Will China's Third Plenum be an economic turning point?

 
Chinese president and premier

Will 2013 be another 1978 or at least another 1993 for China?

Those were the two significant overhauls of economic policy which occurred during previous Third Plenums.

The Third Plenum refers to the third time that the new leaders of China lead a plenary session of the Central Committee.

The current one is being billed as being as just as significant as the one in December 1978 that marked the start of market-oriented reforms in China over three decades ago under Deng Xiaoping.

That's unlikely, but expectations are high that the new Chinese leaders will launch reforms that are as notable as those from 1993, which dismantled a large part of the state-owned sector. State-owned enterprises fell from over 10 million to fewer than 300,000 in the mid-1990s.

The 383 plan

The Third Plenum is typically when significant reforms are announced. It's usually about a year into the term of China's new president and premier, so they have secured their positions sufficiently to unveil their plans for their decade in power.

This plenum, taking place from 9-12 November, will likely draw on a "383 plan", circulated by Chinese government think tanks, which aims to transform the Chinese economy by 2020.

The 383 plan involves firstly a trio of reforms to open up the market, transform government, and reform enterprises to boost innovation.

Then, the eight key areas to tackle include: cutting administrative approvals, promoting competition, land reform, opening up banking including the liberalisation of interest rates and the exchange rate, reforming the fiscal system including setting up basic social security, reforming state-owned enterprises, promoting innovation including green technology, and opening up the services sector.

Within these, the plan identifies three major breakthroughs to be achieved: lower market barriers to attract investors and boost competition, setting up a basic social security package, and allowing collectively-owned land to be traded.

This is a tall order, but these three aims figure prominently among the reforms that are needed for China to grow in a more sustainable and stable fashion.

First, increasing competition can raise productivity, which is what is needed for China to grow. But, that does require reforming the remaining state-owned enterprises which have entrenched themselves in significant sectors of the economy, such as banking and telecommunications.

Land reform

Second, social security for its people will help to re-balance China's economy through supporting the poorest and also the growing middle class. It's what's needed as China seeks to rely more on domestic demand and thus the consumption of its own people to grow its economy.

Land reform will be a key part of that as well. The 383 plan refers to giving equal rights to rural and urban residents to trade collectively-owned land.

It means that land is still owned by the state or local government, but those who have long leaseholds on the land will be able to trade and thus reap the benefits of land values that right now accrue largely to the government.

Land confiscation is the source of significant complaints across rural China. And, it seems, although it's been much debated, privatisation of land looks to be off the table.

Also, although one of the reforms is to liberalise interest rates and the exchange rate, opening up the capital account - that is, allowing more short-term capital to flow across borders - it isn't a priority.

This has been another bone of contention. Greater opening of China's financial markets is likely to happen, but how much and how far remains to be seen.

The initial progress in Shanghai's Free Trade Zone - touted by the Chinese premier Li Keqiang as the experimental zone for such reforms - has been less than stellar so far.

There are also numerous concerns such as the amount of debt in China's economy, corruption, and reforming the rule of law, all of which need attention. So, it's a long list of reforms that are needed.

If none of these reforms seem as radical as turning away from central planning or dismantling state-owned enterprises, it should be remembered that those were once-in-a-blue-moon moments.

But, sometimes a lot of reforms rather than an eye-catching one or two can have a bigger and longer-lasting impact.

What is clear is that the path to be taken by the world's second largest economy will be closely watched as it will have implications for the rest of the world seeking stability and growth in its largest economies.

 
Linda Yueh Article written by Linda Yueh Linda Yueh Chief business correspondent

Why markets fear Argentina's debt crisis

If Argentina defaults on its debts again, there could be major repercussions for the global bond market.

Read full article

More on This Story

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 28.

    @27
    on the contrary dear, i am much more convincing and correct afterwards. really? tibet, independent? i am guessing scotland is also independent. again, genocide? sorry, you cant exactly take the moral high ground. they are merely following the excellent examples set before them. and as for greed, could easily be used to describe your leaders who went east with their begging bowls only recently

  • rate this
    +3

    Comment number 27.

    #26----you were right with the first 3 lines of your posting, sunshine !
    China is a cesspit of corruption and tyranny. It is guilty of murdering its own students in Tian Sq. It is guilty of genocide in Tibet(which is an independent country annexed by Commies in 1950). It is full of greed alongside grindding poverty. It is worse than NKorea---at least the dogs THERE are eaten and do not govern !

  • rate this
    -2

    Comment number 26.

    "china must fail. it is a communist regime, a corrupt one at that. the u.s, u.k and every other member of the international club must abandon this sinking ship".

    so says every naive, idealistic child, with no understanding of global commerce, economics or history.

  • rate this
    +3

    Comment number 25.

    I agree fully with # 24 and # 19------this correspondent needs removing from Blogs.
    Where is Robert Peston ? One of the BBC's best editors, he seems unable to stem the flood of useless information from LY.
    Nobody in their right mind is interested in the 3rd Plenum ("Plenum"LOL).It is a bit like the announcement of new Beijing leadership every 10 years : a complete farce(like this article) !!

  • rate this
    +9

    Comment number 24.

    Ms Yueh is without doubt the BBC's worst correspondent. I also agree with # 19 that she seems solely focused on China,a country whose economy is controlled by the iron fist of Beijing tyrants.Not only does she know very little about economics,but she makes it seem as though China has a "normal" economy, to be commented on as though it was fair and transparent like a democracy(fat chance).Hopeless!

 

Comments 5 of 28

 

Features & Analysis

From BBC Capital

Programmes

  • The smartphones of shoppers being tracked in a storeClick Watch

    How free wi-fi can enable businesses to track our movements and learn more about us

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.