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Asia

China: Yes to reforms - but only in the economy

What are China's plans for reform? A conference of the Central Committee of the Communist Party this week promises some answers, and a paper published by a government think tank provides some clues.

A year after a new generation of leaders took over the Communist Party of China (CPC), it seems like the country might be facing a wave of reforms. There's been speculation for a while now that the Third Plenary Session of CPC's central committee, which is currently taking place (09.-12.11.2013) in Beijing, is a springboard for major reforms.

Before the plenum, the Research Center for Development - a think tank reporting to the Council of State - submitted a reform paper, the content of which may determine the agenda of the plenum. The proposals encompass eight sections, from finances, foreign trade, land use rights and questions of social insurance, to innovation and the tax system. The general tendency of the paper is: more market, less state.

The Yuan as global currency?

The goal of establishing the Chinese currency in the next ten years as a global currency could be of international importance. The authors want the renminbi to be not just an accounting unit for trade and investment, but a full-blown international reserve currency.

Beschreibung: Doris Fischer ist Professorin für China Business and Economics an der Universität Würzburg. Datum: 28.02.2013 Copyright: Deutsche Institut für Entwicklungspolitik / German Development Institute (DIE) via: DW/ Luisa Frey DW Akademie

Doris Fischer is skeptical about the implementation of the reforms

For Doris Fischer of the University of Würzburg this strategy is not entirely new and in principle the goal is not unrealistic. But the prerequisites have not yet been met: "Whether the Chinese currency is accepted as a global, reserve currency also depends on the rest of the world. And it obviously also depends on the development of the Chinese economyand how confidence in the Chinese economy develops," said Fischer in an interview with DW.

For one thing, Chinese banks are not yet ready for the international financial markets. There need to be profound reforms of the banks before the Chinese currency could be fully convertible and freely negotiable. Doris Fischer compares the dominant Chinese state banks with huge ocean tankers which are not prepared for the stormy waters of international competition, just because they've always been well protected by the government.

The newly established Shanghai free tradezone is seen as a testing ground for the convertibility of the yuan. It is still unknown to what extent it will be possible to exchange the yuan in the zone. It looks as if China is acting according to an old Chinese proverb: "Cross the river by feeling for the stepping-stones."

Resistance from lobby groups

It seems likely that ending the state monopoly in the areas of railway, energy and telecommunication will be tackled in the same cautious way. The reform paper proposes to establish competition in these branches via a controlled process. Doris Fischer is skeptical as to whether the new leaders are strong enough to enforce these plans: "People and cliques who are prospering in the current system are backing it. The proposals are ambitious, but I doubt that the reforms will be implemented entirely any time soon."

Chinese migrant workers pass a parked car with a bicycle in central Beijing, China, 30 March 2008. China's factory and property investment rose 23.4 per cent during the first two months of 2008, according to the National Bureau of Statistics. China's rapid economic growth has raised speculation of potential overheating. During 2007 China's economy grew at the fastest rate in 13 years, a staggering growth of 11.4 per cent. Foto: EPA/OLIVER WEIKEN +++(c) dpa - Report+++

China's rural population has not yet benefitted from the economic boom

The reforms in the social sectors face less resistance. There's no question that reforms are needed. The growing gap between rich and poor is causing social tension. People, mostly from rural areas, have not yet benefitted from the economic boom.

Land reforms and social insurance

Among other things, the reform paper proposes a land reform which would allow farmers to collectively sell their land. The government would have to pay market prices for land it wanted to expropriate.

For the Chinese economist Cao Siyuan this is a good approach: "Why are farmers leading such a miserable life? Because they cannot cash in on their land," he says. "Until now the authorities have paid a low price to the farmers for their land and have sold it on for astronomical amounts to real estate companies." Higher compensation for the farmers could ease the tensions caused by expropriation.

epa03893666 Chinese President Xi Jinping (L) delivers a speech to the Indonesian parliament in Jakarta, Indonesia, 03 October 2013. Xi called on countries in the region to move beyond the mindset of the Cold War and work together for peace and security, in the first speech by a foreign leader to the Indonesian parliament. China was ready to negotiate with members of the Association of the South-East Asian Nations (ASEAN) for the sake of 'good neighbourliness and friendship,' he said. EPA/BAGUS INDAHONO +++(c) dpa - Bildfunk+++

China's President Xi Jinping and the ruling elite will be discussing reforms in Beijing

Another reform proposal is the elimination of the "hukou" system, a registration system which effectively divides the population into urban and rural populations. People moving from the countryside into the cities have no social security. Social benefits like schooling for the children and health care are only available where a person has their "hukou". This is a major problem for the nearly 200 million migrant workers. The think tank proposes a national social security system, in which every citizen should receive an insurance card and with it nationwide access to social benefits.

No democratic reforms

It is not clear how much of the proposed reforms will really be implemented. At least one of the authors, Lui He, is a close economic adviser to party leader and president, Xi Jinping.

Cao Siyuan, who worked in the State Council's Research Center in the 80s and now has his own think tank, sees it as a critical problems that the report includes no political reforms towards more democracy and the rule of law. "Political and economic reforms are like two legs," he says. "If you only step ahead with one leg and the second leg drags along behind you, you'll stumble."

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