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Illustration: Brian Wang

Xi Jinping's proposals for economic reform reminiscent of Deng Xiaoping

Economic reforms proposed by president could be most dramatic since Deng Xiaoping, experts say


The first trip Xi Jinping took outside of Beijing as China's new leader was a high profile visit to Shenzhen. It echoed former leader Deng Xiaoping's famous "southern tour" in 1992 that triggered a period of economic reform following the stagnation after the military crackdown on the democracy movement in 1989.

After taking office in March last year, Xi engineered a number of rapid changes, differentiating himself in style from his predecessors. But before liberals could celebrate, Xi quickly showed himself to be a stalwart protector of the Communist regime. Clearly he would not become the Mikhail Gorbachev of China, with his own version of glasnost - or would he?

The announcement on December 30 that Xi would personally take charge of a new agency that will steer the country's reform agenda was a sign he was consolidating his power as supreme leader, but at the same time it signalled Xi may yet be a true reformer like Deng, at least in terms of the economy.

The so-called "Leading Group for Overall Reform" was announced at the party's third plenum last November.

Zhang Lifan , a political analyst formerly with the Chinese Academy of Social Sciences, says Xi's appointment makes the group the most powerful central agency in charge of reform in China's modern history. The new agency will have equal footing with the Central Finance and Economy Leading Group, which is positioned as the agenda-setter and co-ordination unit for financial and economic issues.

While the government has not yet revealed further details on the new agency under Xi, at the third plenum the president told delegates that the new "leading group" was intended to ensure that reform was carried out "smoothly and [that] all relevant tasks are fulfilled". Analysts say the establishment of the agency and Xi's leadership of it reflects the political reality that reform often comes up against powerful, entrenched vested interests and is often opposed by powerful central ministries and regional governments.

As such, true reform will not succeed unless it starts at the top and extends down the hierarchy to lower levels.

"This sends a clear message that the leadership wants to revive reform that has stalled under the previous administrations," says Liu Kang, director of the China Study Programme at Duke University in the US.

Daughter Nan points out the sights to Deng Xiaoping in Shenzhen during his "southern tour" in 1992 that triggered the economic reform that propelled China to become the world's second largest economy. Photo: AP

The official name of the national agency in charge of reform or "restructuring" has changed from time to time, from "office" to "commission" and "department", and now, "leading group". The upgrade in its name signals not only the growing status of the agency, but also the top leadership's view of the importance of reform in China's overall development

Two years after Deng launched China on its path of reform and opened the country to the outside world in 1978, the State Council set up the Office for Restructuring the Economic System (SCORES) to plan and co-ordinate economic reforms.

To enhance the authority of the reform body, the National People's Congress, the country's top legislature, established the State Commission for Economic Restructuring in 1982.

Since then the commission's position appeared to have grown weaker over the years. In its heyday the cabinet-level agency was headed by then premier and a Politburo Standing Committee member, Zhao Ziyang and Li Peng respectively. Later, Li Tieying , a Politburo member and State Council member, took the reins until eventually the commission was run by Chen Jinhua , a minister and a member of the Central Committee. In 1998, under a streamlining programme, the commission was downsized to an "office", as it was when established in 1980.

Five years later it merged with the newly formed National Development and Reform Commission (NDRC), becoming a department under the top planning agency's umbrella.

"The changes have reflected not only the status of the agency, but also the evolution of the leadership's views and their priority on the work of reform," says Deng Yuwen , former deputy editor of , published by the Central Party School, the higher education body that trains party officials.

During Zhao's leadership on the commission in the 1980s, the government decided to first introduce comprehensive reforms in urban areas. At the time the commission played a central role in the formulation of an historic document called the "Decision on the Restructuring of the Economic System", which was approved by the third plenum of the 12th Communist Party Central Committee in October 1984.

Under Li Peng's stewardship between 1988 and 1990, the commission drafted another crucial policy document on the deregulation of government control on wages and the prices of goods and services, a move that was keenly supported by reformist party leader Zhao, who was then serving as the party's General Secretary.

Under Li Tieying between 1993 and 1998, the commission was involved in drafting a blueprint for the establishment of a socialist market economy, which was adopted by the third plenum of the 14th Central Committee in 1993.

Reformist economic tsar Zhu Rongji , who served as premier from 1998 to 2003, played a key role in pushing through the socialist market economy reforms that reminded some of Deng's southern China trip in 1992, when the still-powerful paramount leader had criticised the slowness of economic reform after the June 4 military crackdown on the democracy movement in 1989.

