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The third Plenum of the 18th Central Committee of the Communist Party of China took place between November 9 and 12 in Beijing. At the end of the meeting, which involved 204 members and 169 alternate members of the CPC’s Central Committee, the General Secretary of the CPC Xi Jinping delivered a work report to the Plenary. According to the Chinese media, the key features of the report were decisions to:
1. Establish a State Security Committee with a view to "improving systems and strategies to ensure national security." This would be the equivalent of a National Security Council, but with special emphasis on internal security.
2. Acknowledge "the market’s ’decisive’ role in allocating resources. However, the real issue will be the balance between state control and market forces and make the economy less dependent on government spending.
3. Set up a central leading team for "comprehensively deepening reform." This will be a top-level body reporting to the top leadership and bypass the bureaucracy.
4. Create a modern financial system which will set right the skewed finances of the government and local bodies.
5. Transform governance style "to establish a law based and service oriented government." This essentially means smoothening the rough edges of the Communist system of government which tends to be arbitrary and tough.
6. Develop and modernise an army that "obeys the Party’s command, is capable of winning battles and has a sound work style." This does not really need much explanation. Political reform will take a back seat to economic reform at this stage. The recent detentions and arrests of human rights activists along with the "mass line" and "self criticism" sessions indicate that the new leadership will continue to rule in an authoritarian style. What it will do is to tweak the system to ensure that some of the authoritarian edge in the Party’s governance style is removed to prevent social unrest.
Goals: The official aim of the Plenary session was "to improve and develop socialism with Chinese characteristics and push on with modernization of the country’s governing system and capabilities". But shorn of the rhetoric, the aim is to:
a) Undertake needed measures to correct the imbalances and structural weaknesses in the Chinese economy before they trigger a larger crisis which could have significant political consequences.
b) To undertake changes in the governance system which has till now commanded authority out of fear of often arbitrarily exercised power.
c) b) To put Xi Jinping’s stamp on the CPC and to signal that his new leadership is firmly in command and that it does not lack the energy or appetite for change.
Background
The Chinese economy has been growing at a frenetic pace for the past 30 years, averaging 10 per cent per annum. It is now two thirds the size of the US economy, but is growing five times fast. This growth has been closely led by the Chinese government and local authorities who have played the role of decision makers, investors, franchisers, regulator and supervisors.
Simultaneously, the country is facing increased social conflict due to a widening wealth gap, corruption and arbitrary actions of the state. Separatism persists in the form of protest immolations by the Tibetans and acts of terrorism on the part of the Uighur minority of Xinjiang. There is also a threat from non-ideological militancy, such as the incident of November 6 when one person was killed and eight injured when homemade bombs were set off near a party office in Taiyuan, the capital of Shanxi province.
But today this very omnipotence of the government has become a drag on the political stability and economic efficiency of the country. While the Communist party cannot and will not give up its monopoly of power, it realises that it needs to change its governance style to remove the perception that it acts arbitrarily. And, as Li Keqiang has repeated in the past year or so, there is need to balance government, market and society, "and let the market play its role to induce more vitality."
I
In recent years, it has also become clear that the economy needs to shift from an export-driven model to one based on domestic consumption. In any case, growth itself has been slowing down, requiring periodic state intervention in the form of government spending and bank loans. It confronts a range of problems ranging from imbalances in government run banks, overcapacity, growing inequality, corruption, pollution, underemployment. Of special concern is the issue of farmers who comprise 70 per cent of the population and some who are no longer owning land, but cannot move to cities in search for jobs because of the Chinese hukou or household registration system.
A special challenge is the need to liberalise the state owned sector which produces nearly half of the national product and employs half of its work force in transport, electricity distribution, oil and natural gas, railways, banking and so on.
