The Party keeps control

China's leaders disappoint by speaking again in generalities

On the face of it, the Chinese leadership’s communique at the end of its Third Plenum meeting earlier this week sounded path-breaking, even revolutionary. “The core issue is properly handling the relationship between the government and markets, giving markets a decisive role in the allocation of resources while better applying the role of the government.” The document also speaks of deepening reforms. Stock markets in Shanghai and Hong Kong seemed singularly unimpressed, however. On Wednesday, both markets dropped by just under two per cent in response. Investors’ thumbs-down is easily explained: sonorous generalities are the Chinese leadership’s stock-in-trade. The market had been looking for specifics on making it easier for farmers to own land as well as some steps towards curbing the power of state-owned enterprises (SOEs), which dominate the economy. Xi Jinping, the Communist Party of China’s leader, who formally took charge in March, was thought to be a reformer and the good news is that there is enough in the statement to suggest that deeper reforms are in the works.  These will likely reduce the role of government in allocating resources and thus reduce corruption. Tao Wang, an economist at UBS, points out that the language on establishing a unified market for urban and rural construction land is much the same as it was five years ago at the 17th Party Congress. The market playing a “decisive” role is, by contrast, a step up in rhetoric; for the past 20 years the market was thought to play a “basic role” in the economy. There is vaguer language still on government — a modern governance system is to be established by 2020. No mention of political reform is made; nor was any expected.

The communique does, however, aspire to the party “governing according to the law.’’  Making some moves towards establishing the rule of law would count as major progress, but the party in China is always both judge and jury. Disputes between multinationals or private Chinese companies and SOEs or citizens and the state are almost always decided in favour of the government. On all fronts, liberalising the Chinese economy increasingly requires the party reducing its stranglehold on the judicial system. On SOE reform, the communique sticks to the platitudes of the past — SOEs are variously described as pillars of the economy and its very foundation. China’s decades of export-led manufacturing growth is now running out of steam. Reducing the clout of SOEs – which, as in India, crowd out private investment and hobble the economy – would allow more dynamic private companies to help the economy become more diversified. But SOEs are an integral part of the party’s command and control mechanism: to rein them in would appear to many party leaders as unnatural as cutting off a limb. Odds are the market will be disappointed time and again as it waits for SOE reforms. Without them, however, it is hard to see how China could speed up economic growth.

A less quoted line in the communique may prove to be the most revealing: “Most important is maintaining the party’s leadership. We must be bold and our steps steady.” To be bold and steady at the same time is next to impossible, but the sentence underlines the central contradiction in China today — a society and economy that require, and increasingly demand, greater freedom are ruled by a Communist Party determined not to give up an iota of control.