China Made Decisions About Market Reforms. We Think.

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Nov. 12 (Bloomberg) -- The meeting of China’s leaders that just wrapped up in Beijing was possibly the most important economic-planning session the world has seen in years. Or perhaps it wasn’t. This being China, it’s hard to say.

By now, China’s leaders understand the reforms the economy needs, and they presumably spent the past few days discussing them -- but you’d hardly know it from the leaden communique issued after the gathering.

Traditionally, after each handover of power, the third full meeting of the Chinese Communist Party’s central committee is a big deal. Before this latest Third Plenum, the government was letting it be known that the session would stand in comparison with the one in 1978 that’s widely -- if misleadingly -- credited with introducing China’s program of market-oriented reforms and delivering more than three decades of astonishing economic growth.

As usual, though, the statement released after the meeting left analysts struggling to uncover meaning in commitments that could turn out to mean nothing. China will henceforth give markets a “decisive” role, the committee said -- albeit in a system in which the state will still be “dominant.” To some commentators, that signaled an acceleration of pro-market reform; to others, a stalling. Another approach was to count the number of times the words “reform” and “socialism” appeared in the statement. (Respectively, 59 times and 28 times: Draw your own conclusion.)

The leadership’s inability to speak plainly to the country about its plans shows how far China’s system still has to travel before it achieves anything resembling political legitimacy: In this regard, in fact, the ruling elite has lately been moving backward -- for instance, by tightening its repression of dissident voices. On the other hand, invoking China’s pro-market revolution of the late 1970s hardly signals complacency, let alone a desire to turn back the clock.

President Xi Jinping and his comrades plainly understand that China’s growth will fade and resistance to their leadership will increase unless corruption is curbed and the economy is rebalanced away from unprofitable state-directed investment and toward higher consumption and faster improvement of living standards. A growing role for market forces would achieve these shifts -- but it would also undermine the power and privileges of the elite and risk short-term economic disruption.

Beijing is aware. A recent report co-written by the World Bank and China’s state-sponsored Development Research Center channeled advice that might have come from any champion of market capitalism. It called on the government to “implement structural reforms to strengthen the foundations for a market-based economy by redefining the role of government; reforming and restructuring state enterprises and banks; promoting competition; and deepening reforms in the land, labor and financial markets.” Yet China’s leaders have conservative instincts. They seek stability first. It’s a matter of (their own) survival.

It’s quite a dilemma. The government needs rapid growth to contain what would otherwise be increasing discontent; however, rapid growth, by its very nature, is politically destabilizing. The compromise lately has been cautious, sometimes grudging economic reform.

Over the coming weeks and months, as specific policies are announced, the intended pace of the next phase of political and economic reform will become clearer. For the country’s sake, there’s little question that faster would be best. For the sake of the country’s current leaders, that isn’t so obvious.

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