The Chinese leadership understands very well that if reforms are delayed, the Chinese economic miracle could well turn into a nightmare. A Xinhua commentary outlining the compulsions for reform on the eve of the Plenary noted:
"The faltering economy, intertwined with a widening wealth gap, rampant corruption and rising social conflicts, put the world’s most populous nation and the second largest economy at a crossroads. "Realistically, China no longer has the luxury to delay much-needed reform. If the CPC wants to retain its power and win the hearts of the people, it is time to do something significant." It stated that "The Chinese leadership is aware of this."
II
Plenums
Third Plenums have played a significant role in recent Chinese economic history. It was the 3
rd Plenum of the 11th Central Committee in 1978 held between December 18-22 which initiated the reform era in China. As the Xinhua commentary put it, it shifted the focus of the country from "ideology to economy."
The Third Plenum of the 14
th CPC Central Committee November 11-13, 1993 laid out the comprehensive market reforms which were subsequently carried out by Zhu Rongji. Like wise in the Chinese reckoning, the 12
th , 13
th, 15
th, and 16
th in 1984, 1988, 1998 and 2003 respectively have played a significant role in shaping China’s economic direction.
III
In the run up to the Third Plenary of the 17
th CPC, Yu Zhengsheng, Chairman of the Chinese People’s Consultative Committee, noted in an interview with Xinhua news agency, that the meeting will "principally explore the issue of deep and comprehensive reforms". He went on to add that the reforms this time would "be broad and will be unprecedented", and that: "They will strongly push forward profound transformation in the economy, society and other spheres."
Commentary on the plenum was transparent. "To survive, to win, China needs reform" said the headline of one Xinhua item
IV . " Today," the commentary noted, "reformers face resistance from interest groups who have either benefited from reforms or non- reforming."
It said, "No reform is ever easy nor without cost. On the other hand, reform means survival and prosperity. The CPC has to make the right decisions and prove that it is both a responsible and farsighted party."
In October, the Development Research Centre of the State Council, China’s central government, issued a report called the "383 Plan" whose aim was " to set up a vibrant, innovative, inclusive market economy protected by the rule of law." The report listed three areas —the market, government and corporations —eight key sectors and three packages which were likely to emerge from the Plenum, hence "383".
V
On the eve of the Plenum, Ta Kung Pao, the Chinese-language newspaper, published from Hong Kong and widely regarded as the mouthpiece of the Communist Party, published an article titled "The central leaders stand together behind the reforms before the Third Plenum." It detailed statements of all the Standing Committee of CPC Politburo members in support of the reforms.
VI
Outcomes
According to Chi Fulin, professor at the China Institute for Reform and Development, the Plenum focussed on "Three Transformations" —economic transformation, social transformation and management transformation. This, he said, would be the focus of Chinese reform process over the next 10-20 years. According to the professor, if the transformation reform is not carried out, then the economic and social risks will increase and become the biggest obstacle to China’s development.
VII
Analysts say that the measures undertaken would improve the quality of growth in China. It would be less dependent on credit-driven investment and would also mitigate financial risks that had built up over the past. It would involve interest rate liberalisation, remove administrative barriers to private capital and undertake other forms of financial liberalisation. In other words, private enterprise would receive encouragement, even while the government would not abandon the massive public sector overnight.
VIII
The State Security Committee has been clearly envisaged as a National Security Council type of an institution. The communique pointed to the need for "better social development, safeguarding state security and ensuring people’s livelihood and social stability." It called for "innovation of systems" to deal with social disputes and improving public security. Clearly, it also further strengthens Xi Jinping’s grip on the security machinery of the country.
Clearly, internal security remains a major issue in the minds of the Chinese leadership. China Daily cites Li Wei, director of the anti-terrorism center at the China Institute of Contemporary International Relations —a think tank associated with the Ministry of State Security -- to say that is unlikely that the committee will remove power from existing State departments." Instead, it will probably be an organization that has the power to coordinate government organs at the highest level to respond to a major emergency and incidents that pose threats to national security, such as border conflicts and major terrorist attacks."
