Xi Jinping's proposals for economic reform reminiscent of Deng Xiaoping

Economic reforms proposed by president could be most dramatic since

Deng Xiaoping, experts say
PUBLISHED : Sunday, 05 January, 2014, 5:15am
UPDATED : Sunday, 05 January, 2014, 6:34am
Cary Huangcary.huang@scmp.com

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Illustration: Brian Wang

The first trip Xi Jinping took outside of Beijing as China's new leader was a high
profile visit to Shenzhen. It echoed former leader Deng Xiaoping's famous "southern
tour" in 1992 that triggered a period of economic reform following the stagnation
after the military crackdown on the democracy movement in 1989.
After taking office in March last year, Xi engineered a number of rapid changes,
differentiating himself in style from his predecessors. But before liberals could
celebrate, Xi quickly showed himself to be a stalwart protector of the Communist
regime. Clearly he would not become the Mikhail Gorbachev of China, with his own
version of glasnost - or would he?
The announcement on December 30 that Xi would personally take charge of a new
agency that will steer the country's reform agenda was a sign he was consolidating
his power as supreme leader, but at the same time it signalled Xi may yet be a true
reformer like Deng, at least in terms of the economy.

The so-called "Leading Group for Overall Reform" was announced at the party's
third plenum last November.
Zhang Lifan , a political analyst formerly with the Chinese Academy of Social
Sciences, says Xi's appointment makes the group the most powerful central agency
in charge of reform in China's modern history. The new agency will have equal
footing with the Central Finance and Economy Leading Group, which is positioned as
the agenda-setter and co-ordination unit for financial and economic issues.
While the government has not yet revealed further details on the new agency under
Xi, at the third plenum the president told delegates that the new "leading group"
was intended to ensure that reform was carried out "smoothly and [that] all relevant
tasks are fulfilled". Analysts say the establishment of the agency and Xi's leadership
of it reflects the political reality that reform often comes up against powerful,
entrenched vested interests and is often opposed by powerful central ministries and
regional governments.
As such, true reform will not succeed unless it starts at the top and extends down
the hierarchy to lower levels.
"This sends a clear message that the leadership wants to revive reform that has
stalled under the previous administrations," says Liu Kang, director of the China
Study Programme at Duke University in the US.

Daughter Nan
points out the sights to Deng Xiaoping in Shenzhen during his "southern tour" in
1992 that triggered the economic reform that propelled China to become the
world's second largest economy. Photo: AP
Central planning of reforms
The official name of the national agency in charge of reform or "restructuring" has
changed from time to time, from "office" to "commission" and "department", and

now, "leading group". The upgrade in its name signals not only the growing status
of the agency, but also the top leadership's view of the importance of reform in
China's overall development .

Two years after Deng launched China on its path of

reform and opened the country to the outside world in 1978, the State Council set
up the Office for Restructuring the Economic System (SCORES) to plan and coordinate economic reforms.
To enhance the authority of the reform body, the National People's Congress, the
country's top legislature, established the State Commission for Economic
Restructuring in 1982.
Since then the commission's position appeared to have grown weaker over the
years. In its heyday the cabinet-level agency was headed by then premier and a
Politburo Standing Committee member, Zhao Ziyang and Li Peng respectively. Later,
Li Tieying , a Politburo member and State Council member, took the reins until
eventually the commission was run by Chen Jinhua , a minister and a member of the
Central Committee. In 1998, under a streamlining programme, the commission was
downsized to an "office", as it was when established in 1980.
Five years later it merged with the newly formed National Development and Reform
Commission (NDRC), becoming a department under the top planning agency's
umbrella.
"The changes have reflected not only the status of the agency, but also the
evolution of the leadership's views and their priority on the work of reform," says
Deng Yuwen , former deputy editor of Study Times, published by the Central Party
School, the higher education body that trains party officials.

During Zhao's leadership on the commission in the

1980s, the government decided to first introduce comprehensive reforms in urban
areas. At the time the commission played a central role in the formulation of an
historic document called the "Decision on the Restructuring of the Economic

