Ambitious reforms are on the cards for Xi Jinping
Mao Zedong’s successor Deng Xiaoping, and the subsequent leadership after 1978, shifted their focus towards a more market-oriented economic development process.
Since then, for much of its population, living standards have improved dramatically. Internal reforms have also contributed to China achieving its major economic status.
They include the phasing out of collectivized agriculture, a gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, the creation of a diversified banking system, the development of the stock market paradigm, the rapid growth of the private sector, and opening up to foreign trade and investment.
This rapid economic expansion has however also resulted in unwanted challenges — deterioration in the environment, air pollution, soil erosion, and the steady fall of the water table, especially in the northern regions of the country.
These factors have combined to create uncertain conditions which have led to the loss of critically important arable land. China, because of manufacturing necessity, has also ended up being the largest importer of fossil fuel — oil, coal, and natural gas.
These adverse consequences have now persuaded the Chinese authorities to seek additional energy production capacity from sources other than fossil fuel, focusing more on nuclear and alternative energy development by using renewable energy.
An effort is also being made to ensure that anticipated reforms do not suffer because of bureaucratic tangles. Another important feature has been the decision to decentralize effectively and to increase funding for local government units.
Efforts are also underway to create the necessary administrative structure that will deal with the fallout of any social instability that may arise because of the exercise.
It is generally agreed that by 2023, China will be nearing the US as the world’s number one economy. A government think tank has also recently predicted that in seven years, 600 million Chinese will be part of its swelling middle class.
More than half of the country’s workers now reside in urban areas, as rural migrants move to cities for better employment opportunities. These are impressive indicators. There is, however, also the growing specter of inequality and a growing income divide.
The new Chinese leadership knows that they have to address this social issue carefully and initiate required pragmatic reforms. Some believe that this might be a thornier proposition than simply building the new roads, airports, and other infrastructure projects that have helped propel the Chinese economy.
An effective approach to reducing this growing inequality will most certainly require, according to Professor Gan Li “the shifting of government spending priorities away from massive infrastructure development to social welfare investment.” Today, China’s leaders want a more modern economy, shifting further away from a centrally planned system. In this context, major issues that are on the agenda include financial liberalization and reform of state-owned enterprises.
Household registration reform (hukou) and land reform have also been flagged up — but costs and vested interests, according to analysts, have made these issues tough to tackle.
Consequently, it is clear that Xi Jinping will have to negotiate between competing interests if he hopes to engineer ambitious reforms to the country’s state-owned assets.
Most recently, China has started taking steps to push for a fresh round of state-owned enterprise (SOE) privatizations.
This important measure will, however, require not only improving competitiveness but also tackling a perceived culture of waste and corruption that characterize, according to some US economists, many of China’s central SOEs in sectors such as finance, energy, and telecommunications.
It would be pertinent for all of us to understand that despite current challenges, the leadership in China will continue to push for economic development.
With the expansion of the economy, it will seek to make more investment abroad, consistent with the new leadership’s motto of pursuing the “going global” strategy with vigour.
This effort will be welcomed by other industrial states as a more prosperous China will also mean a higher demand for their products.
To this will also be added the economic fall out of the surge of Chinese tourists visiting destinations in Europe and elsewhere. This is expected to particularly help the EU’s economic recovery from its current Euro crisis.
Muhammad Zamir, a former ambassador, is an analyst specialized in foreign affairs, right to information and good governance. He can be reached at [email protected]