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China economy

Xi Jinping’s top economic adviser Liu He meets pro-market liberals as debate over China’s future direction rages

Chinese vice-premier attended conference where a series of speakers called for the private sector to play a greater role in the country’s development

PUBLISHED : Monday, 17 September, 2018, 4:04pm
UPDATED : Monday, 17 September, 2018, 10:34pm

Chinese President Xi Jinping’s top economic adviser, vice-premier Liu He, has met a group of pro-reform economists in a show of support for a liberal vision of the country’s economic future.

Liu did not address Sunday’s 20th anniversary conference of the Chinese Economists 50 Forum, a club he helped co-found when he was a government adviser.

His attendance was not reported by the official Xinhua news agency or the government website as he was not there in his official capacity.

However, the fact that Liu spared an hour from his busy agenda – which includes the ongoing trade tensions with the United States – showed he was open to views on how to revitalise the process of “reform and opening up” at a time when Beijing’s commitment to market-based policies is facing rising scrutiny at home and abroad.

At the core of the escalating US trade war with China are complaints about Beijing’s subsidies to state enterprises, the alleged theft of technology from western businesses and the increasing dominance of the country’s state-owned enterprises.

Meanwhile Chinese private entrepreneurs are struggling under an increasingly assertive one-party state, with fears running high that the government will take over, or at least more tightly control, private ventures.

Liu did not speak during his meeting with the liberal economists but listened attentively to the opening speech by Wu Jinglian, one of the country’s most eminent pro-market economists.

China must take urgent action to push its private sector past a crisis of confidence

“What we learned from the past 40 years is that we must insist on a market-oriented and law-based direction of reform,” the 88-year-old Wu told Liu and a room full of government officials, economists and entrepreneurs at the event in the Diaoyutai State Guesthouse in Beijing.

The audience included central bank governor Yi Gang and finance vice-minister Liao Min, two of Liu’s closest aides.

Wu said the most important task for China now is to fulfil its reform promises made five years ago, when the Chinese leadership for the first time promised to let market to play a “decisive” role in resource allocation.

In the face of “disharmonious voices”, including a recent debate about ending private property ownership in China, the government has to “build a consensus [on reforms] through debate and then implement them one by one,” Wu added.

Liu left the venue after Wu’s speech “to take a flight”, but the event’s organiser said speakers’ comments would be handed to the “relevant departments”.

On Monday Liu attended t the World Artificial Intelligence Conference in Shanghai on Monday morning, calling upon the world to address complex ethical, legal and other issues surrounding the technology.

Many of the later speakers were as unsparing as Wu in their criticism of China’s lack of progress in economic liberalisation.

While no one in the room called China to embrace liberal democracy, their critique of the Chinese economy was wide-ranging, from the dominance of the state sector to the lack of adequate rule-of-law.

China’s pledge to open financial markets ‘unaffected by trade war’

Li Yang, former deputy head of the Chinese Academy of Social Sciences, told the event that fears about the future role of private firms were being reinforced by the fact that they are being hit hardest by the trade war as well as government programmes to reduce excess production capacity and to crack down on the shadow banking activities on which many small businesses depend.

“Many cannot survive amid this de facto discrimination,” Li said.

The increase in profits at state-owned enterprises (SOEs) in recent years was largely a result of government policies that favour these firms, even though they are less efficient than their private-sector rivals.

Li urged the government to “grasp the opportunity to push forward SOE reforms”.

Private businesses sprang up by the thousands across the country after Deng Xiaoping decided to embrace some capitalist concepts in 1978, powering China’s economic resurgence.

Private firms today contribute half of the country’s tax revenues and account for 60 per cent of national GDP and 80 per cent of employment, according to government data.

Beijing has not explicitly played down the role of the private sector in the economy but its calls for bigger and stronger state-owned enterprises have raised concerns among entrepreneurs.

The financial writer Wu Xiaoping recently triggered a major controversy with the suggestion, in a now deleted post on social media, that the private sector has “completed its historic mission and should quit China’s economic arena”.

China’s private market investors face chilly headwinds

Sheng Hong, director of the Unirule Institute of Economics, a Beijing-based independent think-tank that is under government pressure to stop operating because of its outspoken views, was another speaker at Sunday’s conference.

Sheng complained that the Chinese state was taking too much from the economy. “The macro tax burden is already high enough to potentially drag our economy to the brink of collapse,” he warned.

Sheng’s institute helped to coin the phase “killer tax” after a Unirule survey of private businesses at the end of 2016 highlighted how the tax burden was hampering the development of private enterprises and prompted warnings it could kill off businesses.

Yang Weimin, a former lieutenant of Liu He’s at the Central Leading Group of Economic and Financial Affairs and now a member of the country’s top economic consultant body, told the event that China should abandon its practice of categorising businesses into state-owned, privately owned and foreign-owned firms.

Beijing urged to print more money to cope with trade war

Beijing’s pursuit of high-quality economic growth requires a central role for market forces, he said. “[We] must reduce government intervention in resource [allocation] significantly,” he said.

Beijing is now the world’s second largest economy and will surpass the US to become the largest by 2030, according to International Monetary Fund estimates.

At the same time, the Chinese economy faces a series of dangers ranging from hostility abroad to heavy debt at home.

Ma Jiantang, deputy director of the Research and Development Centre of the State Council, said the role of the private economy would be a touchstone of Beijing’s commitment to reform.

Ma said the recent debate about the future of private companies had highlighted their dissatisfaction with current policies and lack of confidence about the economic outlook.

“They worry about fair competition, an unsound legal system, ownership protections, high financial burdens and financing difficulties,” said the former chief of the National Bureau of Statistics.