Is reform dead in China? Trump’s trade war may be breathing life back into the cause
Deng Yuwen says China’s economic reforms have stagnated as Beijing does not have the will to wade into political reform and further marketise the economy. However, the trade war with the US might give China the push it needs to change things
The China Economists 50 Forum is an academic organisation with the mission of advancing China’s reforms. Its members basically include China’s top economics scholars, as well as retired and incumbent senior officials who are also academics – Liu is one of them.
In general, officials at the vice-premier level do not attend or participate in non-official seminars. This is not only a question of time and itinerary, but also because the outside world ascribes political motivations to the officials’ actions and activities. If they attend a seminar, it shows the seminar has a political purpose that needs to be highlighted by their attendance.
And this is how Liu’s participation in the China Economists 50 Forum was seen. At the seminar, the top scholars spoke boldly of reform, different in tone from official propaganda. If these words had been spoken by an outside scholar, or an unimportant scholar inside the system, they would have sounded like grievances. But these scholars are deeply involved in China’s economic decision-making – some of the scholar-officials were or are policymakers – and the same words spoken by them gained a different meaning.
Considering he was Liu’s deputy at the Central Leading Group, Yang’s relatively complete proposal could, to some extent, be regarded as an expression of Liu’s views. However, it would still be a stretch to interpret the seminar as a signal that China is restarting its reforms. At best, it was a gathering of scholars and officials who are dissatisfied with the current situation and hope Beijing will undertake what they believe to be real reforms.
But there is great uncertainty about whether Beijing will accept their suggestions, and how far China’s reforms can go. We won’t know until the end of the year, the reason being that, at the moment, Beijing does not have the will to undertake political reform.
The question of political reform was sidestepped by the top scholars at the seminar, probably because they realised it could not be discussed and it would be useless to talk about it. Yet, they all know it is impossible to carry out real economic reforms without making political changes. Authoritarian power is not compatible with the market economy, and ultimately compromises market efficiency.
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A key item in Yang’s proposal called for the reduction of the government’s power to allocate resources, which is not about to happen soon, considering the state of China’s reforms in recent years.
Moreover, the party is more powerful than the government now, and controls everything; the behind-the-scenes power to decide resource allocation has already been transferred from the government to the party. Under the circumstances, anyone who wants to reform the party system will be accused by rivals of weakening the party’s leadership, and this is a political risk those reform-minded senior officials are unwilling to take. Also, the supreme power has shown no sign of willingness to reform the party.
Similarly, if the party and the government’s functions stay unchanged, party-controlled, state-owned enterprises will not be able to marketise and become more efficient. To survive and develop, these SOEs will then rely further on national support, squeezing the development space for the private economy.
Having said that, reforms are not a lost cause. Facing external pressure from the trade war with the United States, the Chinese authorities may have no choice but to make limited reforms.
To avoid social unrest, the authorities could respond with reforms: relax their control of the economy, curb the expansion pace of SOEs, and allow the private economy to develop more rapidly. As part of a plan to support people’s livelihoods, tax cuts should be implemented, the government should be trimmed, and incomes lifted. The economy should be driven by domestic demand and rely less on external markets.
Such reforms are very likely. And although reforms of this kind cannot solve China’s fundamental problems and meet people’s demands for democracy, they would release the vitality of Chinese society, resolve the difficulties created by the trade war and tide Beijing over.
From this perspective, Trump may be the greatest midwife of China’s reforms.
Deng Yuwen is an independent political commentator and international relations scholar. This article is translated from Chinese