Can the Chinese Communist Party Still Reform?

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Can the Chinese Communist Party Still Reform?

Expectations are that the Communist Party plenum will see major policy announcements. Does the Party still have its reforming prowess?

Like the stanza of classical Chinese poetry the structure and timings of the modern Chinese political timetable are increasingly governed by established rules and conventions. The political cycle starts with the five-yearly Communist Party Congress and major policy is then in part endorsed and announced through a series of plenary sessions of the Communist Party Central Committee. The next such meeting, the third plenum of the 18th Central Committee, is due this November.

More than some other sessions, the third plenum is a very significant way-marker in the Chinese political calendar. The meeting provides not only the first major showpiece for a new leadership team to set out its political and economic reform plans after a period in office but is also loaded with historical significance.

It was at the third plenum of 11th Central Committee in 1978 that Deng Xiaoping announced the opening-up of China's economy and the third plenum of the 14th Central Committee in 1993 where Zhu Rongji announced the “socialist market economy.” These are both watershed moments in China's remarkable economic transformation.

Hopes are high, therefore, that the upcoming meeting will set out its own range of far-reaching measures to spearhead reform over the coming years. This is particularly true given the growing consensus that China has reached a crossroads, and needs to start making much more rapid progress in shifting its economic model to a more sustainable mode of growth.

Major announcements are expected on issues including reform of the hukou household registration system, urbanization, fiscal policy, financial reform and the role of the private sector in China's economy.

However, despite the impressive scope of this list, if the new leadership is going to claim similar reforming credentials as its predecessors they will have to demonstrate the measures they set out represent a coherent package of reforms that are able to achieve system-wide change in the manner of Deng and Zhu. A series of piecemeal proposals that duck the most contentious issues will prove ineffective given the scale of the challenge faced.

Unfortunately, there are compelling reasons to believe that the present-day Communist Party, and its associated governing apparatus, no longer retains the ability of its predecessors to deliver bold system-wide reform. Rather, it appears its own preoccupations and the major imbalances and vested interests that have emerged in China's politics, economy and society over recent years have critically weakened the Party's reforming prowess.

A Broken Machine?

There can be no doubt in the period of reform and opening up the Party machine has forged a formidable track record of successful and far-reaching reform. In more recent years, however, there has been a strong sense that it has failed to live up to earlier achievements. Many commentators now refer to the last ten years as a lost decade and point to a lack of significant reform as the root cause of a series of worsening problems.

One explanation for this lack of effectiveness is what some have termed the “stability trap.” Put simply, it is argued that the Party's preoccupation with maintaining stability and its grip on power above all else has made it excessively cautious, unable to take the bold decisions of its predecessors for fear of upsetting the status quo.

Allied to the increasing bureaucratization and factionalism, resulting in often painfully long negotiations to form consensus before action can be taken, the Party has lost its capability to react decisively to the new demands placed on it by China's rapidly changing circumstances. As a result China actually faces the risk of much greater instability as unresolved problems exacerbate social tensions.

Yet whilst this theory has merit, particularly with regard to the lack of meaningful political reform in recent times, it doesn't appear to be the only explanation for the relative slow progress in other areas. After all, the last decade has had its share of ambitious economic and social reform plans emanating from the Party – it is just that they have often failed to make headway.

This suggests another crucial issue is resistance to policy. In particular, this often appears to come from two of the country's most powerful and entrenched vested interests: state-owned enterprises (SOEs) and the Party's own local-level cadres.

In the last decade and a half since the Party implemented its policy of “grasping the big and releasing the small,” the commanding heights of the Chinese economy have come to be dominated by state-owned behemoths. However, as the most direct beneficiaries of the old economic model these companies and their networks of powerful officials are now some of its staunchest defenders.

If the Party is to rebalance the economy and create a more vibrant private sector which isn't crowded out of markets and access to key resources such as finance and land, it will need to tackle the dominance of SOEs head-on. If measures are not brought forward to do so, China's economy and the framework for its future development will be weighed down by these increasingly inefficient and uncompetitive hulks. Whether the new leadership will not only be bold enough to take on such a powerful force but also willing to reduce the Party's direct control of strategic economic sectors will be crucial in judging if they are serious about forcing substantive reform.

In a similar vein to the SOEs, another major beneficiary of China's old economic growth model have been local officials. Not only have they become accustomed to being solely judged on their ability to deliver breakneck economic growth; in doing so they have been presented the means of massive personal enrichment.

Therefore while local cadres will necessarily be front and center in delivering any new package of reforms to rebalance the economy, they will also have a strong incentive to slow and disrupt implementation. Enhancing provincial officials' delivery capability to be more than a simple growth-at-all-costs approach and reducing the corrosive effect of endemic corruption in the Party's ranks will require Beijing to enact measures to force local officials to work in a new manner driven by fresh incentives.

Reinvigorating the Party's Reforming Credentials

As can be seen, the Party faces a number of serious challenges if it is to recapture its reforming zeal.

The new leadership must demonstrate at the upcoming plenum that they are willing and able to discard the excessive caution of the last decade by not only laying out a bold reform roadmap that envisions system-wide change, but also more crucially by ensuring their plan is actually implemented by taking on the powerful groups that will fight tooth and nail to defend their own interests.

In recent weeks and months there have been some tentative signs the new leaders are committed to doing just this. Xi Jinping has made improving the quality and effectiveness of the Party a central theme of his leadership while Li Keqiang has offered some positive statements regarding enhancing the role of the private sector and reducing SOE power.

Still, the upcoming third plenum can only be deemed a success if the package of reforms that are included in the final plenary document do much more to deepen and embed these reforms across China's governmental/economic system.

If they do, in years to come commentators may speak of the third plenum of the 18th Central Committee in the same terms as earlier watershed meetings. If they don't, there is a growing risk that China will face a period of economic stagnation and social instability.

John Marshall is a freelance writer focusing on China. Previously he worked for several years at a management consultancy in Beijing advising multinational companies on their China investment strategies and in London for the U.K. government on U.K./China trade policy.