For Xi Jinping, the road to the Third Plenum of the Communist Party’s Central Committee, which begins tomorrow, can be traced back to March, when he first addressed China as its new president. In a speech delivered that month, he exhorted the nation to “strive to achieve the Chinese dream of great rejuvenation,” launching a phrase that has since become a theme of his administration. But what does it actually mean? Most likely, Xi is recalling China’s Tang Dynasty-era reputation as the world’s preeminent economic powerhouse and a pillar of culture and civilization. Xi wants to be seen as Deng Xiaoping’s successor, a leader who puts China solidly on the path to sustained prosperity.
China is not there yet. And so, the question is this: Will China make the changes it needs to? If so, how? Which reforms are necessary, and which are actually realistic? The first two questions are almost impossible to answer at this point, given the opacity of Chinese politics. Even after President Xi lays out his administration’s agenda over the next few days, we will likely not know any details about specific policies or how they will be implemented. However, with the announcement of the dates for the Third Plenum included a promise to “comprehensively deepen reforms,” and Yu Zhengsheng, a member of the Politburo Standing Committee, China’s highest governing body, has spoken of a plan for “unprecedented” economic and social changes.
Which reforms are on Xi’s wish list? The overarching goals remain strengthening the middle class and shifting the main engine of the economy from investment to consumption, which is more suitable for sustainable growth. But how the government achieves this is at the heart of the divide in the Communist Party. Conservative leaders (“leftists” in the Chinese political spectrum) believe that the state should take the lead with ambitious social welfare programs and more comprehensive economic planning. More liberal Party members (“rightists”) would like to see greater use of the market to allocate capital and create wealth, in effect, putting more daylight between the government and the economy. The president himself leans right on the economy, and the political clout of the leftists has significantly diminished over the last year in the midst of his “anti-corruption” campaign.
To what extent, then, should the government and the economy be decoupled? One place to start is in the reform of the dominant state-owned enterprises, which stifle competition and innovation in the Chinese economy. Limiting their power will not be easy; these companies have powerful ties to officials and employ a significant amount of the working population. When then-Premier Zhu Rongji launched a modest privatization scheme a decade ago, the resulting short-term unemployment threatened instability—something Xi Jinping wants desperately to avoid.
A more promising, and equally important, set of reforms center on improving the lives of China’s rural population by increasing urbanization, relaxing constraints on rural land and improving the mobility of migrant workers. Local Communist Party bosses own rural land in China, and this property cannot be developed or reallocated to another purpose without government approval. Allowing the farmers who work the land to have more control over its use and keep the profits would increase the wealth of those living outside China’s urban centers. For those who choose to take their chances in China’s mega-cities, the hukou, or household registration, system bars them from important public services and working in the areas where they are most needed. While most Chinese urbanites recognize the unfairness of the system, reform has been slow in coming since they remain protective of their resources.