IX
The communique notes that the "core issue is to handle the relationship between the government and the market, enabling the market to play a decisive role in the allocation of resources." Earlier the formulation was that the markets play a "fundamental" role. A report in the Chinese edition of Global Times cites Professor Xin Ming of the Central Party School to point out that the "government’s active impetus (in the economy) cannot become the governing factor (anymore), as it could amount to meddling in the market. The market does what the market can do and the government does what the government can do."
X
The central leading team to "comprehensively deepen reform" takes off from a similar group called the Foreign Affairs Leading Small Group of the CPC which really runs China’s foreign policy. Like the new state security committee, this, too seems to be aimed at having Xi Jinping at the centre of efforts to push reform and supervise its implementation to ensure that outcomes are carefully controlled and calibrated. Through this group, which is high-powered and can cut through red tape, Xi also intends to maintain his control of the party and ensure the success of his policies.
The most visible aspect of the Plenum will be the efforts to create a modern financial system essentially to address the issue of government and local body budgets and taxation systems. State-owned utility companies need to capture costs better and price their products realistically. Fiscal reforms are needed to bring municipalities and provinces on a sounder fiscal footing. Interest rates need to be freed up. The informal banking sector needs to be regulated effectively and financial markets requires to be deepened.
Providing a "law based government" is an important aspect which the CPC will very carefully work out. The present governance system in China is now facing substantial push-back from people fed up of the arbitrary ways of the CPC cadre and corruption. China Daily cites Hu Jianmiao, a law professor with the Chinese Academy of Governance, to note that the CPC is making efforts to build a "legal China" ¨C which, according to him, is a new concept in Tuesday’s communique. "It’s the first time that such a term has appeared in documents adopted at similar key Party meetings, which means more stress on the rule of law," he said.
Hu noted that the concept covered other aspects as well: "It means the judicial system should be improved, administrative powers and procedures should be better regulated by law, and the management of society should be more law-based."
XI
At first sight, defence is not central to the Plenum’s outcome, but its inclusion is significant because of the efforts made by Xi Jinping over the past year to bring the army under tight discipline.
The Plenum communique notes that the CPC "will strive to clear obstacles hindering the developmental trajectory of national defense and the army". This seems to hint at steps to be taken to reform pricing procurement mechanisms of the defence industry and tax and other incentives for military exports.
XII
The communique has also urged innovation and development of military theories; strengthening of strategy guidance; improving military strategies and policies in the new era; and building a modern military with Chinese characteristics.
However, the bottom line message is that China must have an army that "obeys the Party’s command, is capable of winning battles and has a sound work style."
XIII
Hidden somewhere in the Plenary decisions will also be some changes in the political field. This is, after all, a Plenary of the CPC. In the recent past, too, the CPC has gently ventured into the area of political reform. For example, the concept of life time tenure was done away with and a system of orderly succession of the leadership instituted.
A Xinhua report in Global Times cited Yan Shuhan, a professor with the Party School of the CPC Central Committee, noting that political restructuring was "an important part" of China’s comprehensive reform and that "only through incorporating political restructuring into economic restructuring, can political structural reform in China achieve historic success."
XIV
What these could be is hinted in the report, if you cut through the party-speak:
"Political analysts expect the central leadership will make important arrangements on political system reform, in such aspects as power constraint and supervision, democracy and the rule of law, streamlining administration and delegating powers to lower levels, cadre promotions and appointments, and broadening channels for people to express their interests."
But of course, all this will be implemented with great care so as not to fall into the trap that the erstwhile Communist Party of the Soviet Union laid for itself when it undertook Perestroika.
There does not appear to be a clear cut reform of the hukou or the system of household registration which does not permit rural residents to move to the city, at least officially. However, there is an effort to equalise rural-urban divide as indicated by the declaration that "land in cities and the countryside, which can be used for construction, will be pooled in one market," thereby providing fair compensation for rural land acquired.
Likewise there is no reference to reform in the one-child norm that is prevalent in China. There were expectations that there would be changes to address the issue of demographics and ageing workforce.
However, there will be other aspects of reforms in the political, social and ecological and institutional aspects which will become clearer over time. It needs to be noted that the report outlines the general party decisions, couched in party language. The details of many of the decision will be fleshed out in the coming days.
