Scrapping the sale of 'state' shares as a funding vehicle for centralised social security looks like a victory for the pragmatist camp in Beijing. Reforming a chronically under-funded social security system can apparently wait. Arresting a fall in equity markets that until three months ago had fuelled privatisation and industrial restructuring evidently could not.
Securities reformers will be disappointed as the phased disposal of state shares was seen as a vital step to increase transparency and remove awkward distinctions in share ownership. Worryingly, it smacks of official price support of the sort that ultimately failed in Taiwan, South Korea and Japan.
Beijing has many economic balls in the air. Buoyant markets have been a prime driver of private-sector investment and growth. Forcing huge, pent-up savings into the equity market has created a strong circle of privatisation and positive wealth effects that have allowed state firms to begin unbundling their cradle-to-grave pension liabilities.
Beijing has reduced state firms' responsibility for workers social welfare through a variety of schemes. Provision has been forced towards provincial governments and pay-as-you-go individual accounts have had trials. Yet with a countrywide pension shortfall that had soared to 35.7 billion yuan (HK$34 billion) by the start of the year, a centralised scheme seemed the only option. During buoyant market conditions this offered a double bonus of driving market reform and paying for welfare. An inevitable market bust has scuttled the plan and Beijing must, for now, pick up the tab out of general revenue coffers. Policy-makers must realise this can only be temporary. China's awful demographic trends are not going to change and tackling welfare reform cannot be put off indefinitely.