China's Reform Agenda May Take a Decade

An analysis by Michael Lelyveld
china-li-keqiang-june-2013.jpg China's Premier Li Keqiang delivers a speech as he meets with international CEOs at the Great Hall of the People in Beijing on June 5, 2013.

China's government has set an ambitious economic reform agenda for 2013, but the goals may take a decade or more to achieve, experts say.

On May 24, the National Development and Reform Commission (NDRC) issued guidelines on a host of policy priorities "for this year," the official English-language China Daily reported.

The agency listed 22 tasks to be carried out in seven sectors, ranging from monetary and fiscal policy to taxes, energy, the environment, and investment and administrative reforms.

The outline follows a major address by Premier Li Keqiang pledging to boost the private sector and reduce state interference in the economy.

As a first step, the central government has already eliminated 107 administrative approval requirements for business and society, while delegating others to lower levels, state media said.

More sweeping plans call for making the yuan fully convertible and taxing personal property.

The government has also promised to unveil an urbanization plan that would overhaul household registration rules, giving rural residents access to health care and social benefits when they move to China's cities.

"China should cope with relations between the government and market, and between government and society, delegating powers and managing the key issues," Li told the State Council on May 13.

No 'big bang'

The new government's reform agenda has drawn notice for its scope and extent.

"This is radical stuff, really," said Stephen Green, an economist at the British bank Standard Chartered, as quoted by The New York Times.

But China experts and economists caution against expecting a "big bang" of rapid reforms, similar to those that transformed Russia in the early 1990s.

"You're not going to see that," said Yukon Huang, senior associate at the Carnegie Endowment for International Peace in Washington, referring to Russia's experiment with freeing prices, exchange rates, and privatization in rapid-fire reforms.

Instead, Huang sees more gradual steps to shed control over industries outside the state's core interests, more market-based energy pricing for the state sector, and support for competition, perhaps allowing more foreign enterprises in the financial sector.

10-year agenda

The NDRC statement of priorities "for this year" may be seen as setting an agenda for the new government's 10-year term in office rather than a timetable for implementation.

"These are all things that are going to take a while to do, but the fact of the matter is that they're developing programs in these areas," Huang said by phone from Beijing.

Some loosening of administrative controls could happen fairly quickly, but other steps may require legislation and preparation.

Interest rate liberalization, for example, could take place in stages over five years with the development of financial institutions and capital markets, said Huang.

China is also likely to be wary of "big bang" reforms after witnessing the social and political effects in Russia, where the fallout is still being felt.

"That's not the way the Chinese do things," said Harvard University economics professor Dale Jorgenson, who cited the consensus-building process that goes into composition of the government's five-year plans.

"This proposal that was in Premier Li's speech ... is an agenda for the whole 10 years of the new government," said Jorgenson.

"It's something that's obviously the result of very careful consultation that extends back before the new regime," he said.

Words into action

The function of Li's speech and the NDRC guidelines is to send a message to lower-level cadres that reform measures will have political support, Jorgenson said.

How quickly support turns into action is uncertain, however.

Some of the new government's agenda items, like expanding property tax pilot programs, were also on the agenda of the previous government.

Other measures, like taxing coal according to value rather than volume, were supposed to have been accomplished by the old government three years ago.

Local-level implementation

The effect of passing on central government tasks to lower levels is also open to question.

"Many implementations or actions have to be done at the local level," Huang said. "Even if Beijing sets out an agenda and says this is the guideline, it's still not clear to what extent local authorities pick up on it and act on it."

One example is the 20-percent capital gains tax on property sales, which the central government announced on March 1 to stop the rise of housing prices.

Local governments were given one month to write their own versions of the tax rule, but many did not, and prices have continued to climb.

"Some say they're going to implement it, but people don't quite know whether they did or didn't," said Huang.

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