Conclusion
The bottom line assessment is that the Plenum outcome keeps Chinese economic and political developments on an evolutionary path, rather than a revolutionary one. In other words, it has sought to tweak policies, rather than offer up a radical menu. This is to be expected since till now the Chinese leadership have been on a winning formula, and notwithstanding the serious political and economic issues that confront the country, there is really no compulsion to abandon the tried and tested style.
The success of the economic reform measures that emerge from the Plenum will have implications for the global economy given the size of the Chinese economy and its interrelationships around the world. Indirectly, this is also affected by the issue of social stability which Communist Party is also seeking to promote.
At the heart of the Plenary is the effort of President Xi Jinping to establish his authority over the CPC. He has come to power promising economic reforms and so far, his focus has been on shoring up his support within the PLA, initiating an anti-corruption campaign, and a "mass line" campaign stressing ideological purity. But without delivering on the economic front, the Chinese economic miracle could well become a nightmare.
(The writer is a Distinguished Fellow at Observer Research Foundation, Delhi)
I. "China resolves to check govt power", 4th November 2013. Available at
http://www.chinadaily.com.cn/china/2013-11/04/content_17079849.htm
II. Liu Jie, "Get ready for surprise on China’s reform package", 4th November 2013. Available at
http://news.xinhuanet.com/english/indepth/2013-11/04/c_132857876.htm
III. "Milestones of reform: 30 years of 3rd Plenums", 8th October 2013 , Available at
http://www.china.org.cn/government/central_government/2008-10/08/content_16584646.htm
IV. "To survive, to win, China needs reform", Xinhuanet.com, 11th November 2013. Available at
http://news.xinhuanet.com/english/indepth/2013-11/11/c_132878739.htm
V. "State Council Think Tank Proposes ’383 Plan’ for Reform", 28th October 2013. Available at
http://english.caixin.com/2013-10-28/100596484.html
VI. Accessed from
"¸Ûý£ºÖÐÑë¸ß²ãÔÚÈýÖÐÈ«»áǰΧÈƸĸïÃܼ¯±í̬", (translate) Anhuinews.com ,6th November 2013.
VII. Accessed at
³Ù¸£ÁÖ:ÖйúÓÐ"»Æ½ð" ¿¿¸Ä¸ïÍÚ (translate) , Sichuan Daily , 12th November 2013 .
VIII. Hu Yuanyuan and Zhang Chunyan , "Sustainable and quality growth ’to be achieved’", China Daily , 14th November 2013 . Available at
http://www.chinadaily.com.cn/china/2013-11/14/content_17103500.htm
IX. Zhu Zhe and Fu Jing , "State security body on way", China Daily ,13th November 2013 . Available at
http://www.chinadaily.com.cn/china/2013cpctps/2013-11/13/content_17100161.htm
X. Available at
ÐÁÃù£ºÕþ¸®ºÍÊг¡¸÷°²Æäλ Êг¡¾¼Ã²ÅÔ½À´Ô½ÓлîÁ¦ (translate) Huanqiu , November 2013.
XI. Zhu Zhe and Fu Jing , "State security body on way", China Daily , 13th November 2013 Available at
http://www.chinadaily.com.cn/china/2013cpctps/2013-11/13/content_17100161.htm
XII. Available at
¾ü¹¤²úÒµÓ·¢Õ¹ÐÂÆõ»ú ¹ú·ÀÌåϵÍû¼Ó¿ìÉç»á»¯·¢Õ¹ (translate) China Securities Journal Net , November 2013
XIII. "China to develop army, national defense: communiqu¨¦", Xinhuanet.com, 12th November 2013 . Available at
http://news.xinhuanet.com/english/china/2013-11/12/c_132882472.htm
XIV. "CPC key session to push forward political restructuring", Global Times, 4th November 2013 . Available at
http://www.globaltimes.cn/content/822380.shtml#.UoJDZeK3UhJ
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