Tough choices ahead for Beijing
It is unusual for China's leaders to choose an international forum to preview one of the country's most important debates on policy for the next decade. At a conference on the sidelines of the Asia-Pacific Economic Co-operation forum , President Xi Jinping set the stage for the third plenum of the 18th party congress next month, a meeting that is traditionally a springboard for reform and which sets economic guidelines. Xi said Beijing was willing to sacrifice the pace of growth for structural economic reform. The IMF has forecast subdued global growth as capital exits emerging markets, but the adoption of a more sustainable growth model would be better for the global economy in the long run.
Xi warned that hesitation about change would lead to failure and could jeopardise earlier gains. This sets the tone for debate on the regulatory agenda, ranging from capital market reforms to the liberalisation of the renminbi. Xi sent positive signals to businessmen and investors about reform, saying that Beijing was aware of the challenges resulting from weakened demand, excess production capacity, local government debt and the expansion of the shadow banking industry.
A clear focus on reform is welcome in the wake of different signals sent, on one hand, by investigation of official corruption at senior levels, and on the other, by a crackdown on dissent, including calls for top officials to disclose their assets.
The targeting of officials has fuelled speculation that this could provide the opportunity for the third plenum, the date for which has yet to be announced, to shake up the dominance of state-owned monopolies in strategic economic sectors, in the face of resistance from vested-interest groups of officials.
Xi said the country could not afford "fundamental mistakes" and would introduce reform in a systematic way - taken to mean that preserving the power of the party is paramount.
That said, the country ultimately faces a choice between continuing reform that reduces the government's role in the economy, or asserting a strong role for the government through the development of state capitalism.