
February 10, 2013 at 14:26

This is a much better article IMO, than Mr. Cohen's recent parsing of a Xi Jinping speech. As a reader, I learned a few things from this article. The first four paragraphs are very informative. 

 

People may disagree with Mr. Cohen's conclusions. I am in no position to agree or disagree. But at least this article teaches some of us something we didn't know previously. 

—-

@David Cohen: 

China's State Council is usually described as the nation's equivalent of a cabinet.  But when it comes to economic reform, its role often seems closer to that of the New York Timeseditorial board – a font of sensible liberal ideas that are unlikely to be implemented. 

Be Way
February 10, 2013 at 10:24

You mean well if you are referring to the ugly Japanese.

In the North, they have trouble with the Russia over Kuril Islands

In the West, they lost the Korean Peninsular after WW2 but yet still demanding the return of Dokdo Islands.

In the South, they continue to keep stolen war loot as in the case of Diaoyu Islands

In the East, they even don't get along with the Whales

Be Way
February 10, 2013 at 10:05

@Reason,

But you always conveniently forgot to think further how the Chinese can have the longest continuous surviving civilization dating from ancient times until now.    Many a times they will conquer by the barbarians like Mongolians, Manchus, Tibetans, British and Japanese but yet somewhere they managed to survive to rebuild a bigger and stronger China.     

 

Your Chinese wife just make a terrible lousy decision to marry to a recalcitrant barbarian.

Gantal
February 9, 2013 at 18:16

This skeptical tone is unwarranted. Cursory investigation reveals that income distribution rebalancing began years ago with the implementation (and serious measuring) of GINI coefficients in every province, and a derived factor from this index used as one measure in promoting provincial officials. (Imagine how difficult this would be if we required all our state governors to do this).

The government tackled another source of gross inequiality by stimulsting economic growth in the inland provinces, which are now expanding at 13% – 15% annually while the Eastern provinces slow to 5-7%.

The addition of 10 million new low-income homes, with similar additions slated for future years, also helps.

and so on…

Reason
February 9, 2013 at 17:51

Have lived in China for years… am even marreid to a Chinese person. If anyone thinks, that when faced with economic troubles on the horizon the Chinese as a race are going to nationalistically consume their ecomony back to health is just not living in the real world. It's a nice idea, but it aint going to happen.

It goes against their very DNA.

shizzo
February 9, 2013 at 07:34

i wish this people would grow common sense that not all under heaven are theirs to claim

 

Drive by
February 9, 2013 at 06:30

Why is the author so dis-missive about some positive development in China? Worrying about China becoming better and stronger? But such ill will won't prevent the progression of Chinese society. At least no one can accuse Chinese being … communist, LOL!

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