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Slaughter & Rees Report - Plenum, Anyone?

November 25, 2013 --

A meeting called the Third Plenum of the Central Committee might not set your pulse racing. For the global economy, however, this four-day meeting that ended a little over a week ago in Beijing was one of the most important gatherings of the year—and perhaps beyond.

Convened by the new Chinese President Xi Jinping, this closed-door gathering of roughly 200 top leaders of the Chinese Communist Party focused on future economic policy in China. Many in attendance recognize that past cannot be prologue. As we discussed in an earlier report, China is seeing slower economic growth—a byproduct of the government running business and stifling labor-force growth by the One-Child Policy. Top government leaders rightly fret about social unrest—or worse—triggered by sluggish economic growth creating not enough jobs and not enough income growth.

Shortly before leaving office, former President Hu Jintao declared that, “China suffers a serious lack of balance, coordination, and sustainability in its development. We must accelerate a strategic adjustment in the economic structure.” More ominously, outgoing Premier Wen Jiabao last year forewarned that, “The gains we have made in reform and development may be lost, new problems that have cropped up in China’s society cannot be fundamentally resolved and such historical tragedy as the Cultural Revolution may happen again.”

So, did Plenum officials agree on a plan to avoid another Cultural Revolution? Well, maybe. Par for this course, the post-Plenum communique was not a Strunk-and-White paragon of clarity. It nodded to the fundamental challenge: “The core issue is properly handling the relationship between the government and markets.” It then equivocated with the difficult-to-parse proclamation, “Give markets a decisive role in resource allocation and give better play to the role of government”—although the adjective “decisive” was an upgrade from the past default “basic,” a change that President Xi hailed as a “major breakthrough.”

We suggest two takeaways from the Plenum, one specific to China and the second to other world governments.

First, the Plenum left many encouraging signs that China will continue policy reform to sustain economic growth—but it will be piecemeal, consistent with the past 35 years of crossing the river by feeling the stones. The One-Child policy is to be curtailed—but only for couples in which (at least) one parent was an only child. Foreign investors are to be accorded more equal treatment—but not in several still-protected sectors such as defense. State-owned enterprises are to be made more efficient, with more funds diverted to support the country’s social safety net—but the basic structure of SOEs will remain intact in many industries. And, for what it’s worth, not all Plenum pronouncements were encouraging. Did anyone really need a call from behind the “greenwall” for standardizing Internet supervision?

Second, independent of whether Chinese leaders succeed with these newest policy reforms they earn high marks for focusing on the fundamental issues. Eventual outcomes aside, at least the Chinese leaders are deliberating the essential political-economy issues: economic growth, the coexistence of markets and government, income distribution. Yes, big-think Plenums are easier to convene in one-party autocracies. But they are not impossible to convene elsewhere. Far too few other world leaders, careening from one short-term partisan squabble to the next, are similarly engaged. This is not unrelated to why China’s economic growth, slower and more-uncertain though it may be going forward, remains the envy of so many in the world.

Articles © 2013 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2013 Trustees of Dartmouth College. All rights reserved.

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