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

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  • 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!

  • rate this
    -6

    Comment number 23.

    @19

    Linda's blog is one of the few places where the emerging economies are given the attention they deserve. This is the biggest global economic upheaval since the industrial revolution and the emerging economies are driving it. UK businesses have to compete in the new economic order and the more we know about it the better.

  • rate this
    -3

    Comment number 22.

    #21 totally true , its also been the story of the last 20 years and nobody is taking any notice.

    In the end it may lead to a fighting WAR

  • rate this
    -2

    Comment number 21.

    Potentially the most explosive economics story of the next decade, and only 20 comments!

    If - and it is an IF - the CPC leadership delivers on this plan, it will affect the standard of living of everyone in UK and Europe. Yuan will rise, dollar will fall, and the pound with it.

  • rate this
    0

    Comment number 20.

    Referring to the so call "land grab" the fact that this is happening is because in China the land belongs to the state. After the 1949 revolution all lands were siezed from the rich by the state and each household was awarded a plot of land to work in. Nobody actually owns the land something equivelent to council properties in the UK. The government can demand the land back by law if they wish.

  • rate this
    +7

    Comment number 19.

    Are you sure you have the right job title? 50% of your articles are about China, many more about Asia in general. I know it's an important region, and I love a good blog post about the Chinese economy as much as anyone but this is not what I expect from the BBC's "Chief Business Correspondent" and the salary that no doubt goes with it. Please try to widen the scope a little.

  • rate this
    +3

    Comment number 18.

    what I am sure is that nothing can be changed. there is a place where hard to achieve dreams and suffer the shy-high house price, as new generation, we work and live under pressure from the huge management system, no matter you are in the big cities such as Beijing, Shanghai or undeveloped place. they run the state for whom is the top question we have to know!

  • rate this
    +3

    Comment number 17.

    The so called Chinese reform is an elaborate show of propaganda and disinformation by the Chinese Communist Party. The current leadership is plainly evil and wicked at its core. The outside world should ignore its official pronouncements. The global economy must live without the active participation of Communist China in 2013 and beyond. The UK,US and Taiwan should contain and isolate China!!!

  • rate this
    +1

    Comment number 16.

    Don’t expect Gorbachev Reforms (meaning reforms that cause short-term pain and long-term maim) for the Chinese economy as no Chinese leader wants to go down in history as China's Gorbachev. So sinophobes, China bears, financial market predators, global hegemonists, capitalist market economists, Chinese criminals and others are going to be disappointed to varying degrees.

  • rate this
    +3

    Comment number 15.

    Beware the "princes" and the BIG HATS. Invest where they do. cannot fail. they control everything.

  • rate this
    0

    Comment number 14.

    Leave it to the graduate students of BJUT(Beijing University of Technology). They will bring about changes that will fuel the China economy. China has so many bright ,young people. they hold the key to China's economic future and success.

  • rate this
    0

    Comment number 13.

    I wonder will they treat inflation as a priority? Could it ultimately reduce chinas competitiveness in manufacturing, or will they regard it as inevitable. A maturing economy. I would suggest that they may regard corruption as both a contributing factor to both inflation and political unrest. So perhaps the method of the solution will be telling about the nature of the government. Old style?

  • rate this
    -1

    Comment number 12.

    Of course the improvement to Shanghai is insignificant! Shanghai is already the most powerful city on the Asian mainland, with greater (nominal) GDP than that of the entire nations of Pakistan, Afghanistan and Tajikistan combined! What improvement were they expecting? They need to test ligthbulbs at night, not light one during the day and expect the room to be noticeably brighter.

  • rate this
    0

    Comment number 11.

    #9 so they can buy the west buy stealth?

  • rate this
    -1

    Comment number 10.

    Q. What kind of power does president have? 1978, Deng Xiaoping emerged as China’s leader - pushing through controversial reforms, like opening of special economic zones. 2003, Hu Jintao was shadowed by space launch. Xi seems in between. November -can he get the support that he needs?
    If Xi can shake up the process, I’d say look out for China.

  • rate this
    +1

    Comment number 9.

    Interesting that LY thinks that moves towards currency reform are unlikely to be a priority. Does that mean the strategy is to feed the surplus $/£ to rich Chinese individuals to invest in property?

 

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