China’s cautious reforms continue

By Frank Ching

More than three decades ago, Deng Xiaoping, who later became known as the chief architect of China’s reforms, decided to focus on economic development through pragmatic experimentation, with the country moving forward cautiously by “crossing the river by feeling the stones.” China was at the time one of the world’s poorest countries. Thirty-five years later, the country is the world’s biggest trading nation, holder of the largest foreign exchange reserves and the second largest economy.

The Communist Party is making clear that it is not about to abandon a winning formula. The third plenum of its central committee, in announcing new reform measures, repeats Deng’s famous phrase. In a 60-point document describing the decisions reached, the plenum declared: “We must be bold, our pace must be steady, we must strengthen the integration of top-level design and cross the river by feeling the stones …” So while there is a “top level design,” it must be implemented gradually and cautiously. The best example of such a deliberate pace is how the party came to its decision to allow the market to play a “decisive” role in the allocation of resources. In 1992, the Communist Party announced at the 14th Party Congress the establishment of a “socialist market economy,” in which the market has a “fundamental” function in resource allocation under the macro-level control of the state. Then-party leader Xi Jinping explained in his speech at the plenum that, in the intervening 21 years, the party tried to determine the proper relationship between government and market.

The 15th, 16th and 17th party congresses all talked about the “fundamental” role of the market in resource allocation. Last year, at the 18th party congress, the party called again for the market to play a “fundamental” role but to “an even greater extent and on an even broader scale.” “Our understanding of the relationship between government and market is incessantly deepening,” Mr. Xi said, and now, “after repeated discussion and research,” the party leadership has decided on the need for a new expression: thus, the adoption of the phrase “decisive function” of the market in the allocation of resources. The plenum decided: “Prices that can be formed by the market should be left to the market and the government should not carry out improper intervention.”

Even so, it is up to the government to establish rules for the market. Besides, the government will still set prices for such things as “important public utilities” and “public services.” Caution is also evident where reform of state-owned enterprises is concerned. Before the plenum, it was widely expected that dramatic changes would be announced. Xinhua, the state news agency, carried an article on Nov. 9, the opening day of the plenum, with the headline: “SOE reform essential to a stable economy.”