Washington, D.C. – Today, the Center for American Progress released a new report that examines China’s plans for economic reform. According to the report, Chinese President Xi Jinping and Premier Li Keqiang’s agenda only scratches the surface of changing the country’s fundamental institutions and the statist ways in which they operate.
Last year’s announcements of a new Shanghai Pilot Free Trade Zone and a new economic governing agenda at the Communist Party’s Third Plenum under President Xi and Premier Li offered hope of a new direction in China’s economic reform and promised to clean up the problems widely associated with ongoing state involvement in and control over China’s economy, including inefficient subsidies to state-owned enterprises, or SOEs; control and ownership of the financial system; price interventions that skew incentives and distort not just China’s markets but global markets as well; and the rampant and related problems of environmental degradation and corruption
But while China watchers have focused on the optimistic vision imbued in the reform agenda, in “Assessing China’s Economic Reform Agenda,” Adam Hersh, CAP’s Senior Economist and author of the report, addresses a more substantive question: How will China’s reforms affect its nonmarket economic structure and, in turn, the commercial landscape for the United States and the rest of the global economic community?
The analysis examines key documents from the Communist Party’s Third Plenum program, reform pronouncements in government bulletins, and work progress reports to assess how reforms will affect the way China’s economy works.
“Despite setting an ambitious agenda and facing an uphill battle, the substance of planned reforms don’t offer much change to how China’s state-led economy affects the global commercial environment,” Hersh said.
The brief focuses specifically on several key aspects relevant to the ways in which China’s nonmarket economic structure affects the global commercial environment:
The Communist Party, state ownership, and transactional relationships that drive China’s economy
Market-access barriers and investment restrictions that deter imports and entice investment technology transfers into China’s domestic economy
Financial reform and China’s “going out” strategy, which aims to invest Chinese capital abroad and to propel Chinese brands and companies to global prominence
The report finds that China’s new political leaders face a daunting list of social, political, and economic challenges to national reform. While advancing an ambitious agenda, Hersh’s analysis concludes that from an economic perspective, the reforms underway and under consideration will fail to move the needle in a significant way toward a market-oriented economy where all firms can compete on even ground.
Reforms in these areas are not likely to change China’s basic economic institutions or the way its economy works. Even if the Third Plenum and related reforms are implemented fully as announced, China’s economy will still operate with broad state involvement in ownership, finance, and authority over key economic decisions and prices. Calls for a “decisive role for the market” in China are important, but leaders will need to show much more progress to change what remains fundamentally a nonmarket economic system dominated by the party and the state.