Is China’s Third Plenum for Real After All?

After the dust had settled last week from the Communist Party’s Third Plenary Session in Beijing, the commentaries were uniformly sour, saying the pre-conclave hype had billed it as the most important proceeding since Deng Xiaoping’s 1978 Third Plenum, but ultimately that there was little new, and what there is is unlikely to be accomplished.

Pessimists have pointed out that the Rural Land Contracting Law giving farmers the right to own and trade their land was actually enacted in 2002 – 11 years ago, and that was for the second time since the Mao era. The mantra is that it hasn’t worked twice, and it is unlikely to work again.

Likewise with the relaxation of the one-child policy. There is little left of it to relax, since it was relaxed in the major cities some time and, and the numbers of one-child parents who will be allowed to have a second child is relatively small.

But there are signs that the new leadership is for real. The combination of land reform and opening up of state-owned enterprises for private investment are kind of the sweeping types of measures that had been spoken of in advance of the plenum. They set China on a firm and accelerated course toward course toward a modern consumer society and once markets begin to price in consequences of reform, there should be significant upside.

Drilling down through the deadening patois of the full text of the Decision on Major Issues Concerning Comprehensively Deepening Reform, as the document is called, there is much of considerable interest. For instance, it may sound like Communist jargon, but it is worth taking a look at the Leading Group on Comprehensively Deepening Reform.

That is jargon for sure. But a Leading Group is actually an extremely powerful organization, with powers and duties at the top or very near the top of the party pyramid. They are normally headed by a member of the Politburo Standing Committee and have the clout to at any time summon various related government departments, demand information and proposals, and then make decisions for the bureaucrats to execute.

Thus creating the reform machinery as a leading group is clear evidence of the importance that President Xi Jinping and Prime Minister Li Keqiang have attached to pushing forward their agenda. There are reports that the group could be headed by Xi himself, with presumably at least Li Keqiang and Vice Premier Zhang Gaoli as its members. This is unprecedented. Hitherto, no more than one of the Politburo Standing Committee members has sat in a leading group.

They now have set a clear road map toward the goal of building a market economy. By contrast, when China began to open up in the late 1970s, the leadership had no clear idea where it would head but felt changes had to be made or the Chinese economy would collapse. Hence the basic guidelines were Deng’s slogans were “crossing the river by feeling the stones in the riverbed” and “a cat is a good one if it catches mice regardless of its color.”

But this time the roadmap has been designed at the top, and it requires more political courage and wisdom to carry it out. The former president, Hu Jintao, and his premier, Wen Jiabao, issued similar directives during their own Plenums. But they insulated themselves from the process and reform stagnated during their 10 years at the helm.

The establishment of the leading group thus suggests Xi and Li fully realize that reform is a tough job which needs the supreme power to forge ahead. It also means that the two are putting their personal prestige and power on the line to get things done. They will live and die on the Leading Group’s effectiveness in carrying out these directives.

When Deng Xiaoping started what is now known as Reform 1.0, he sidelined the State Planning Commission, then the most powerful ministry under the State Council overseeing economic affairs, and set up a State Commission for Economic Restructuring to oversee reform and opening up. The new commission was headed by the then Premier Zhao Ziyang himself and thus known as the “Little State Council.” But whatever power it possessed, it was still only a department under the State Council. In terms of the bureaucratic hierarchy, it couldn’t be mentioned in the same breath with the just-established Leading Group.

The Leading Group on Comprehensively Deepening Reform will take care of reforms in various domains. For instance, that is expected to include political or administrative reform to streamline regional governments, cultural reform, reform of the health care system, reform in environmental protection -- apart from just economic reform.

Needless to say, such comprehensive reforms will inevitably hurt vested interests and thus meet strong resistance from party and government departments and officials. Land reform – giving land to the farmers, which has failed twice, failed because local and township governments are at the fulcrum to carry it out. They would have to accept that their personal fortunes, too often built on either the sale of these lands to developer interests to fill their pockets or to use the funds to power local government are now at risk. This further justifies the need for such a top-level leading group to spear ahead.

There are other hopeful signs, for instance the abolishment of the hated "reeducation through labor" system, commonly known as "Laojiao (勞教)," a system of administrative punishment used to detain persons for minor crimes such as petty theft and prostitution -- as well as to detain religious or political dissidents.

Since re-education through labor is administrative punishment, it is imposed by the police rather than through the judicial system, typically for one to three years, with the possibility of an additional one-year extension. It allows corrupt government officials and police officers to put away without trial whistleblowers and those who try to complain about them to higher authorities.

Pressure for change in the system has been building for years. There had been speculation before the Plenum that President Xi Jinping at the last minute would be forced to give up his effort to abolish the labor system due to strong interparty opposition. It appears he has won the battle, if there was one.

We agree that easing birth control by allowing one-child couples to give birth to two children probably is not going to have a major effect. Far too many urban couples today, both of whom work, find it difficult to have the space to work children or the money to give them proper educations. Shanghai’s total fertility rate, the number of children a woman can expect to have during her lifetime, was as low as 0.64 in 2002-03, impelling the city to relax its own one-child policy. It has since risen slightly, to 0.79 in the 2010 census, still one of the lowest in the world if not the lowest, China’s own total fertility rate is only 1.55, well below the replacement level of 2.1. The problem has become increasingly more serious, to the point where, under the decision, China will also consider gradually extending the statutory retirement age, from 50 for women and 60 for men.

(Steve Wang is the chief China economist and research director for REORIENT Securities Ltd of Hong Kong and a regular Asia Sentinel contributor)