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Five Challenges Ahead For China’s Next Round Of Reforms – OpEd

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By Anbound Malaysia*

Last July 5, a top-level meeting reviewing the reform of Communist Party of China (CPC) and state institutions was held in Beijing. As the highest leader of the Party, military and the central government, Chinese President, Xi Jinping, articulated four priorities for the three administrative pillars in modernizing China’s system and capacity for governance for the coming years. At a glance, all these priorities are related to the relevance and effectiveness of the CCP as well as the state and sub-state governments, in tackling the unprecedented challenges at both external and internal fronts.

In general, China is a huge country that is beset with multi-faceted disparities in its domestic economic development. But with the trade war at sight, the external environment to which China belonged and excelled in the past, is no longer the same as before. At the same time, these internal and external challenges have become more inter-twined with each other and thus, adding the difficulty of reform for Beijing. As pointed out by the recent Central Reform Conference in last January, the reconstruction of the organizational structure and the adjustment of institutional functions only solved the superficial problems impeding reform while the fundamental ones affecting the functionalities of the Party and the Chinese governmental institutions, were left unresolved by the Chinese central leadership.  

From the perspective of public policy research, China’s next round of reforms will face five challenges in the future. The first challenge is how China would push for further reforms beyond the organizational restructuring of the CPC and the central government. This entailed transforming China’s export-oriented economy into a consumption-driven one that could help the country weathered through its own economic slowdown as well as the impacts from the trade war with the US. 

As of now, the current progress of reform is inadequate in helping China to secure its advantage in the global competition for foreign capitals. The advantage could only be secured if Beijing takes a step forward in its institutionalization of the rule of law and ensure that it really safeguards the interests of foreign investors in the country. This in turn, will be pivotal for China to continue attracting foreign capitals in this challenging global economic order. In all, China’s new round of reforms should focus on liberalizing its domestic market, promoting market-oriented reforms in the economy and exacerbating the construction of the rule of law within the party and the central government. 

The second challenge then, will be on how to stimulate interests and enthusiasms of the Chinese society and the local governments in the top-down reform agenda and gaining value-added experiences from their participations. One of the success factors of China’s reform and opening-up over the past four decades is the participation of the whole Chinese society and local governments in this historic cause. To date, prevailing China’s reform has deviated from such cause with the Party and the central government taking charge while the society and local governments remained to be passive implementers (especially without incentive mechanism at place). In other words, the participations of local governments at all levels are relatively limited whereas the Chinese society is not even involved within such reform agenda. Given these shortcomings, a slew of measures has to be carried out to stimulate the interests and enthusiasms of both the Chinese society and local governments in involving themselves in such reform agenda. Also, a greater degree of tolerance should be allowed for these sub-state and non-state actors to experiment reforms in their respective domains which could be replicated nationwide.  

The third challenge will be the question of how fast China could enact its market-oriented reforms that would respond to the external-internal challenges it is facing now. From the country’s experiences since 1978, market-oriented reforms remained to be the main driving force for China’s reform and opening-up. Not only the nation excels in its market-oriented economic reforms as compared to other non-market ones, the former has the capacity to spur economic growth and elevating the livelihood of the people at large. These are but two of the main objectives identified by the CPC as well as the Chinese central government which became the historical facts of the success case of China’s reform and opening-up. 

Aside from these two facts, market-oriented reforms are also directly correlated to China’s overall development. When the market-oriented reforms are progressing, China’s pace of economic development is rapid while social contradictions within the Chinese society are significantly lessened. On the contrary, when the market-oriented reforms are slow or even stagnate, China’s economic development often enters a period of high social contradictions up to the point that its overall reform is being jeopardized in the first place. Henceforth, it is not an exaggeration to claim that the pace of market-oriented reforms will decide the fate of the overall reform in China.

The fourth challenge is whether the Chinese central leadership has the political will to enact painful institutional reforms and able to withstand their impacts in the coming years. Again, the past experiences have shown that institutional reforms led to economic “dividends” to the country and one of the best examples is the household joint production contract responsibility system in the rural areas. In today’s China, such economic “dividends” have been diminishing as the initial institutional reforms that started since 1978, virtually ran out of its course.

What is left are mostly high-end institutional reforms which are painful to implement in the first place. But with the deepening of economic development and opening-up to the outside world from the past three decades, China’s economic and social structures are changing and these changes demanded new round of institutional reforms that could spur the second largest economy into another wave of economic development. By all means, architecting such new round of reforms will test the Chinese central leadership’s political will as well as its ability to withstand any unprecedented impacts from such reforms. 

Finally, the last challenge is for China to recognize what it could learn from the developed countries that is replicable for its next round of reforms. As witnessed from the Chinese experiences since 1978, reform and opening-up are inseparable entities that affect each other. With a challenging external environment that threatened globalization at large, it is even more imperative for China now to link its domestic reform agenda with the current global economic climate (to which it is a major state actor). For one, China should recognize the multi-faceted problems of its own economic development and learn from developed countries on ways to tackle them or else, they will continue to be the major impediments for the nation’s leap towards the advanced country status. 

*Anbound Malaysia is part of Anbound China, a leading independent think tank based in Beijing. The think tank is also a consultancy firm working with the corporate players in China-ASEAN cooperation. For any feedback, please contact: [email protected] (This article was written on 13 July 2019)


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Anbound

Anbound

Anbound Consulting (Anbound) is an independent Think Tank with the headquarter based in Beijing. Established in 1993, Anbound specializes in public policy research, and enjoys a professional reputation in the areas of strategic forecasting, policy solutions and risk analysis. Anbound's research findings are widely recognized and create a deep interest within public media, academics and experts who are also providing consulting service to the State Council of China.

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