The November Economic Plenum, Shanghai’s Free Trade Area – change is in the wind

I would say that, in the lead up to the November Economic Plenum of the Communist Party Central Committee, there are two lines, two points of view.

But first let me say that every 10 years the first Economic Plenum after the change of leadership is the time the economic line is settled, and so this year is just such a 10th anniversary occasion.

10 years ago not much turned on new issues – entry into WTO and the dissolution of thousands of SOE’s was already happening and the low cost export led economy based on the East Coast – known as the coastal policy – was already in full swing – Zhu Rongzhi had laid all the foundations and the new President Hu and Premier Wen had most of their course already mapped.

20 and 30 years ago it was more of a fight for the right line, but, in the end, the changes were agreed and China motored towards its new export led destiny.

So today one issue is settled – China will proceed, after many experiments over the last 10 years, to a domestic consumption model, using investment and personal consumption as the engines arising largely from urbanising 400 million people.

So what is the two-line struggle? And what significance for foreign business and policy makers?

The core of the difference is around the private sector and how much space and share it should be given of the market and resources, and how much decisions should be based on their interests. The arguments are quite compelling and sound very good – they are about the bureaucracy of the SOE’s and their waste and lack of adherence to market pressures etc etc. The World Bank and others in China, itself, push that line.

The argument is not about deepening capital markets or making the Renminbi convertible, or revaluing the Renminbi to attract low cost imports, especially from Asia, Africa and other developing nations.

The argument is about the dangers of capitalism that have been amply demonstrated in the West when the private sector is allowed too much scope. In China the “other line” argues that the development of a shareholder based corporate sector needs to be done gradually and without risking imbalance and short term approaches.

I am fairly confident that President Xi stands for a gradual approach and one linked closely to the development of the Chinese Dream, where the Chinese approach of the last 35 years is maintained – of “feeling the stones as they cross the river”. This saying does not mean they do not know where they are going. They do and have clear targets and images of China by 2021 and 2049. It is about the speed of moving there and being sure before you take risks of bigger steps.

The Shanghai Free Trade Zone is a trial of what China might develop. It serves as a test of what applying to join TPPA might mean. It is like the Shenzen Zone of 1980 – a statement of intent and a base for testing. Shenzen took a few years to click and transform, and look at it now.

Expect the same from Shanghai.

But now is the time for corporates to think global in their ideas about China strategies – China is not going to be contained and will be global. Those who hide from that will suffer. Those who embrace change and progress will prosper.

For policy makers you are entering the last phase when you can develop a new global architecture. China has much to gain from building regional organisations inter-linking and making disputes redundant, other than as matters for diplomats or panels to settle. China is leading the way with BRICS Bank, Asian Infrastructure Bank and many other initiatives. These moves are not threats – the demonstrate China’s acceptance of regional and international structures to enable nations to grow collegiately and peacefully. It is Europe who has the most to give, in terms of good and bad experience, that is standing on the sidelines.

The two-line struggle was initially settled last August when China contested the differing paths, leading to the reappearance of Jiang Zemin and the appointment of President Xi. So again this November I would wager that those who want a private sector China in the ascendancy will have to wait for time and experience to prove their case.

But I could be wrong and in December I could be telling a different story.

 



Categories: Exports, Policy, Private sector

Tags: ,

1 reply

  1. Stephen is always excellent at pointing us at the history of policy-making in China, so that any current debate is seen in the proper context. Tomorrow Lord Davidson of Glen Cova QC, Shadow Labour Treasury spokesman in the House of Lords, will be speaking at the Confucius Institute for Scotland at the University of Edinburgh on the future of the Renminbi.It will be fascinating to see whether his arguments are located within Stephen’s lucid framework.

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