China's leaders promise bigger role for free market

BEIJING, China – China’s leaders Tuesday promised a bigger role for the free market in the country’s state-dominated economy as they try to overhaul a worn-out growth model.

In a brief statement issued following a four-day meeting aimed at producing a reform blueprint for the coming decade, Communist Party leaders said state ownership will remain a pillar of the economy. But they gave an unusually strong endorsement to Chinese private businesses, saying they also are “important components” of the economy.

The statement carried by the official Xinhua News Agency gave no indication the meeting considered any political reforms in China’s closed, secretive one-party system.

Chinese leaders are under pressure to replace a growth model based on exports and investment that delivered three decades of rapid expansion but has run out of steam. Reform advocates say Beijing should open an array of government-controlled industries to private competition, but any moves to curb the privileges of politically favoured state companies are likely to face resistance.

Tuesday’s statement said the party will set up a group to “deepen reforms” and gave no indication when more changes might be approved. That suggested party leaders, as many observers expected, agreed on broad themes but left most of the details for later and put off potential battles over explosive issues such as the status of state-owned industries.

Still, the statement promised in broad terms to promote markets, which would give an advantage to more nimble, efficient private competitors. Xinhua said the official status of the market would be elevated from the “core role” it has played over the past two decades to a “decisive role” in allocating resources.

Another key area that reformers say is ripe for change is control of land but there was no immediate sign the party leaders took up that thorny issue.

All land in China is owned by the state. Farmers are tenants who cannot mortgage or rent their land to buy better seeds and technology. Giving them ownership or at least more control would unlock wealth in the countryside but also might jolt real estate markets and affect local governments that rely on sales of land use rights for revenue.

Because of that, some analysts said land reform is likely to be left until later.

Before the meeting, Communist leaders raised hopes and the political stakes by promising “unprecedented” reforms.

The meeting was seen as symbolically significant because it was the 205-member Central Committee’s third plenum — or full meeting — of the party’s 18th congress. Such meetings at this point in the party’s five-year political cycle are seen as a launching pad for changes in economic direction after Deng Xiaoping used a third plenum in 1978 to unveil his reforms.

The plenum offered a platform for President Xi Jinping, who became party leader last year, to make clear his own vision for the world’s second-largest economy.

Communist leaders have been trying to make the economy more efficient and productive by gradually injecting more market forces into areas such as bank lending. Regulators eliminated controls on interest rates charges on commercial loans in July in a move that ultimately will lower costs for more competitive borrowers with stronger credit records.

Pressure for change has mounted as economic growth tumbled to a two-decade low of 7.5 per cent in second quarter of this year. Beijing propped up growth with a mini-stimulus of higher spending on railway construction and other public works but Premier Li Keqiang, the top economic official, has said the leadership wants to focus on longer-term reforms.

The statement carried by Xinhua gave no indication whether party leaders agreed on any change in the status of government companies that control vast swathes of the economy including banking, energy and telecommunications.

The government still dominates China’s economy three decades after Deng’s market-style reforms set its boom in motion. The state owns all land and controls industries including banking, energy and telecommunications. Entrepreneurs who create China’s new jobs and wealth have trouble getting bank loans.

Xinhua said party leaders also called for ensuring people’s livelihood and social stability. That would include both more spending on welfare programs to ease political tensions and more intensive monitoring and policing to defuse ethnic unrest or potential political dissent.

The statement said economic reform will be “the key of overall deepening of reform.”

It called for improving the relationship between government and market. That refers to efforts to make the economy more efficient and productive by having the government act as a regulator of free-market competition while withdrawing from making commercial decisions.

“The core is to handle the relationship between government and market, and let the market play the decisive role in allocating resources, and to better play the governmental role,” it said.

The statement said a National Security Council would be established to “perfect the national security system and national security strategy and safeguard national security.”

If patterned on the U.S. National Security Council, it would serve as the principal forum for the president to take advice from intelligence, military, police and other advisers, potentially alleviating a chronic problem among Chinese agencies of not sharing information.

China has the world’s second-largest defence budget, although it is exceeded by spending on the police and other internal security measures. Anger over land grabs and simmering unrest in Tibet and Xinjiang are the main internal threats, while the ruling party is obsessed with critics among the rising middle class and a lack of discipline in its own ranks.

Externally, China is engaged in bitter territorial disputes with Japan, the Philippines and others, along with potential instability along its border with impoverished, isolated North Korea.

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