Instead of waking from a dream, Chinese people woke to one in the early days of 2013. And that dream wasn’t their own, but rather a reverie crafted by the ruling communist party.
Late on January 2, Guangdong province’s propaganda department tossed out a front page editorial in Southern Weekly titled “Dream of Constitutionalism,” which called for greater rule of law to accompany economic progress. The following morning, readers of the newspaper, one of China’s most respected, found no trace of the original New Year’s message. In its place was the benign musing of the provincial cadres labelled “Chasing Dreams,” which had traded in its angst for party praise.
Who knew that by the end of 2013 the state version of the Chinese dream would have exploded across the country. As the year drew to a close, poster boards advertising the idea cluttered street corners in China’s cities big and small. Inked in calligraphy, the government has tied moralistic themes and fantasies of harmony into what they say the people of China envision for the future.
Still, for average citizens, the details of this state-designed dream escape them in waking life.
“The Chinese dream?” ponders one Shanghai cabby when asked for a definition of the term. “Look it up on the internet. I think you can find it there.”
That’s not to say it isn’t real. In fact, for the new leadership team that took power of the country in early 2013, the Chinese dream is already unrolling before their eyes in the form of policy and reform. As new communist party boss Xi Jinping and Premier Li Keqiang push ahead with these efforts – much of which was unimaginable a few decades ago – they will need to make sure their dream for China is meaningful to the masses.
Restless sleep
Xi and Li dream of deleveraging. That is, the new administration wants to reduce the country’s debt-to-GDP ratio, as well as rising debt levels at corporations, before it’s too late.
To end the old year with a bang, China published the results of a nationwide government debt audit on Monday. The report from the National Audit Office showed that local government debt stood at US$2.84 trillion, putting the ratio of local government debt-to-GDP at 31.5% in mid-2013. That rate has jumped 67% since the end of 2010, a worrying increase that could threaten the country’s domestic financial stability if not slowed.
The increase in the debt ratio since 2010 in county governments was particularly distressing: The level surged by 77% during the past 3 years.
China’s debt isn’t all weighted in the government sector. Chinese corporations have a debt-to-GDP ratio of up to 115%, higher than most developed nations. In the coming year, the Chinese government may allow weak corporates to default on bond payments as the interest and principle owed in 2014 will increase 20% year-on-year to US$417 billion.
“The core of reform is to deleverage Chinese companies and to deleverage the economy all together,” a senior official at China Chengxin International Credit Rating said at a conference in Shanghai in December.
One response – and a hallmark of change in 2013 – has been the tight stance the People’s Bank of China has taken on credit growth. Starting in June, the central bank has held off several times from pumping cash into money markets. While some analysts have said this is helping slow down bank lending, others have decried the move, which has pushed interbank rates sky high and caused two severe cash crunches.
That volatility has kept many investors in China’s stock market wide awake at night.
Cache of reforms
Beijing’s new dream for reform goes far beyond reining in credit growth. Hu Jintao, the top leader who stepped down as president in March, may have daydreamed of state-engineered growth. Xi is dreaming of a robust market and financial system.
The past year marked one of the biggest pushes for economic reform in two decades. Among them, state-owned enterprise (SOE) will likely be forced to start playing by market rules.
State banks have shoveled cheap cash at the massive but inefficient firms for years. The government has also allocated to them land and other inputs on the cheap or even for free. But a document issued at the Third Plenum, 2013’s most important political summit, said in the future the market will play a “decisive role” in allocating these resources.
That same document was a cache of long-needed reforms, ranging from capital markets and land sales to the one-child policy and banking practice. In the coming year, leaders will need to act on this. On some points they already have.
Premier Li has a dream of his own: To put the Shanghai free trade zone in working order. The zone, announced in July, is expected to give foreign companies many privileges enjoyed by domestic firms. It could also be the spot where the renminbi is first liberalized.
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