Analysts say that these three documents laid the foundation for China's market-oriented reforms over the past three decades that have propelled China from a backwater to the world's second largest economy.

"The political leaders at the time believed that reform was decisive to China's development and so they routinely assigned a top political leader to lead the reform crusade," Xu Ping , professor with the department of Party Literature and History at the Central Party School, says.

Xu says reform has taken a backseat since the mid-1990s because many party leaders believed that a state-guided market economy - or the "socialist market economy" as it was officially known - was already established.

The downgrading of the reform agency in 2003 has been criticised by economists and scholars, who point out that it reflected the ignorance over reform of the administration under former president Hu Jintao and premier Wen Jiabao .

Since 2012 a number of prominent economists have made public calls for a new reform body led at the highest levels in order to restart reforms they believe have largely stalled in the past decade.

They argued that such a reform body should take over responsibilities from the NDRC, which they said was not qualified to pursue real reform due to the conflict of interest over its existing function of regulating the market and managing the economy. Many economists also believe the NDRC is too junior in the hierarchy to mandate China's reform drive, which will require action to scrap privileges enjoyed by many powerful interest groups and agencies.

In any case, the future role of the NDRC in implementing reform won't be known until the National People's Congress in March.

Xi in Shenzhen. Photo: Xinhua
The idea of a high level reform agency also received support from a group of the country's most prominent economists, including Zhang Weiying of Peking University and Wu Jinglian of the Development Research Centre, at last year's Chinese Economists 50 Forum in Beijing. At the time, Zhang and others also proposed that the new agency be headed up by Xi or Premier Li Keqiang .

Analysts noted that the decision to upgrade the agency to a "leading group" is part of the new leadership's plan for economic and social reforms, which have been hailed as the boldest in nearly three decades.

Xu at the Central Party School says the move shows that Xi and Li now realise the imperative for change is greater today in China than at any point since the end of the Cultural Revolution.

"Just as late leader Deng Xiaoping seized on the precarious circumstances in the late 1970s to launch China's reform and open policy, the new leadership must do the same to avoid faltering growth and avert social instability," says Xu. "The decades-long model of state investment-led growth is unsustainable."

While all political leaders in the country agree on the need to restructure the system, Xu says they often differ in the views on the "pace, intensity, and depth" of such reform. That's why strong political leadership to drive reform has become imperative.

Louis Kuijs, China economist with Standard Chartered Bank, says the idea behind the agency was "to overcome obstacles to reform stemming from China's consensus-driven policy making process, with different ministries, agencies and interest groups all having to 'sign off' on reforms.

"This has often meant that policymaking took the path of least resistance, towards measures that did not face strong resistance from vested interests. If the [new] group has the right measure of clout and mandate, it could possibly speed up politically difficult reforms desired by the leadership in the coming years," Kuijs said.

Ting Lu, chief China economist with Bank of America Merrill Lynch, says establishing the new reform group was one of the few moves made by President Xi tocentralise control of the state by taking away power from local governments and ministries.

Lu says more centralised control could help deliver economic and social reforms in the face of social and political constraints, but he warns that trusting political centralisation to foster fair competition may be naive. "For such a vast country with a 1.3 billion population and huge regional diversities, the benefits of centralisation could be uncertain in some aspects," Lu says.



Deng Xiaoping launches the country on its path of reform and opens it to the outside world.

State Council sets up the Office for Restructuring the Economic System (SCORES) to plan economic reform.

National People's Congress establishes the State Commission for Economic Restructuring.

Under Premier Zhao Ziyang the commission introduces reforms in urban areas.

The commission drafts policy on deregulation of government control on wages and prices.

Deng Xiaoping's "southern tour" triggers a period of economic reform following the stagnation after the military crackdown on the democracy movement in 1989.

Commission drafts blueprints for the introduction of a "socialist market economy".

The State Commission for Economic Restructuring is downsized to an "office".

Premier Zhu Rongji plays a key role in pushing through the "socialist market economy".

The reform "office" merges with the National Development and Reform Commission, becoming a "department".

Economic reform takes a back seat as many party leaders believe the socialist market economy is already established.

Newly elected leader Xi Jinping visits Shenzhen, mimicking Deng Xiaoping's 1992 "southern tour".

Xi named as head of upgraded reform agency, the "Leading Group for Overall Reform".

This article appeared in the South China Morning Post print edition as: Steering a course for change