At Project Syndicate, Andrew Sheng and Xiao Geng provide a brief commentary on China’s economic policy outlook:
At the Third Plenum of the 18th Central Committee of the Chinese Communist Party, currently under way in Beijing, President Xi Jinping is unveiling China’s reform blueprint for the next decade. In advance of its release, the Development Research Center of the State Council, China’s official think tank, presented its own reform proposal – the so-called “383 plan” – which offers a glimpse of the direction that the reforms will take.
Despite a keen sense of the obstacles ahead, the writers are clearly impressed:
But the kind of deep and comprehensive reforms that China needs are always difficult to implement, given that they necessarily affect vested interests. In order to win public support for reforms, thereby maximizing the chances of success, the government must offer clear, accessible explanations of its goals. … The Research Center takes a holistic approach to the reform process, viewing it as both a systemic change and a change of mindset. Translating its proposals – which are as profound as Deng Xiaoping’s 1978 reforms – into simple, straightforward terms is no easy feat, but one that the 383 plan handles with relative deftness.
It’s almost impossible not to read the comparison to the 1978 reforms as hyperbole, especially when it is quickly conceded that “rapid, sweeping transformation is not realistic in a country of 1.3 billion people.” Nevertheless, the proposed direction of change is clearly encouraging, most obviously because it seeks so unambiguously to deepen the market-oriented policy approach of the Reform Era, by expanding the sphere of decentralized price-sensitive decision making (while contracting the scope of political discretion).
“The ‘383’” — they explain:
… is shorthand for the plan’s content. First, the proposal describes the relationships between the Chinese economy’s three main actors: government, business, and the market. Second, it identifies eight key areas of reform: governance, competition policy, land, finance, public finance, state assets, innovation, and liberalization of international trade and finance. Third, it highlights three correlated goals: easing external pressure for domestic policy changes, building social inclusiveness through a basic social-security scheme, and reducing inefficiency, inequality, and corruption through major rural land reform.
Shanghai’s new Free-Trade Zone also gets a quick but glowing mention.
Given the near-inevitability of serious disruption in the world economy over the next few years, as well as some overdue bubble-popping in China (mostly in real estate), even a cautious crawl in the right direction looks attractive. Among the reasons not to rush anywhere is the degenerate state of monetary theory worldwide, which has lead to the adoption of disastrously misconceived policies in almost every major economy. Hedging makes a lot of sense right now.
Once the macroeconomic house of cards collapses, there will be space for sounder ideas to re-emerge. Judging by China’s accumulation of (both public and private) precious metal holdings, along with its flexible approach to new (and ‘hard’) digital currency, the intellectual germs of a near-future post-fiat monetary regime could already be in place. That would really be something solid to build upon.
ADDED: “China will deepen its economic reform to ensure that the market will play a ‘decisive’ role in allocating resources, according to a communique issued after the third plenary session of the 18th CPC Central Committee …” (Xinhua)