China’s economy isn’t out of the woods yet. More than ever, market reforms are needed

Name: China must rely on its ‘internal market for innovation’, says sociology Prof Lau Siu Kai
Uploaded: 2020-10-29T01:45:06.000Z
Duration: 5 min 27 s
Description: China must rely on its ‘internal market for innovation’, says sociology Prof Lau Siu Kai

Behind China’s recovery from Covid-19, growth has slowed in the past decade. Without realigning the roles of the state and market forces, China’s growth rate could continue to fall – especially if the US-China decoupling process persists

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A woman and a child in protective gear ride an electric bike during rush hour in Beijing. China’s recovery from the pandemic has not eliminated the uncertainties surrounding its growth outlook. Photo: AFP

Yukon Huang

Published: 9:45am, 29 Oct 2020Updated: 10:08am, 29 Oct 2020

President Xi Jinping’s highly publicised trip to Shenzhen this month signalled the reform priorities to be endorsed when the 14th five-year plan is laid out at the fifth plenum of the Communist Party’s Central Committee this week. This development plan covers 2021 to 2025 and, along with a longer-term plan running to 2035, has special significance because of the trade war with the United States and the Covid-19 pandemic.

Key messages emerging from the meeting, as well as Xi’s Shenzhen speech and recent press briefings, have been a mix of past themes and some new twists: socialism with Chinese characteristics, “dual circulation” as a growth driver, supply-side reforms, achieving carbon neutrality, strengthening the financial system, opening up to foreign investment, enforcing the rule of law, and becoming more innovative and self-sufficient in technology.

While many of these programmes represent a continuation of ongoing policies, they take on a new urgency in today’s circumstances. Socialism with Chinese characteristics has been the overarching theme of China’s reform process for decades. Such lofty, ambiguous wording reconciles an implicit contradiction: the role of market forces in a state-driven economy.

The third plenum’s policy agenda that Xi endorsed in 2013 made the oft-cited distinction that markets would play a “decisive” role in the allocation of resources. But confusion has persisted because the same document emphasised that “public ownership” is at the “core” of the economic system.

China’s success in recovering from the pandemic-induced recession faster than other major economies has not eliminated the uncertainties surrounding China’s growth outlook. Growth has been slowing steadily over the past decade and prospects have been dampened further by the trade and tech war with the US.

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China must rely on its ‘internal market for innovation’, says sociology Prof Lau Siu Kai

The government is likely to set lower and more flexible growth targets in the five-year plan. In response to tensions with Washington, Beijing has also changed tack: the party media has pronounced that the new “dual circulation” strategy is “a new development pattern in which domestic and foreign markets boost each other, with the domestic market as the mainstay”.