Nov 18, 2013 07:07 PM

Veteran Economist Says He's Optimistic Plenum Made Progress


(Beijing) – Preeminent Chinese economist Wu Jinglian says he is very optimistic about reform plans laid out in a document released after a major meeting of top Communist Party members.

Wu, 83, helped formulate many of the country's reform plans over the past 35 years. He said he has read the document listing decisions finalized after the third plenary meeting of the party's 18th Central Committee several times.

He said its highlights were decisions to allow market forces to play a decisive role in resource allocation and a stated commitment to building a standardized, open, competitive and orderly market.

Without the latter, Wu said, "nothing is effective, no matter whether you call it a basic or a decisive role."

However, he said a few issues had to be addressed before such a foundation is laid. The first is clarifying property rights, such as land rights and the protection of private capital. The second issue is the marketization of prices, especially for the factors of production – land, labor and capital – which are far from market levels.

Third, anti-monopoly measures need to be put in place, especially as regards the government, and a fourth issue is regulation reform.

Finally, Wu stressed the importance of assuring equal access to production factors for all enterprises, limiting the government's role and realizing the principle of "free entry if the law does not prohibit."

Two Challenges

Wu said showing wisdom in the implementation phase will be critical to overcoming obstacles. Deep professional knowledge is required in shaping institutions and setting up rules. Moving these reform measures forward, however, would also require individual courage.

Wu said two types of obstacle would present themselves – ideological and vested interests – and the latter was bigger. Overcoming resistance from established interest groups was one thing, but solutions would also be needed to overcome difficulties that arose during the transition from an old system to a new one.

"For instance, after giving farmers greater property rights, the local government will face a debt crisis," he said. "How can they repay debts and what would be their source of future income? To address these problems, you need to dispel misgivings but at the same time work together for a feasible solution."

Liberating the Mind

Ideological barriers to furthering reform are still very large, Wu said, which highlights the importance of "liberating the mind." He said many people opposed the idea of letting the market to play a decisive role, and some were relatively open about their opposition. "Many others were jumping up and down cursing the decision behind the curtains," he said.

 Wu said opposition to market reforms is very powerful, partly due to years of propaganda misguiding public opinion. When he speaks privately to local, provincial, city leaders, they all say they believe that a stronger market is inevitable, Wu said, but what they say in public is completely opposite. This was due to the fact a market economy would have a great impact on behavior, power and the interests of officials.

"For example, in the field of science and technology, funding is entirely given by the government," Wu said. "Who gets the project and subsidies is entirely up to the local party and government leaders. So there needs to be very far-reaching reforms in the future."

Wu also said rationality and professionalism would be key to liberating minds and understanding the whole reform picture.

Good Points, Misgivings

Wu has long been concerned about reform of state-owned enterprises (SOEs).  He said the latest party document had a lot on good points on this front, but also left him with some misgivings.

He said that Chen Qingtai, the former party secretary of the State Council Development Research Center, had been advocating over the last couple of years that state control of SOEs should shift from managing these big enterprises to managing state-owned capital. The fact that this proposition made into the party decision is very meaningful, Wu said.

He also said the decision document contains many positive elements, including limiting the function of SOEs, paying attention to their role in serving public interests, promoting a mixed economic structure, allocating state-owned capital to social security programs and raising the proportion of profits turned over by SOEs.

He said the part of the document about "upholding the equality of rights, equality of opportunity and equality of rule" for the non-public economy was worth special mention. And, as he noted, the wording is very important: "The non-public economy and socialist market economy are both important parts of the economy, and are important foundations to China's economic and social development."

 In Wu's opinion, the reference to "important foundation" involved the legitimacy of Communist Party rule. Although the wording does not say this, "it's actually the same thing."

Wu said he is disappointed that parts of the document repeat certain language, such as the emphasis on upholding the role of public ownership "unswervingly." He said that in a speech Xi made in June, the wording had been changed to "increase SOEs' vitality," a less rigid ideological differentiation.

"It is possible that in the discussion some people thought the new language was improper, so it got changed back to the old formulation," he said.

The party document also reverted to stressing the "dominant" role of public ownership and SOEs. In light of this, Wu said the key lies in understanding what "dominant" means.

The third plenum of the 14th Central Committee decided that a leading role does not mean controlling all areas at all times. The fourth plenum of the 15th Central Committee explicitly limited state control to three areas and one industry: national security, natural monopolies and public welfare, plus high-tech industries and backbone enterprises in strategically important industries.

Wu said Chen, a member of the team drafting the party report for the fourth plenum of 15th Central Committee meeting, disagreed with a ministry leader and fiercely argued against including the high-tech industry in areas under state dominant control, but the article was nonetheless written into the decision.

"But such wording did not make into the decision this time," Wu said. "It only mentioned two areas, public welfare and natural monopolies," which the economist said was progress.

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