China Pledges to Increase Market Role in Economy

14 November 2013

In a landmark move, Chinese leaders announced on Tuesday that the market will now play a "decisive role" in the economy, following a major meeting that is expected to set the tone for the country's policies in the coming decade.

The meeting, formally known as the Third Plenum of the 18th Central Committee of the Communist Party, brought together over 200 senior Chinese officials for four days of closed-door meetings in Beijing.

"The core issue is to properly deal with the relationship between government and market, and to let the market play a decisive role in allocating resources and to better perform the functions of government," Tuesday's communique said, according to reports by Chinese state media.

Analysts have been quick to note the change in rhetoric compared to previous plenums, where markets had been deemed to have only a "basic" role. The establishment of 2020 as a clear deadline for "decisive outcomes" with regards to the economy is another unusual step, they say.

Details on what shape such reforms might take remained vague, as is common in such documents, with these expected to be made slightly clearer in the coming days or weeks as government ministries begin their implementation processes.

New leadership

This week's plenum has drawn particularly notice given that the Asian economic giant, which ranks as the world's second largest economy and one of the biggest traders, embarked on a once-in-a-decade leadership transition this past March that saw Xi Jinping and Li Keqiang take on the roles of President and Premier, respectively.

China has also been facing the worrisome possibility of an export slowdown, following a decade of rapid growth, giving the prospect of economic reforms added weight. The weeks leading up to the plenum had been rife with speculation on whether changes in the country's controversial currency or interest rate policies, among other areas, might be announced.

The strict control of the renminbi exchange rate, for instance, has drawn criticism from China's trading partners - particularly the US - for years, with some saying that the currency is undervalued and therefore makes the country's exports artificially cheap compared to their foreign competitiors. Currency policy is not explicitly mentioned in the document, though this does not necessarily rule it out as an area for reform, some say.

State-owned enterprises, another contentious area for China, are expected to continue playing a major role, according to the communique. Commentators have criticised the role of these enterprises, noting that they distort competition as they benefit unduly from state support, including from state-owned banks.

China will also need to lower barriers to investment, the communique said, along with speeding up the establishment of free trade areas. The latter comment comes just two months after the high-profile launch of the Shanghai Free Trade Zone, a pilot project that is set to test out policies such as market-established interest rates.

Tuesday's document also mentions the establishment of a leadership group to oversee these economic reforms, which analysts predict could give Xi the opening to be involved more directly in pushing for change.

Though many have noted that earlier plenums have been similarly vague only later to yield significant changes, others have cautioned that promises of reform have not always lead to substantive follow-through. Thus, observers will be closely watching the extent of implementation of the Plenum's call for change.

ICTSD reporting; "UPDATE 3-China vows ‘decisive' role for markets, results by 2020," REUTERS, 12 November 2013; "China's pledge of big reforms cements era of market forces," FINANCIAL TIMES, 12 November 2013; "China keeps state in driving seat but pledges ‘decisive' reform," FINANCIAL TIMES, 12 November 2013; "Chinese Leader Gets More Sway on the Economy and Security," THE NEW YORK TIMES, 12 November 2013.

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