China’s Leaders Plan Government Revamp as Xi Set to Take Reins

China’s new leaders will this week consider plans to revamp the central government as part of efforts to streamline bureaucracy and boost an economy that’s recovering from the slowest growth in 13 years.

The Communist Party’s 25-member Politburo endorsed draft reforms that will be discussed by the broader Central Committee on Feb. 26-28, the official Xinhua News Agency reported on Feb. 23 without giving details. The changes will be approved at the annual session of the nation’s legislature next month when Li Keqiang, the party’s No. 2, succeeds Wen Jiabao as premier and General Secretary Xi Jinping takes over from Hu Jintao as president.

The revamp is meant to reduce red tape in the world’s second-biggest economy as it grapples with the need to boost consumption and tackle issues including environmental degradation and corruption that are spurring social unrest. Xi and Li, though, will face entrenched interests that may limit their ability to revamp key ministries, said Ding Xueliang, a professor at Hong Kong University of Science and Technology who teaches contemporary Chinese politics.

“Whenever a new leadership takes over, they try to push forward with government restructuring but it’s very difficult because everyone is vying for power and no one wants to give it up,” Ding said. “Xi and Li may only be able to push through a watered-down version of what they want.”

In its Feb. 23 report, Xinhua said Politburo members agreed reform should be carried out in an “active yet prudent, step by step manner.”

Impede Growth

If the changes to the State Council, or Cabinet, go ahead, that might be a “sign that this new leadership know their task now is to produce economic growth through efficiency and not just raw economic activity, and the system as it is will impede that,” said Kerry Brown, a former British diplomat in Beijing who is now a professor of Chinese politics at the University of Sydney.

The State Council is the country’s top executive and administrative body and includes the premier, four vice premiers, five state councilors and ministers in charge of 27 ministries and commissions. Organizations under the State Council include the ministries of defense and finance, the National Development and Reform Commission and People’s Bank of China.

The changes, which will be unveiled during the National People’s Congress that starts in Beijing on March 5, coincides with the completion of a once-a-decade power transfer to a new generation of leaders that started in November. Institutional reforms have been announced every five years since the 1980s.

Super Ministries

The Communist Party has been attempting to adapt the bureaucracy to the changing structure of the economy as it moves from a system based on central planning to one driven by the market.

Changes introduced in 2008 included five new so-called super ministries: the Ministry of Industry and Information Technology; the Ministry of Human Resources and Social Security; the Ministry of Environmental Protection; the Ministry of Housing and Urban-Rural Construction; and the Ministry of Transport. A National Energy Administration was also set up under the NDRC, the top economic planning body, which was stripped of some of its powers.

The scandal-hit Ministry of Railways may be the biggest casualty of the latest revamp.

Caijing magazine said on its website on Feb. 23 it will be merged into the Ministry of Transport. New York-based Duowei News, which accurately predicted in July that the Politburo Standing Committee would be reduced to seven members from nine, said on its website last week that the transport ministry will take over railway construction and network planning, while the railway ministry’s operational units will be separated into a new company.

Food Safety

The breakup of the ministry, a body accused of being run like an independent kingdom, may have been hastened by the July 2011 crash of a high-speed train that killed 40 people and the removal of Minister Liu Zhijun in February that year on allegations of corruption.

Caijing said the Ministry of Civil Affairs may widen its responsibilities over social management and there will be a nationwide reform of food safety.

The country has been rocked by food scandals, most notably in 2008 when infant formula tainted with melamine killed at least six infants and sickened about 300,000 others.

Blame, Punish

The reforms may help the party improve accountability and responsibility, according to Ding. “Whenever there’s a crisis or a scandal, top leaders always face the dilemma of who to blame, who to punish and who will fix the problem,” he said. “So if you want a higher level of administrative efficiency and accountability to you have to make these reforms.”

Institutional reform is needed to support growth, former central bank adviser Li Daokui said at the World Economic Forum in Tianjin, China, in September. “Dividends” from previous institutional reforms are running out, he said.

China’s expansion, which averaged an annual 10.2 percent over the past two decades, may slow to 6.5 percent by 2020 as investment moderates, the population ages and labor supply tightens, JPMorgan Chase & Co. estimated in a Feb. 1 report. The economy grew 7.8 percent in 2012, the least since 1999.

Speaking during November’s Party Congress that saw Xi appointed general secretary, Li Jiange, head of the country’s biggest investment bank, said new leaders must make changes as government intervention, ranging from excessive regulation to rigid price controls, has become “unbearable.”

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net; Nerys Avery in Beijing at navery2@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net;

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