China seeks economic reform proposals

WITH JUST weeks to go until a once-in-a-decade leadership change, China’s leaders have called on the country’s main research institutes to come up with proposals for cutting back the state-owned enterprises that dominate the economy.

The think tanks have also been asked to find ways to free up the setting of interest rates and making the yuan currency more convertible internationally, as well as freeing up state control of land and basic resources.

The transition at the top of the Communist Party will begin on November 8th, at the party’s 18th congress, when vice-president Xi Jinping, who visited Ireland earlier this year, is widely expected to take over from Hu Jintao as president, with Li Keqiang replacing Wen Jiabao as premier.

Diplomatic sources said Mr Xi has commissioned from the think tanks a number of studies on how to reform the economy, but it is not clear how much influence they will have.

China has had double-digit economic expansion for more than three decades following the reforms of former supreme leader Deng Xiaoping, but the current administration has delayed what analysts see as necessary liberalisations to the economy.

As Mr Hu and Mr Wen leave office, China is experiencing its weakest growth in 13 years.

A priority is finding ways to restrict state interference in the economy.

There are 100,000 state-owned enterprises in China and they have preferred status when it comes to getting loans and winning government contracts, something about which European firms operating in China consistently complain.

Other reforms include allowing the market to set the cost of bank credit, land and various natural resources.

“China is approaching a stage when the government must embrace more fundamental reforms,” Shi Xiaomin, vice-president of the China Society of Economic Reform – a think tank under the National Development and Reform Commission, the top economic planning body – told Reuters news agency.

But some of the think tank heads fear that last week’s GDP data, which saw a possible bottoming out of the economic slowdown, might lead the incoming leadership to again delay reforms.

Industrial production, retail sales and investment data were all slightly ahead of forecasts in September and quarterly GDP growth was strong, suggesting the worst may be over and the world’s second-biggest economy could revive in the final quarter.

“They may have to change if there is an economic crisis, but they may choose to muddle through if the economy recovers,” one analyst at a government think tank said, requesting anonymity.

Li Keqiang has also been talking reform, saying China’s industrial structure should be upgraded, that more support for small and medium-sized enterprises was needed and that there should be a reduction in the tax burden for small businesses.