Enough talk - time for China to actually implement major reforms

Hu Shuli says the NPC and CPPCC meetings are a time to get the wheels turning, with a focus on economic restructuring and budget reform

PUBLISHED : Wednesday, 26 February, 2014, 12:32pm
UPDATED : Thursday, 27 February, 2014, 2:36am

Spring is in the air and how to rejuvenate the reform process will be the focus of next week's National People's Congress and Chinese People's Political Consultative Conference meetings.

President Xi Jinping has talked about reforms on two occasions since the Lunar New Year holiday. During a media interview in Russia, he said that "future reforms would require 10 per cent preparation and 90 per cent implementation". And, on February 17 at a workshop that included top provincial and ministerial-level officials, Xi said: "It's only the first step to draft a good document in the 'Long March'. The key is to put the document into practice."

The rhetoric used on the two occasions was different, but the message conveyed was the same: the key to reform is implementation.

There was, of course, a reason for his comments. The framework for reforms was outlined at the third plenum in November. But with the frenzy having died down following the announcements, people are still waiting for the "big bang". Many government departments and regional officials have simply been waiting, if not procrastinating.

Moreover, there is still conflict in society about the urgency for reform. Some analysts have even suggested that reform will inhibit economic growth. Such views are extremely dangerous; the reality is that delays will only hinder growth.

This year's focus should be on stabilising growth and adjusting the structure of the economy. The NPC and CPPCC should also explore other reform ideas which can be tested via pilot schemes at the local level.

A number of reforms have already won praise since the new government took office. The State Council has simplified the administrative approval process, for example, scrapping the approval procedure for business licences for basic telecoms services, while decentralising permit approval for the transport of goods between provinces via China's waterways.

Next, administration should be further streamlined, more power delegated to lower levels, and measures introduced so the market can work more effectively.

China faces land and water shortages, yet it makes excessive amounts of high-energy-consuming products. Import taxes could be slashed on such products to allow cheaper foreign products - and thus competition - in the market. People are also watching state-owned-enterprise reform. Since the third plenum's decision to allow markets to play a decisive role in the economy, the topic needs to be further discussed during the NPC and CPPCC sessions.

Significant action should be taken to lower market thresholds, as a clear signal that the government is committed to allowing private capital into areas previously dominated by state monopolies. For example, large rail construction projects should be offered to the private sector, while local governments should be allowed to develop oil refineries and take part in exploration projects.

Reforming China's SOEs would, of course, involve changes to shareholdings. Recently, the Zhuhai municipal government announced it would offer for sale up to 49 per cent of the stake in Gree Electric Appliances' real estate unit to private investors, while Sinopec has decided to restructure its petrochemical sales operations. This has allowed private enterprises to own a share of the SOEs, signalling real progress in implementing reforms.

Alas, there has been too little progress in SOE reform in recent years. Therefore, their retreat from competitive sectors needs to be speeded up. The revenue generated from such a move could help ease the financial situation of cash-strapped, debt-laden local governments.

The other focus of the NPC and CPPCC will be financial-sector reform, especially after the latest audit of local government debt revealed less-than-optimistic figures. In fact, local government debt risks, along with corruption, are closely connected to the financial system.

However, government budget reform needs to come before systematic financial reforms. Specific requirements were spelled out in detail in the document released after the third plenum - basically, that the budget process should be fully regulated, open and transparent.

Before that can happen, NPC deputies should be given real powers to audit, approve and supervise the budget, so they get to have a say on where the money will be spent. That also means allowing them to express their views on policies and exercise their voting rights.

Clear targets for land reform and changes to the property tax system may well be discussed, and this is where local governments should be pushed to undertake pilot schemes.

Top leaders have recently restated the timetables and road maps for various reforms, indicating that progress will be monitored and reviewed. Expect, also, a new round of reforms to be introduced at the NPC and CPPCC meetings.

This article is provided by Caixin Media, and the Chinese version of it was first published in Century Weekly magazine. www.caing.com