Which way forward?

Since Deng Xiaoping began the process of reform and opening up almost 28 years ago, China has repeatedly had internal debates, often heated, as to whether changes have gone too far. A recent, well-publicised article in the official People's Daily shows that another debate is raging, but party leaders, including President Hu Jintao, have come down decidedly in favour of pressing ahead with reform.

The authoritative nature of an article published this month was reflected by the wide publicity it received in the official media. It called on all party members to 'unwaveringly uphold reform', and said China had no choice but to deepen market reforms and open further to the outside world.

The strong opposition to reform and the problems that have surfaced - including widespread corruption, exploitation of farmers by local officials and the widening gap between rich and poor - have led to criticism that the government has to clamp down and not allow the market to operate unfettered.

The debate over the pace and direction of reform led to the shelving of a law on private property that had been scheduled for enactment during the National People's Congress session in March. It now appears that the legislation will be presented at the congress' annual session next year.

Another law in the works would detail procedures for the NPC to supervise the work of the government. It, too, is likely to stir controversy, and may be seen as an element of political reform.

The continuing debate is couched in terms of market forces versus government control. But it reflects another debate below the surface - that of increased political participation versus continued authoritarianism. It is interesting to note that Mr Hu, asked about political reform while he was in the United States this year, responded that 'there is no modernisation without democracy'. Referring to Marxist theory, he provided a link between economic and political reform, saying: 'I believe that the development of the political infrastructure must be compatible with the economic foundation.' This suggests that, once economic reform has developed to a certain extent, political reform will follow.

Mr Hu's five-year term as the party's general secretary comes to an end next year, although he is likely to win a second term. This means that the coming months are a crucial period, when decisions will be made as to who will be promoted within the party and who will make up the core of the next generation of leaders.

Reform in China is hindered not only by the emergence of practical problems, which led to 87,000 big protests across the country last year. It also faces the problem of reconciling changes to Marxist theory. Beijing, after all, insists that what it is implementing is not capitalism, but rather socialism with Chinese characteristics.

Recent debates over reform have centred on financial reforms, in particular allowing foreign buyers to hold equity shares in China's banks. Those banks have been restructuring, and looking for strategic foreign partners. For example, the Bank of America last year paid US$3 billion for a 10 per cent stake in China Construction Bank. HSBC and Citigroup have also bought stakes in Chinese banks, triggering criticism that foreigners should not be allowed to control the strategic financial sector.

Such criticism, however, reflects emotionalism more than rationality. After all, the foreign banks involved are not state-owned, and their interest is to maximise efficiency and profitability - goals that are entirely consistent with China's national self-interest. If their participation in management results in better banking institutions, it is China that will benefit. The nation's leaders evidently realise that the country's interests lie in continuing to press ahead with reform.

Frank Ching is a Hong Kong-based writer and commentator frank.ching@scmp.com