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    Greater China
     Nov 19, '13

Revolutionary reform in China
By Gabriele Battaglia

It almost looks as if they did it on purpose. Immediately after the Third Plenum of the Central Committee of the Chinese Communist Party, a terse statement was released about wannabe reforms. Western corporate media screamed their dissatisfaction (actually concealing great satisfaction that stereotypes about China were about to stay safe and sound). Then the suggestion that more reform plans would follow in a week put a bug in laowai (foreigners') ears, and finally a comprehensive roadmap for radical change was published.

At the beginning of the weekend, foreign media in China rushed to write about the abolition of forced labor camps (laojiao), lands given to the peasants, the end of the one-child policy, the birth of a private banking system, the reduction of crimes punishable by

death, reform of the residence system (hukou) and more.

The meaning of such momentous and diverse reforms can be summarized in one particular way: China is pushing the accelerator of economic and social change to shift wealth and quality of life to those who have been left behind in the economic boom. This is the only way the dragon can gain momentum. It is a very realistic approach.

Political reform will come later, at the right time. For now, it's the ongoing central role of the Party to manage change, finding a good balance between state control and the brute force of the market. The Politburo issued the statement, and President Xi Jinping added his comments, explaining that only further "reforms and openings can develop China, socialism and Marxism". He said the whole process must be completed by 2020 and called for "the emancipation of the mind, which is the top priority for breaking the barriers from entrenched interest groups". He spoke of "courage and wisdom" and emphasized the need to "take some risks". Nothing ventured, nothing gained.

So let's examine these reforms in detail.

The state and private sectors
Rather than a dismantling of the large state-owned enterprises (SOEs) - as market fundamentalists favor - the aim is to make them more efficient through the element of competition and encouraging private capital to feed their behemoth-like bodies. "Non state-owned capital" can purchase stakes in the big SOEs, going toward a "mixed ownership system", while also the "big monopolies" must be broken. Meantime, the big SOEs must hand back 30% of their profits (double the previous tax), which will be reinvested to improve people's livelihoods. In a rather similar way, China will expand the banking sector, allowing private capital to create "qualified small and medium banks".

City and Countryside
To end the "urban-rural dual system", farmers will be allowed to put land on the market or gain access to credit in order to go on working their land in a more efficient way, becoming shareholders of new, larger farms. They haven't been able to do this so far, since land is formally collectively owned but is actually run by village officials who often grab and sell it to real estate developers: large speculative projects fill local government coffers and reduce available arable land. Then the farmers become migrants, a low-cost labor force pouring into the main cities.

An example of the alternative comes from the northeastern province of Heilongjiang, where the authorities started to promote and fund farmers' cooperatives (note, not "people's communes") to join together pockets of land and make for a more effective agricultural sector.

At the same time, programs to bring quality schools in rural areas are to be launched. Those who want to sell and move to the city instead, will be helped to acquire an urban hukou, the residence permit that grants rights and services (from healthcare to education) only where a person is registered.

Taken together, these measures should enable farmers to make a choice: shall I stay in the country to work in a more efficient agriculture sector or seize the opportunities of urbanization in a finally less-disadvantaged condition?

The division between city and country was at the origins of China's booming economy, but now, apart from producing an unsustainable inequality, it's ineffective for the new economic model Beijing wants to create. Today, China has less need for underpaid workers, but instead requires middle-class consumption oriented on the domestic market. This is the "social" urbanization which Premier Li Keqiang has in mind.

Meanwhile, the leadership "decided not to press local governments located in ecologically fragile areas to pursue economic growth regardless of environment deterioration". In other words: the evaluation of local officials will not depend on their achievements in driving economic growth, but more on quality standards, such as environmental protection.

A huge problem in contemporary China is its aging population. Here the goal is a sustainable pension system. Workers' accounts will be supplemented by social security, while the rising of retirement age is under scrutiny. At the same time, there will be investments in the service industry for elders. The healthcare system will be based on the same kind of private insurance as the United States, but the state will possibly integrate it. Also affordable housing is quoted as a big challenge; big subsidized housing projects to cool prices and the housing bubble will probably go on.

There has been much talking about the future abolition of the "re-education through labor" (laojiao), a system in place since the 1950s which allows the administrative detention - that is, without trial - for minor offenses, relying on the rehabilitative effect of labor. In fact, it became a system of forced labor affecting those who rebel against the abuses of local lobbies, dissidents, members of religious sects (such as the Falun Gong) or people who simply have some kind of private matter pending with a local officer.

At the same time, the Politburo announced that the judicial system will be made independent. The courts will be "properly" separated from the local governments.