System", which was approved by the third plenum of the 12th Communist Party
Central Committee in October 1984.
Under Li Peng's stewardship between 1988 and 1990, the commission drafted
another crucial policy document on the deregulation of government control on
wages and the prices of goods and services, a move that was keenly supported by
reformist party leader Zhao, who was then serving as the party's General Secretary.
Under Li Tieying between 1993 and 1998, the commission was involved in drafting a
blueprint for the establishment of a socialist market economy, which was adopted
by the third plenum of the 14th Central Committee in 1993.
Reformist economic tsar Zhu Rongji , who served as premier from 1998 to 2003,
played a key role in pushing through the socialist market economy reforms that
reminded some of Deng's southern China trip in 1992, when the still-powerful
paramount leader had criticised the slowness of economic reform after the June 4
military crackdown on the democracy movement in 1989.
Analysts say that these three documents laid the foundation for China's marketoriented reforms over the past three decades that have propelled China from a
backwater to the world's second largest economy.
"The political leaders at the time believed that reform was decisive to China's
development and so they routinely assigned a top political leader to lead the reform
crusade," Xu Ping , professor with the department of Party Literature and History at
the Central Party School, says.
Xu says reform has taken a backseat since the mid-1990s because many party
leaders believed that a state-guided market economy - or the "socialist market
economy" as it was officially known - was already established.
The downgrading of the reform agency in 2003 has been criticised by economists
and scholars, who point out that it reflected the ignorance over reform of the
administration under former president Hu Jintao and premier Wen Jiabao .
Since 2012 a number of prominent economists have made public calls for a new
reform body led at the highest levels in order to restart reforms they believe have
largely stalled in the past decade.
They argued that such a reform body should take over responsibilities from the
NDRC, which they said was not qualified to pursue real reform due to the conflict of
interest over its existing function of regulating the market and managing the
economy. Many economists also believe the NDRC is too junior in the hierarchy to
mandate China's reform drive, which will require action to scrap privileges enjoyed
by many powerful interest groups and agencies.
In any case, the future role of the NDRC in implementing reform won't be known
until the National People's Congress in March.

Xi in Shenzhen. Photo: XinhuaThe idea of a high

level reform agency also received support from a group of the country's most
prominent economists, including Zhang Weiying of Peking University and Wu Jinglian
of the Development Research Centre, at last year's Chinese Economists 50 Forum in
Beijing. At the time, Zhang and others also proposed that the new agency be
headed up by Xi or Premier Li Keqiang .
Analysts noted that the decision to upgrade the agency to a "leading group" is part
of the new leadership's plan for economic and social reforms, which have been
hailed as the boldest in nearly three decades.
Xu at the Central Party School says the move shows that Xi and Li now realise the
imperative for change is greater today in China than at any point since the end of
the Cultural Revolution.
"Just as late leader Deng Xiaoping seized on the precarious circumstances in the
late 1970s to launch China's reform and open policy, the new leadership must do
the same to avoid faltering growth and avert social instability," says Xu. "The
decades-long model of state investment-led growth is unsustainable."
While all political leaders in the country agree on the need to restructure the
system, Xu says they often differ in the views on the "pace, intensity, and depth" of
such reform. That's why strong political leadership to drive reform has become
imperative.
Louis Kuijs, China economist with Standard Chartered Bank, says the idea behind
the agency was "to overcome obstacles to reform stemming from China's
consensus-driven policy making process, with different ministries, agencies and
interest groups all having to 'sign off' on reforms.
"This has often meant that policymaking took the path of least resistance, towards
measures that did not face strong resistance from vested interests. If the [new]
group has the right measure of clout and mandate, it could possibly speed up
politically difficult reforms desired by the leadership in the coming years," Kuijs said.
Ting Lu, chief China economist with Bank of America Merrill Lynch, says establishing
the new reform group was one of the few moves made by President Xi tocentralise
control of the state by taking away power from local governments and ministries.
Lu says more centralised control could help deliver economic and social reforms in
the face of social and political constraints, but he warns that trusting political
centralisation to foster fair competition may be naive. "For such a vast country with

a 1.3 billion population and huge regional diversities, the benefits of centralisation
could be uncertain in some aspects," Lu says.

TIMELINE OF REFORM

1978: Deng Xiaoping launches the country on its

path of reform and opens it to the outside world.
1980: State Council sets up the Office for Restructuring the Economic System
(SCORES) to plan economic reform.
1982: National People's Congress establishes the State Commission for Economic
Restructuring.
1980s: Under Premier Zhao Ziyang the commission introduces reforms in urban
areas.
1988-1990: The commission drafts policy on deregulation of government control
on wages and prices.
1992: Deng Xiaoping's "southern tour" triggers a period of economic reform
following the stagnation after the military crackdown on the democracy movement
in 1989.
1993-1998: Commission drafts blueprints for the introduction of a "socialist market
economy".
1998: The State Commission for Economic Restructuring is downsized to an
"office".

1998-2003: Premier Zhu Rongji plays a key role in pushing through the "socialist
market economy".
2003: The reform "office" merges with the National Development and Reform
Commission, becoming a "department".
2002-2012: Economic reform takes a back seat as many party leaders believe the
socialist market economy is already established.
2013: Newly elected leader Xi Jinping visits Shenzhen, mimicking Deng Xiaoping's
1992 "southern tour".
2013 (December 30): Xi named as head of upgraded reform agency, the "Leading
Group for Overall Reform".
This article appeared in the South China Morning Post print edition as Steering a
course for change
http://www.scmp.com/news/china/article/1397712/xi-jinpings-proposals-economicreform-reminiscent-deng-xiaoping