Oct 24, 2017 01:44 PM

Editorial: As Xi’s Speech Urges, China Must Stay the Course on Reform

By Hu Shuli

Reform never sleeps. When President and Communist Party General Secretary Xi Jinping delivered his work report at the opening of the 19th National Congress of the Communist Party of China on Wednesday, he spent some time speaking about systemic reform. The other parts of his address were also connected to the big issue of reform, to varying degrees. We can think of reform as one of the main threads running through his speech, which will lead to China’s future actions in reform and opening-up, and which can be considered a rallying cry for renewed efforts toward reform.

Since the 18th National Congress of the Communist Party of China, the country has established the basic framework for the main areas of reform, has launched more than 1,500 reform initiatives and has made breakthroughs in reforming the military and other difficult areas. The 19th Party Congress report, by summing up past reforms, gave a timely conceptual summary, setting out the new ideas and key tasks that will drive the new era of reform. The public expects these new ideas to turn into concrete initiatives. The sentiment of hundreds of millions of people is the most reliable test for the effectiveness of reform.

The results of reform are clear to all, but as China’s economy became the second-largest in the world and as it gained unprecedented international influence, some officials grew complacent. Complacency is deeply incompatible with the objective needs of reform.

Complacency and the consolidation of vested interests are two of the major stumbling blocks for carrying on with reform. They must be eliminated. In Xi’s speech, he said “some reform plans and major policies need to be better implemented.” Considering the resolutions and other reform plans from the third and fourth plenary sessions of the 18th CPC Central Committee, it is clear there are still many problems that have long been in need of a solution. Because China remains in the primary stage of socialism and it retains the status as the world’s largest developing country, the fundamental policies of reform can only be reinforced, and must not weaken.

The main contradiction in Chinese society has already changed, from a contradiction between the people’s constantly growing material and cultural needs and a backward production system, to a contradiction between the people’s constantly growing desire for a good life and unbalanced, inadequate development.

This shift places higher demands on deepening reforms. After building a moderately prosperous society, the people’s desire for a good life will go beyond material needs as new generations come of age. This desire will increasingly manifest in the areas of democracy, rule of law, justice, safety and the environment. This is why many onlookers are excited about the emphasis Xi’s speech placed on political restructuring and constitutional review. Reform urgently needs to move into deeper waters, and more focus must be placed on “comprehensive deepening.”

Future reforms are not going to be smooth sailing. The low-hanging fruit has already been picked, and the reforms that still need to be completed involve the ossified core of the old planned economy system, the constantly shifting tides of globalization and the new challenges posed by technology to an emerging and transitioning China. In the future, conflict between different interest groups may intensify, and some previously hidden contradictions may emerge. Difficult problems in the economy, politics, society, culture and environment are complex and intertwined. If any one area isn’t handled properly, it will hinder the overall progress of reform or even bring reform to a halt.

The journey’s last mile will be its toughest. Reform needs to be unremittingly applied to the main framework of the system. Only by making all-round, deep, and unprecedented breakthroughs will it be possible to completely leave behind existing ideas and consolidated interests. Xi’s speech mentioned the two-stage strategic plan for the period from 2020 to the mid-21st century. The key is to form short, medium, and long-term reform plans and concepts, while achieving breakthroughs in institutional reform.

The 19th work report provides a comprehensive view on reform, offering many new judgments and providing answers to some long-disputed questions. But we should note that there are unprecedented difficulties in some areas, and many problems are also difficult issues for other countries . Future reform will require more diligent exploration than what previous generations faced.

The report said that “in resource allocation, the market plays the decisive role and the government plays its role better.” This line shows unwavering determination to move toward market reform. But we should remain vigilant about how, under China’s current system, in terms of specific administration, the government plays a decisive role, while the market is in a subordinate role. Supply-side reform needs to accomplish five tasks — cutting overcapacity, lowering inventory, deleveraging, lowering costs, and improving economic weak spots. “Government failure” cannot be entirely absolved in causing these problems. The report reiterated the importance of transforming government functions, increasing decentralization, making regulatory innovations, and building a service-oriented government that can satisfy the people. Its language is plain, but it has grasped the key issues of implementation.

The report clearly asks for an acceleration of the establishment of a modern fiscal system, as well as the establishment of harmonious, proportionate relations between the central government and the provinces in a way that clearly demarcates rights and responsibilities. In particular, it calls for deeper reform of the tax system, and improvements in local tax systems. With the completion of corporate tax reform, the contradiction between local governments’ authority and their responsibility for expenditure has become even more apparent. If the issue of local government debt is not resolved soon, it may become a financial risk. Similarly, the issue of rationalizing fiscal relations among governments beneath the provincial level has been unsolved for years, but no major breakthroughs have been made, and efforts to solve it must move ahead quickly.

The report gives clear answers to some long-running questions. For example, it reaffirms the permanent status of land contracts, and pushes the expiration date of the second round of contracts back by 30 years. This has reassured farmers. The report also mentioned the deepening of rural land reform, and perfecting the “three rights” (ownership, contract and management rights) of land contracts. But many economic and legal problems still make it hard to determine exactly how we should separate the three rights, and transfer land in an orderly manner.

Additionally, problems like mixed-ownership reform in state-owned enterprises and the sustainability of social security have received widespread attention. All parties are actually quite clear about the causes of the problems and the dangers of sluggish reform. A consensus urgently needs to be built to speed up reform.

The main idea of the report for the 19th National Party Congress is to stay true to our original goals. The most important thing is to remember the origins of reform and to never forget the initial goals of reform. In 2018, China will celebrate its 40th year of opening-up. Today’s achievements have come from the combined efforts of many reformers in the past. The goals of the next “hundred years’ struggle” will require unremitting reform to achieve — a theme the upcoming Caixin summit in mid-November will explore.

Hu Shuli is the editor-in-chief of Caixin Media.


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