Government building

China’s New Economic Reforms

The third plenum of the Communist Party of China has recently ended and in this article we will discuss some of the key outcomes. The meeting has brought forth new initiatives that will aid in the country’s development for the next decade and will consequently play a crucial role in the structuring of China’s future economy and society.

Relaxation of one-child policy

The change means that couples will be allowed to have a second child if one spouse is an only child. As such, it will mainly apply to urban couples – rural couples were already permitted a second child if the first was a girl or had a disability. Furthermore, many minority groups were previously allowed to have a second child.

This news is less important for Chinese than for the western media, since in many parts of China, the one-child policy is already being relaxed for large parts of the population. The real question is: how will the average Chinese parent afford to take care of another child?

Phasing out of labor camps

Chinese state news agency Xinhua reported that China will abolish the “laojiao” or “re-education through labor” system that was developed in the 1950s to hold political prisoners. The abolishment of labor camps is a significant development for it represents a step towards recognizing the basic rights of Chinese citizens.

There are two forces at tension here: one is protecting the rights of the Chinese Communist Party as China’s leading political party, and the other is to gradually transform China into a more normal country, where the rights of its citizens have certain basic guarantees.

Market will play more decisive role in resources allocation

Promising a decisive role for the market implies that private businesses will be given more power in the economy. China’s commitment to more market oriented reforms signals a move towards a better business environment for private and foreign enterprises alike and should provide them with more opportunities as the prices of key resources (e.g. fuels, electricity, water, etc.) will be determined by the market.

This will give more room to competition from private firms and will open up sectors that were previously dominated by state-owned firms. Although red-tape will still be evident, these changes signify a more level playing field for firms based on laws and regulations and with less intervention from government bodies.

Rural land-reform

We can expect to see a change in land ownership so that farmers can more freely rent, sell, and mortgage their land. By doing so the government hopes to increase consumer purchasing power amongst farmers and provide a boost to its economy. However, these changes will be made carefully and will likely be met with some force from local government bodies.

Expropriation of land has been a significant source of revenue for local governments and they are already rumored to have tremendously high debts. Hence, losing one of their biggest streams of revenue might cause internal problems.

State security committee and new-reform group

A new group will be established to push through new reforms and according to Xinhua the group will “be in charge of designing reform, arranging and coordinating reform, pushing forward reform and supervising the implementation of plans.”

The establishment of a state security committee is to prevent corruption and weak leadership. This is mainly directed at keeping the society at ‘peace’ and providing Xi Jinping with more control over the security system.

Additional changes

The general secretary of the Chinese Communist Party, President Xi Jinping will have to clean up the party ranks, as corruption almost ran out of control during the latter years of the Hu Jintao administration. Xi has already made some changes in fighting corruption, has taken on China’s major oil companies (all state-owned), and has ordered the arrest of several high-ranking officials.

At the same time, the economy will need to adjust from one focused on cheap labor to one which is more focused on innovation and the development of high-quality products and services, while respecting the environment. Hence, once again the government stresses that China should move from “Made in China” to “Created in China”. Investing in new technologies, innovation and education will be the driving forces behind this change.

Conclusion

The proposed changes are expected to transform the Chinese market. However, what I am missing are deadlines and more concrete measures to tackle current and future challenges. Although the proposed changes signal a positive development in the transformation of the Chinese economy and society, it is still vague in term of which steps will be undertaken by the government to achieve this. As is customary in politics anywhere, we will have to wait and see and hope for the best.

Duco van Breemen

Duco van Breemen

Duco is project & marketing manager at Launch Factory 88. He has lived in China since 2008 and has worked with both state-owned and private Chinese and foreign enterprises.
Duco van Breemen