Must Separate the Party and Economy in China?
Image Credit: flickr/Remko Tanis

Must Separate the Party and Economy in China?


Earlier this month, Chinese Premier Li Keqiang gave a speech to party cadres that many are hailing as some of the most significant pro-market reform rhetoric in a decade or more.

Many analysts are interpreting the speech as well as a new policy directive issued by China’s State Council last week as unmistakable signs that the new Chinese leadership is initiating a major policy shift aimed at reducing the government’s role in the economy.

In the speech, which was delivered on May 13, Li said, “To achieve this year’s targets, the room to rely on stimulus policies or government direct investment is not big — we must rely on market mechanisms.”

Enjoying this article? Click here to subscribe for full access. Just $5 a month.

Li proposed the government should break up the “administrative monopoly” that exists in sectors like finance, telecommunications, and health care, and allow for more private investment in these industries.

“Private investors have money but no place to invest; they want to enter certain areas but they can’t find the way,” he said.

Greater private investment would not only remove some burden off the state but allow for the more efficient allocation of resources as private investors would not prop up failing companies.

During the speech, however, Premier Li also said that an oversized bureaucracy was one of the major barriers to opening up the economy to private investment. To illustrate this he explained that foreign companies hoping to invest in a new project in China sometimes have to deal with 27 different government agencies, and getting the proper approvals can take up to 10 months.

To reduce the amount of red tape, Li advocated empowering local governments to handle much of the work, devolving power away from the central government in Beijing. One of the main benefits of this approach, according to Li, would be to foster greater competition. Although he was short on details of when and how decentralization would occur, he did pledge to eliminate more than one-third of the current administrative procedures during the process.

Although this advocacy for decentralization runs counter to the general trend of the Xi administration, it quickly became clear that Li was not going off script with the speech as the State Council issued a policy directive later in the month that signaled its interest in pushing through with reforms to reduce the state’s role in the economy.

Experts differ on how radical and quickly the forthcoming reforms will be, however.

On one end of the spectrum is Stephen Green, a specialist on the Chinese economy and an economist at Standard Chartered bank, who told the New York Times: “This is radical stuff, really. People have talked about this for a long time, but now we’re getting a clearly spoken reform agenda from the top.”

Others are more pessimistic, however. For example, following Li’s speech the Jamestown Foundation’s Willy Lam wrote:

“Irreconcilable contradictions persist between the economic goal of nurturing the marketplace and the political imperative of consolidating the CCP’s hold on power. For instance, senior cadres and princelings, including Xi, have a vested interest for personal as well as ideological reasons in perpetuating the special powers of vouchsafed SOE [state-owned enterprise] groupings in sectors ranging from banking and energy to telecommunications and aerospace. The political sensitivities associated with such control make challenging the status quo difficult if not impossible.”

As China’s economic growth slows, however, reforms will be increasingly difficult to delay. It seems like the government understands this, and is seeking “balance stability, reform, and development” as it undergoes this new policy shift.

Whether or not the CCP will be able to follow its own policy goals remains to be seen, but many will be watching over the next coming years.

Elleka Watts is an editorial assistant at The Diplomat. 

Sign up for our weekly newsletter
The Diplomat Brief