Amend­ments that mark a cru­cial turn­ing point

China Daily European Weekly - - COMMENT - Jinny Yan is chief China econ­o­mist at ICBC Stan­dard Bank. The views do not nec­es­sar­ily re­flect those of China Daily.

New le­gal struc­ture is de­signed to tackle the chal­lenges fac­ing China’s econ­omy in its crit­i­cal tran­si­tion pe­riod

NPC deputies dur­ing the an­nual ses­sion.

At the heart of this amend­ment was the pro­posal to in­stall a le­gal frame­work to al­low re­struc­tur­ing of the State Coun­cil, which will con­sist of 26 min­istries and com­mis­sions. Stream­lin­ing China’s ad­min­is­tra­tive sys­tem by cut­ting red tape is seen as a nec­es­sary step to­ward more ef­fi­cient gov­er­nance. An­other way of look­ing at it is that the new le­gal struc­ture is de­signed to tackle the new chal­lenges that face China’s econ­omy in its crit­i­cal tran­si­tion pe­riod.

The lat­est shake-up of China’s fi­nan­cial reg­u­la­tory sys­tem is a prime ex­am­ple of in­sti­tu­tional re­struc­tur­ing de­signed to re­solve ex­ist­ing prob­lems in the shadow bank­ing sec­tor. At the NPC meet­ing, law­mak­ers ap­proved the pro­posal to merge the China Bank­ing Reg­u­la­tory Com­mis­sion and the China In­surance Reg­u­la­tory Com­mis­sion to bet­ter han­dle fi­nan­cial risks.

Although any direct im­pact on global mar­kets is per­haps yet to be felt, this ef­fec­tively marks the big­gest reg­u­la­tory re­form of China’s fi­nan­cial mar­ket over the past 20 years. It is also a much-needed step of cru­cial reg­u­la­tory re­struc­tur­ing for China to curb ex­ces­sive bor­row­ing and fi­nan­cial risks at this junc­ture.

China also un­veiled a rev­o­lu­tion­ary Cabi­net re­struc­tur­ing plan, aim­ing to trans­form the State Coun­cil and min­istries into a more ef­fi­cient, ser­vice-ori­ented gov­ern­ment. The plan, ap­proved by the law­mak­ers dur­ing the two ses­sions, marks the eighth Cabi­net re­struc­tur­ing since 1982.

Although stream­lin­ing China’s Cabi­net has long been a ma­jor topic at the NPC meet­ings, this is the first time that mean­ing­ful re­form pro­pos­als were put for­ward to di­rectly ad­dress Bei­jing’s com­mit­ment to re­solv­ing its three cru­cial chal­lenges — fi­nan­cial risk pre­ven­tion, poverty re­duc­tion and en­vi­ron­men­tal pro­tec­tion.

Ev­ery­one fa­mil­iar with Chi­nese pol­i­cy­mak­ing will know that when China talks about long-term goals, it of­ten means more than five years.

One of the most fre­quently used phrases by gov­ern­ment of­fi­cials is Two Cen­te­nary Goals. The idea was first pro­posed dur­ing the 15th Party Congress in 1997. Back then, China’s GDP was merely 11 per­cent of US GDP. Fast­for­ward two decades, to when China’s GDP was 62 per­cent of US GDP. Even on per capita terms, the change has been re­mark­able. China’s per capita GDP mul­ti­plied roughly ten­fold in those two decades.

If you are still won­der­ing what the “China Dream” means, it is to re­al­ize the Two Cen­te­nary Goals. The first cen­te­nary is 100 years since the es­tab­lish­ment of the Com­mu­nist Party of China. The goal here is to build a mod­er­ately pros­per­ous coun­try by 2021. The sec­ond cen­te­nary is 100 years since the es­tab­lish­ment of the Peo­ple’s Repub­lic of China. By 2049, China seeks to be­come not just pros­per­ous, but also a modern so­cial­ist coun­try.

The do­mes­tic le­gal in­sti­tu­tional changes will help le­git­imize the Chi­nese Dream. Of course, the suc­cess of do­mes­tic de­vel­op­ment de­pends on the si­mul­ta­ne­ous ad­vance­ment of China’s for­eign pol­icy. This is where the con­sti­tu­tional amend­ments will have fur­ther im­pact.

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