Expectations of large Reforms in China next weekend

The road map Mr Xi (China’s leader) will submit to the third plenum has been months in the making. It draws on the advice of China’s ministries and the wider network of official research institutes and think-tanks. To knit it together, Mr Xi has appointed Liu He, a thoughtful, reform-minded policy adviser who was educated at Harvard’s Kennedy School and whom Cheng Li of the Brookings Institution once compared to Larry Summers, the academic who became Barack Obama’s economic guru. As a technocrat, Mr Liu has no power to impose his own ideas. But in picking him, Mr Xi clearly endorses some of the things he stands for.

Mr Liu used to work for the Development Research Centre (DRC), an official think-tank serving China’s cabinet. He had a hand in the “China 2030” report published last year by the DRC and the World Bank, which detailed the reforms China would need over the next two decades. In recent days China’s media has been abuzz with another DRC reform plan, known as the “383” plan, which is equally ambitious. It sets out three overarching reform principles (“effective markets require effective states and vice versa” is one), no fewer than eight reform priorities (cutting red tape, breaking up monopolies, reforming land ownership, liberalising finance, reforming the public finances, reforming state-owned enterprises, promoting innovation and opening up to foreign investment) and three broad strategies for achieving them.

The DRC is free to espouse what is desirable without much concern for political feasibility. Mr Liu no longer enjoys that luxury.

The central committee can be expected to endorse the government’s efforts to cut red tape. It will promise to spend more on pensions, health care and affordable housing. It may also raise taxes on natural resources and further liberalise electricity prices. But it is unlikely to take on the fiscal and SOE reforms that are necessary to redress the gross misallocation of capital.

How much rural land reform ?

In August the Chinese press reported that Guangdong had circulated draft regulations that would allow villagers in the province to buy houses from residents of other villages in the same township, and take over the rights to the land underneath. If the rules are adopted, China would have taken at least a baby step towards creating a market for rural housing.

A policy document on rural issues adopted in December 2012 and made public a month later said that by the end of 2017 farmers should be given certificates showing exactly where their fields lie, and that similar certificates for their housing land should be handed out “as soon as possible”. It is going to be a laborious task, with much squabbling and much recourse to satellite-aided surveying. But without demarcations, a well-ordered land market cannot take shape.

Economists expect pretty big reform but likely a disappointment of high expectations

We expect the 2013 Third Plenum to herald significant change: streamlining government, providing sustainable sources of local fiscal resources, creating disciplined budgets that ensure money is well spent, sorting out local government debt, finding ways to allow private-sector participation in infrastructure projects…The core idea behind all these measures is to limit administrative involvement in the economy at the local level, reduce government staffing, limit the ability of local governments to become indebted and push more resources towards social spending. – Stephen Green, Wei Li and Lan Shen, Standard Chartered Bank

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