The two reforms together should put an end to many abuses and "controversial incidents" reported in detail by Xinhua.

The number of offenses punishable by the death penalty - now 55 - will also be "gradually" reduced, a move already on the way: in 2011, 13 were canceled.

Birth control
The so-called "single-child policy" introduced in the late 1970s allowed China's economy to grow faster than the increase in mouths to feed. It is estimated that without family planning, today's population would be about 400 million higher.

The reform establishes that every couple can have two children if at least one parent is a single child. It's an attempt to hold back the aging of society and keep population growth "balanced". The current birth rate is between 1.5 and 1.6 per woman, and official demographers expect it will gradually reach 1.8, which is sustainable. The labor force is shrinking and for lost 3.5 million workers in 2012, for an estimated loss of 29 million during this decade. There is also a gender imbalance to meet - 100 females are born every 118 males - as a result of selective abortion practiced by many families for cultural and material reasons.

There is more than this to the reforms, but these look like the most important.

Right now we have statements of intent, not laws. But this is how China works. The leadership has pointed the way for the next seven years. Now It is a matter for the different government agencies to implement and revise the reforms. There will be delays, some about-face, and adjustments. But the groove is traced and there is no way back.

Top-down and bottom-up
In this gargantuan project, a gigantic role is played by the National Development and Reform Commission, Fagaiwei, a huge network of committees of experts, researchers, policy makers, which has the power both to study the implementation of the reforms and to approve specific projects, as well as to fund them. Among its deputy directors is Liu He, Xi's confidant and an eminence grise of the reforms.

This institution is now joined by another, whose creation was not by chance announced on the first day after the plenum. It is a "leading committee on comprehensive reforms at central level" (Zhongyang Chengli Quanmian Shenhua Gaige lingdao Xiaozu).

What is so important about this split in functions?

Since outside the Commission for Development and Reform control there is a whole world of university and military research, private enterprises, the Disciplinary Committee, the provinces and smaller-sized projects, the new group will probably coordinate all of these entities and apply the same methodological approach as the Fagaiwei.

This means a new super entity will be created, directly managed by the control room, and aimed at channeling every energy toward the 2020 target set. We will have to wait for the announcement of who will be put in charge of the newly formed "leading committee" to know more.

The system of which the two committees form the apex would be rather top-down regarding big decisions but absolutely bottom-up in the implementation and continuous redefinition of specific projects.

Take the property tax as an example. Already enforced in Shanghai and Chongqing, affecting second homes (and subsequent ones), it has both economic - the cooling of the real estate speculation - and egalitarian purposes: charging the rich and redistributing resources thus collected. There have been rumors for years about it being extended to the whole country, but that has yet to happen. According to the latest rumors, the authorities are now trying to figure out how to apply the property tax to different localities and across incomes. The tax would be permanently extended at national level only when per capita income rises significantly and becomes more balanced from area to area.

The Fagaiwei's task is precisely these ongoing adjustments and, possibly, the newborn committee will meet the same approach but in a wider context.

The meaning of the market
Allowing the market to "better allocate resources" and putting the private and public sectors means an attempt to shift wealth from the vested interests of great state companies to the widespread society.

Michael Pettis, a well-known financial analyst and China expert, explains why. The old Deng Xiaoping model based on high investment is no longer sustainable because "given that the world is no longer able to absorb Chinese production, the Dragon has no more capacity to absorb its own capital", says the economist. It is no longer needed to compete in international markets by producing low-cost goods, thereby increasing gross domestic product faster than wages, because the crisis-affected Western world has less and less disposable income to buy goods.

"Then you have to change the source of growth and the more sustainable is domestic consumption". The almost inevitable choice, we would say. "China must therefore necessarily shift wealth to the families, which means from the large state enterprises to small and medium-sized companies which give employment", Pettis adds.

Household income must now grow more than the state actors' wealth, and here we have the great paradox and a Gordian knot: "So far, what was right for the elite was also right for the country", Pettis explains. "But in the coming years the interests of the elite will no longer be the same of the country in a whole".

In some ways, those in power must give up something to bring new momentum to China, which gives us the idea of what kind of large yet intricate change is on-going, as well as hinting at the possible conflicts within the party-state.

We can even imagine an underlying class-struggle, whose stake is the full realization of "market socialism" in the true sense: a major process of wealth transfer through more competition, more welfare and greater efficiency.

Gabriele Battaglia is an observer of Chinese affairs based in Beijing. He is a member of China-Files agency, and has previously been a writer for PeaceReporter and E-il mensile magazines.

(Copyright 2013 Gabriele Battaglia)

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