Now, China must act on its pledge of reform
Andy Xie says China can demonstrate its pledge of reform made at the third plenum by continuing to fight corruption, liberalising the economy further and bursting the asset bubble
The communiqué issued at the end of the third plenum of the Communist Party's 18th Central Committee is a general statement about the desire to solve the current economic and social difficulties through reforms.
Expectations at home and abroad had been running feverishly high prior to the plenum. And the communiqué, which mostly repeats generalities that have been said before, may be interpreted as a disappointment. I would advise patience.
Firstly, the government has demonstrated its commitment to tackle corruption. As virtually all of China's economic challenges can be traced to the misuse of government power, a credible anti-corruption campaign is the only effective means to contain the economic malaise.
Institutional reforms are obviously the solution. But they take a long time. The continuation and escalation of the anti-corruption campaign buys time for other reforms to catch up. Thus, slowing or even halting the campaign would be viewed as a lack of commitment to serious reforms.
Second, concrete and meaningful measures may come within a few months. Excessive government and expansion of state-owned enterprises are the root causes of China's economic difficulties. Without decreasing government power and shrinking the reach of state-owned companies, economic reforms cannot be meaningful.
Shanghai's free-trade zone is taking a first step in this regard. It has done away with cumbersome government approvals and introduced for the first time a "negative list" on foreign investment, that gives businesses freedom of conduct unless specifically prohibited.