China gives markets a bigger role in economy

Party unveils major reforms

CHINA’S ruling party pledged to let markets play a “decisive” role in allocating resources as it unveiled a reform agenda for the next decade yesterday, looking to overhaul the economy to drive future growth.

China aimed to achieve “decisive results” in its reform push by 2020, with economic changes a central focus of overall reforms, the ruling Communist Party said in a communiqué at the end of a four-day closed-door meeting of its 205member central committee.

“The core issue is to straighten out the relationship between government and the market, allowing the market to play a decisive role in allocating resources and improving the government’s role,” it said.

It added that it would set up a central leading team for “comprehensively deepening reform”, responsible for “designing reform on an overall basis, arranging and coordinating reform, pushing forward reform as a whole, and supervising the implementation of reform plans”.

“They are looking to break away from government control, allowing the markets to take the lead. In the past, prices and investment decisions were predominantly made by the government,” said Dong Tao, the Asia ex-Japan chief regional economist with Credit Suisse.

“This is a revolutionary philosophy, by Chinese standards.“

Still, the party did not issue any bold plans for state-owned enterprises, saying that while both state firms and the private sector were important and it would encourage private enterprise, the dominance of the “public sector” in the economy would be kept.

While the statement was short on details, it is expected to kick off specific measures by state agencies over the coming years to reduce the role of the state in the economy.

The party said it would work to deepen fiscal and tax reform, establish a unified land market in cities and the countryside, set up a sustainable social security system, and give farmers more property rights – all seen as necessary for putting the economy on a more sustainable footing.

President Xi Jinping and Premier Li Keqiang must unleash new growth drivers as the economy begins to sputter.

Out of a long list of areas that the meeting was expected to tackle, most analysts singled out a push towards a greater role of markets in the financial sector and reforms to public finances as those most likely to get immediate attention.

Beijing is expected to push forward with capital account convertibility, and the 2020 target date for making significant strides on reform could set off expectations that the government will look to free up the closely managed yuan by then.

Many economists argue that reforms will have limited success if big state-owned firms’ stranglehold on key markets and financing is not tackled.

But instead, the focus will be on indirect steps to limit the power of state behemoths and open space for nimbler, private and foreign rivals. – Reuters