The Third Plenum has come and just gone, and perhaps the communiqué issued at the close of the event late on Tuesday has raised more questions than some hoped it would answer.
The meeting, running November 9-12, was by most accounts China’s biggest policy event of the year. Major decisions on the long-term economic direction of the country were expected to be made. It dwarfed in importance even the National People’s Congress in March which ushered in the new leadership lineup headed by party supremo Xi Jinping and top technocrat Li Keqiang.
Vague is the keyword on the meeting today. Little was revealed on what the Communist Party’s highest ranking leaders discussed behind closed doors in a heavily guarded Beijing hotel during the four-day gathering. “It would be foolish to rush to a snap judgement” on the plenum at this point, Mark Williams, chief Asia Economist at London-based Capital Economics, said in a note, simply because so little is known about the deliberations.
The message, in the simplest of terms, pointed to a long-term process that should bear some concrete results by 2020. It mentioned establishing a special group within the party structure to press ahead with a reform agenda, diminishing the role of the government in the financial sector and forging major changes in social welfare, education and perhaps even changes to the way farmers sell their land.
Still, many analysts called the communiqué, issued via party mouthpiece Xinhua News Agency, disappointing. Undoubtedly, more will eventually come from the decisions made during the weekend. The “decisive role” for the market that leaders promised in their message will likely trickle down into substantial reform – albeit at a slow, measured pace.
One signal from the group of 415 officials who sat through meeting after meeting was overtly clear: Powerful state-owned enterprise is here to stay. These clunky, often-highly inefficient bastions of the command economy are set to remain the “dominant form of ownership” in China for the foreseeable future, dashing hopes that the plenum would be the impetus for major change in one of China’s biggest obstacles to further development.
“The main disappointment appears to be on SOE reform where the government appears to be treading lightly,” Francis Cheung, China analyst at CLSA Asia-Pacific Markets, said in a note. “The government wants to maintain control and influence on SOEs.”
Powerful figures at state firms are advancing their interests at the expense of those seeking comprehensive reform. Their voices boom loudly in the halls of power.
Party leaders and state-firm executives have capitalized greatly from state monopolies, the lack of free-market competition and the diluting of reform. To break apart state-backed business and lessen its grip over the economy is equal to draining the influence, as well as the bank accounts, of officials that have locked themselves into powerful positions they can’t afford to lose.
The benefits from reforming state enterprise are huge. Currently, these behemoths swallow up credit that could go to more efficient private firms. They close entire sectors off from the participation of innovative, often private, companies, resulting in a subpar service industry and higher prices for end consumers. The firms are also notorious polluters that have successfully fought off government attempts to clean up the country’s heavily degraded environment.
For taxpayers, these firms also offer a poor return on the state’s most valuable assets. They sit on prized resources but fail to maximize the potential gains.
That, after 35 years of reform and opening, the communist party has once again clarified its dedication to state firms is a reminder of the power that vested interests wield behind the scenes. It’s also a reason to be skeptical of pledges for “comprehensively deepening reform.”