What you need to know about China’s 5 big reforms

What you need to know about China’s 5 big reforms

Following this month’s Chinese Communist Party Plenary Session, held once every five years, China announced a number of economic policy changes. Here are five wide-reaching reforms to watch.

The news coming from the People’s Republic of China in recent days, most notably the reform proposals released 15th November, has caused many observers to cautiously nod in approval while simultaneously scratching their heads. Although the Chinese Communist Party’s (CCP) logic in shifting towards a consumer-led and socially less tense economy is not surprising, the extent it is promising to change under Xi Jinping’s leadership is nothing short of staggering. Below is a list of five examples that show just how expansive the changes are and what some implications might be.

1. SOE reforms

China’s State-Owned Enterprises (SOEs) have been criticized as inefficient monopolies that have become ‘too big to fail’ or even control. Even the justification of the state-led development model has grown unpopular as employment and debt issues become more difficult to manage. Nevertheless, the Chinese government’s proposals to reform SOEs has gone further than expected, including increasing resources to social spending and introducing stronger private-sector competition. If successful, market-led efficiency and opportunities for investment will unfold. However, those who benefit from the SOEs’ privileged positions are sure to stall the process as much as possible, including many who are in the higher ranks of the CCP.

2. China’s One-Child Policy

This famous attempt to curb overpopulation was seen as a classic example of how far a dictatorial government can go to control its people. Now with the decision to relax the rules and allow for more multi-child families, the Party is signaling its simultaneous mitigation of the economic pressures of an ageing population as well as the social controversy the original policy produced. A minor baby boom of sorts is to be expected soon, and in 15-20 years the impact on the workforce will reveal itself. For now, the Chinese people can enjoy a slight liberation, and hopefully avoid the previous ills brought on by the one-child policy. 

3. Financial Liberalization

Beijing has taken gradual steps to open up its capital account, including allowing for direct currency trading with Singapore earlier this year. Though the new proposal lacks specifics, the Party has re-emphasized its commitment to move away from capital controls and towards a convertible currency. The implications this will have on the currency’s value, the levels of foreign investment, and on China’s plans for its foreign reserves will be significant, and should direct even more funds toward its special economic zones. Hubs dealing with the currency, such as the City in London, are also set to benefit.

4. A New Party

Although this is not an example of reform per se, the fact that the CCP has accepted a new party this month into its game is somewhat revolutionary. While economic reforms have emerged every few decades, there has been no completely new political party formed since the Communist Party came into power in 1949. For the moment, the China Zhi Xian Party remains small and has advertised itself as a supporter of both the government and the constitution – something difficult for the Party to disagree with. However, the fact that it has declared Bo Xilai (the recently ousted Chinese politician) as its ‘chairman for life’ is not without controversy. The question is, how far can this party go and will others emerge as well?

5. Legal reform in China

Finally, another surprising move is to shift judiciary power away from local governments in the name of forming a more independent legal system. In theory, this could lead to a more transparent legal system and a more comfortable investment environment, but the process may prove exhaustively bureaucratic. There is also the chance that the judiciary simply becomes a more concentrated tool for the central government. In any case, local-level corruption should fall, deterring one of the largest challenges the country has faced in recent decades.

While these are only a few noticeable examples from China’s recent 60-point reform blueprint, they do expose a couple overlapping issues. First, Xi Jinping has settled into his role as leader with remarkable speed and strength, which may bode well for successful implementation of reforms. Second, the Chinese leadership is displaying its effectiveness at perceiving domestic and global problems across the spectrum – and coming up with solutions to fix them. Not only this, but it is opening itself up to solutions from the outside, and incorporating new voices into the political process. A new chapter in China’s history is set to begin though it will take time for the government to take action and for the world to digest the news. What is certain, however, is that China is fighting to maintain stability and its position in the world, and it is prepared to adapt, erase, and create to do so.

Categories: Asia Pacific, Politics

About Author

Karl Sorri

Karl has gained global experience working at the Transparency International Secretariat in Berlin, the Political/Economic Section of the U.S. Embassy in Helsinki, and as a freelance journalist. Karl holds an MA in Politics from the University of Glasgow and an MSc in International Relations from the London School of Economics.