In the aftermath of the National People’s Congress the media has been struggling to characterise the meeting, except for the routine attacks on its form, which is so different from our parties clashing on all fronts. The systems to the core are different, and the way they go about their business is very different, and, to Western frustration, there is no sign of the Chinese moving towards our ways.
This session showed no signs of reforming the NPC process to create more accountability, but that will come after the economic development is further advanced, and after sorting the major power relationships, if they can be sorted.
It also showed that the main featured people were Regulators, and that is a sign of the future key people – regulators.
This session of the NPC showed to me that President Xi is in charge and represents a Party and leadership who are clear that Economic Development to a domestic focused economy, after Stage 1 of low cost exports, is the absolute priority and the transition, which we said would last from 2012 to 2020, is now well under way.
So putting aside the system question, what did we learn from the Congress, or Congresses – the CPPCC sat at the same time?
We knew that growth was going to dip under 7.5pc for the first and, probably, second quarter, so we were not surprised to see a forecast for the year of 7.5pc, indicating a better second half, when programmes of national infrastructure investment would start being released.
But as the conference ended we were treated to a detailed plan to raise the urban population to 60pc by 2020, it being about 50.3pc now. That and major commitments to create full road, rail and air links to all towns and cities with over 500,00 people by 2020, would indicate enough state investment to hold the growth figures at the 7.5pc level through to 2021 the first target year announced back in 1978, to reach a per capita of $20,000 by then.
This is not state investment for the sake of maintaining jobs and growth. It is absolutely necessary infrastructure investment to create a modern economy. Those who criticise the State Investment should realise that it is a sign of China’s health and clarity, and will realise a successful and sound economy.
The development of a welfare system to go alongside a shareholder based market economy, regulated carefully, is in the process of being unfolded, and so are the elements of the New China which will be there to see by 2021.
We learnt that the financial services will be opened up with the private sector creating banks and taking stakes in state owned enterprises. State banks deposits will be guaranteed and non-state not. The amazing sight of trust products and internet banking are freeing the Chinese to a range of options to invest, that are beyond what we can do in the West, where we are trapped in low yielding deposit accounts. We have seen the clamping down on poor lending and schemes which will hurt the investors. At the same time disabling high cost loans protects the vulnerable.
Interest rates and Rumba Rates are being freed to reflect the market pressures, although clearly the State will have the last word in crisis times, or times where foreign capital tries to distort the market, or domestic players try to manipulate rates, especially by arbitrage through Hong Kong. Yes a freely convertible RMB is around the corner but not one that can be hit by speculators.
It is clear that safe banking is a priority for the leadership and that means strong regulation, but the benefits of a new financial landscape will devolve to the people, not the bankers – sound good?
Media carried the story of bond defaults as examples of how the leadership have been forced to accept the market and bad debts. If they examine the past, you can see the hand of Wang Qishan, who allowed bankruptcies in Guangdong in 1999, but on a very selective basis and to make clear who was/is in charge.
I think far from being forced on the leaders they are bringing the chop down to manage the financial markets more clearly – better done by a few in public trouble, than regulations no one would have been prepared to listen to.
Once again Wang Qishan has revealed the financial genius he displayed in the aftermath of the Asian Financial Crisis. While he shook hands and talked with world leaders he was master minding a complete revolution in China’s financial markets, only revealed fully now.
Premier Li also made strong comments about pollution. China is at that stage of its Industrial Revolution that it can, like the UK, now aggressively go after pollution. This is not opportunistic but you need to go through basic industrialisation to be able to develop a more sophisticated and environmentally friendly set of policies. So, here again expect big changes to show through 2-5 years out.
So China’s Congress met and went without causing a stir. But under the surface there were ripples that suggest the Congress will be overhauled, that representatives will become more representative, and accountability of Ministers and Ministries will begin to develop again – they were tested out in 2002-2007. But this does not mean a Western form is about to break out. More of an anti-corruption and transparency move by President Xi to build respect for process and protest.
The changes in China are going to be huge.
Just as no-one noticed in 1978, and again in 1992, not until 2006 when China’s huge trade levels and reserves were seen by the world, so now the changes in China will not be seen by most Western commentators until they are apparent.
But you, my friends, have been given the sense that the Third Way, outlined by Professor Stiglitz, is much closer to the outcome in China than he could ever have expected when he was writing about prescriptions for the West. In fact the Chinese concept of balance and Yin and Yang is a philosophical precursor.
Chinese socialism is a unique blend of capitalism with social justice and strong state regulation and strategic shareholders, building a vibrant market and economy in China, new forms of a Welfare State that do not overpower the State and its tax revenues, making business responsible for its employees’ welfare, and a global footprint which will see us all affected, mainly positively, by the opportunities of a new China.
We will see China open up in a way that none expected except those in China’s leadership in 1964 who knew a new modern economy would have to replace the peasant and agricultural based economy that was already past its sell by date.
It will be there clear by 2021 and then build deeply across the nation over the following 28 years to a plateau by 2049.
There are still entrenched groups who have different priorities but their power is waning as this Congress showed. When push came to shove the Economic Development agenda came through. A period of sustained economic woes, caused by urbanisation errors, or difficulties in reforming agricultural production relationships, could side-track this dynamic, but it currently looks unlikely. They appear, as in the 90’s, to be managing a huge change in their nation’s economy.
The only major near-term destabilising factor that is likely to present a threat of a fundamental nature is American containment of China. There is a price, not small, that China is prepared to pay for that to be ameliorated. But if the U.S.A. pushes too hard China is ready.
So a time of big opportunities and one hopes that China’s Free Trade Zones will merge with American agendas to provide a future based on commerce and interdependence to enable us all to look forward to peace and some prosperity. China is full speed ahead and the clever statesmen and women of the West can catch the opportunity if they hurry.