China Politics


China: Communist Party of China announces roadmap for reform

November 15, 2013

On 9-12 November, the Communist Party of China (CPC) held its Central Committee's Third Plenary Session, called the "Third Plenum". Although the preliminary communique was somewhat vague and short, the full version of the document released on 15 November proved to be more ambitious and provided more details on economic reforms and guidelines to facilitate the country's economic transformation. That said, no specific proposals for immediate implementation were announced.

According to the communique, the CPC's objective over the next decade is to deepen economic reform and give the market a "decisive role" in allocating resources-an upgrade compared to the term "basic role" that has been used since 1992. While the Third Plenum underlined the leading role of the state in the economy, it also stressed the need to, "promote market-oriented reform in state-owned companies (SOE)" and to introduce more private competition in order to, "develop a mixed economy ownership." With the aim of improving livelihood standards, SOE will have to transfer 30% of its capital to the social security fund by 2020.

In the financial field, the government will accelerate interest rate liberalization, capital account convertibility and exchange rate reform. The party also announced that it would allow private investors set up small- and medium-sized banks.

The CPC vowed to speed up the reform of the hukou system of household registration. Restrictions on rural residents settling in small cities will be scrapped, while restrictions for medium-sized cities will be eased. The government, however, will continue to strictly control migration to, "megacities." Moreover, the communique stated that the government would grant farmers "more property rights" including the right, "to possess, use, benefit from and transfer their contracted land, as well as the right to use their land ownership as a collateral."

The communique stated that the government would accelerate social protection reforms and strengthen the judicial system and the rule of law. Furthermore, the party will relax the controversial one-child policy in an attempt to offset the rapidly ageing population.

On the fiscal side, the communique emphasized the importance of improving the fiscal system and budget transparency, while establishing a modern fiscal system, "to let both the central and local governments play active roles." The government also stated that it would provide more sources of revenue to local governments.

China's leading political body announced that it would establish a team to lead the economic reforms and continue the path of liberalization. This team will report directly to president Xi Jinping-instead of to the government-to avoid economic reforms being stalled by the party's bureaucracy.

Overall, the guidelines unveiled by the CPC represent a comprehensive plan for reform, although it will be implemented gradually and no sudden changes are expected in the near term.


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