MNI Preview: China's Economic Summit May Urge Quicker Reform

By William Bi

     BEIJING (MNI) - China's top leaders will wrap up by Wednesday evening their

annual closed-door meeting that sets the economic agenda for next year. Taking

place just after the 19th Chinese Communist Party Congress, the meeting is also

expected to set out how China's new leadership will guide the country in

realizing its ambition to achieve global economic supremacy. 

     The Central Economic Working Conference (CEWC) will further expound on the

spirit of President Xi Jinping's report to the October Congress rather than

laying out new policies. The CEWC, which began on Monday, was also held just

after the meeting of Central Committee Politburo on Dec. 8, itself a precursor

of what to expect out of the CEWC meeting.

     --FASTER REFORM

     Observers expect the conference to urge quicker reform, as 2018 marks the

40th anniversary of China's reform and opening. Both the 19th Congress and the

Politburo meeting emphasized "promoting a new structure in a comprehensive

manner." Opening can have multiple dimensions, from state to private, or

domestic to international, according to economists at CMB International. The

People's Daily newspaper on Wednesday cited the Ministry of Commerce as saying

China's goal was "to greatly reduce barriers of entry to markets." 

     --THE 'THREE SOLIDIFYING BATTLES'

     Mitigating financial risks through deleveraging, target-reducing poverty

and cutting pollution are what policymakers have been calling the "Three

Solidifying Battles." These are the continuation of Xi's supply-side reform

polices implemented over the last two years: reducing high capacity, inventory,

leverage, boosting efficiency, and strengthening weaknesses. 

     Many new initiatives fall within this category. Concerns of stalling growth

have eased as spending and robust job growth in a new economy help balance the

effects of reduced investment. Tightened lending and overhauling of China's

bloated industrial sectors are almost certain to continue.   

     A long-anticipated property tax may finally come to fruition, at least in

some measured form. On Wednesday, Finance Minister Xiao Jie penned an article in

People's Daily, calling for the building of a modern taxation system, including

the introduction of taxes on commercial and residential housing. 

     --A CHINA BENT ON QUICK RESULTS

     Love it or hate it, the Chinese government has demonstrated its ability to

push through changes with little opposition. "Even if it's something with

poisonous side-effects, the Chinese government can force you to swallow," said

Liu Yuhui, an economist with the government think-tank Chinese Academy of Social

Sciences.

     After consolidating his power, Xi has left little doubt that he wants

results, marked by his theory of "Two Hands Together," which is a play on Adam

Smith's "invisible hand" economic theory. In practice, Xi has endorsed what he

believes to be the power of an efficient bureaucracy that cuts through

administrative and legal due processes. 

     To meet air pollutant reduction targets and return China to "Clear Water

and Blue Sky," authorities have routinely shut down steel plants and halted

construction projects. To contain Beijing's sprawling development and reposition

it as "a center of politics, culture, international exchange and technological

innovation," as endorsed by the Politburo, Beijing authorities have leaned on

coercive and cruel measures to push out thousands of migrants, such as

demolishing unsightly housing for non-residents, which have drawn criticism for

violating human rights.

     "In the long run, these administrative approaches will do our country a

disservice" as they undermine the role of the market and the rule of the law, Xu

Xiaonian, a prominent economist, said at a steel conference in Shanghai last

Saturday.

     Yet many economists and market participants counter that given China's

unique culture, size and the mounting challenges, that kind of decisiveness is

what has allowed it to avert crisis in the past, such as controlling the exodus

of capital.  

     "Xu's thinking is too Western-leaning. A pure market-based approach just

doesn't work in China," said a Shanghai-based commodities trader. 

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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