CHINA – POLITICS

What to make of the Third Plenum

 Last Friday, Beijing released the 20-page, 60-point, 20000+ words ‘CCP Central Committee Resolution Concerning Some Major Issues in Comprehensively Deepening Reform‘ （中共中央关于全面深化改革若干重大问题的决定）, which is translated into English by Rogier Cremeers. This is the reform blueprint approved in the Third Plenum last week, which fills in the gaps of the communiqué and details concrete policy initiatives. At least on paper, the document appears to be more ambitious and comprehensive than the communiqué released earlier.

Besides everything else, the consensus view holds that Xi appears more powerful than his two predecessors after the Plenum. Xi “is far more powerful than his predecessor Hu Jintao, and is swiftly building the centralized bureaucratic machinery needed to overcome institutional resistance and achieve his aims” (Arthur Kroeber at Foreign Policy); “in ‘Godfather’ mold, looks assertive and even imperial” (Chris Buckley at The New York Times); and “has made himself the most powerful leader since Deng Xiaoping. That is probably a good thing” (The Economist).

Several highlights

1. Establish a leading small group for comprehensively deepening reform, headed by Xi Jinping
   1. Analysts said that the move was a major step to coordinate the reform plans under an authoritative body, likely to be headed by Xi Jinping himself, which is expected to push reforms with much more authority. They see it as part of Xi’s move to consolidate power, while some believe such group, together with the fact that the blueprint was drafted by Liu Yunshan and Zhang Gaoli and overseen by Xi, is an effort to sidestep the power of Li Keqiang, and the State Council apparatus as a whole. In the past, the drafting as well as the presentation work was done by the Premier. However, in this Third Plenum, Xi Jinping did both.
   2. Willy Lam holds this view: 至於深化改革領導小組更是為小習全面插手國務院事物而設的怪胎機構。據國內媒體介紹，此設置在黨中央高層的領導小組負責統籌政治、經濟、文化、社會、生態、黨建六大領域的全盤改革。 其實目前黨中央與國務院已經有不少統籌經濟改革的機構，如中央財經領導小組與號稱「小國務院」的發改委。此新組織的出發點是權力鬥爭而不是甚麼確保改革到位等虛目標。按照中共傳統，負責經濟的政治局常委，即李克強理所當然出任深化改革領導小組的組長。但北京的消息是，組長是小習，而小李可能連副組長也當不上。理由是跟負責起草三中全會《中共中央關於全面深化改革若干重大問題的決定》的組長是習總，而副組長則是「意識形態沙皇」劉雲山與常委副總理張高麗。
   3. WSJ: “Perhaps the most significant result is that Xi Jinping consolidated power and has emerged stronger than any leader since Deng. Mr. Xi created a new “leading small group” to push reform under his direction, bypassing other Party groups. This could enable faster change, but it also risks the creation of a new cult of personality.”
2. Establish National Security Council (國家安全委員會)
   1. According to the Resolution, the point of establishing such high-level government institution is to 完善国家安全体制和国家安全战略，确保国家安全. The communiqué earlier mentioned in the section of “social governance”, where it mentioned together with national security 創新社會治理，必須著眼於維護最廣大人民根本利益，最大限度增加和諧因素，增強社會發展活力，提高社會治理水平，維護國家安全，確保人民安居樂業、社會安定有序。要改進社會治理方式，激發社會組織活力，創新有效預防和化解社會矛盾體制，健全公共安全體系。設立國家安全委員會，完善國家 安全體制和國家安全戰略，確保國家安全。
   2. There has been no detailed explanation of the need for the body, why it is being established or the institutional and personnel arrangement of the body. **Not sure if it will become a party or state institution**.But it is believed to be headed directly by Xi Jinping himself.
   3. Rumours from Boxun said that 國家安全委員會將超越公安、國安、中紀委、成為一個特殊部門，重點是意識形態和輿論。據了解，國家主席習近平將任國安會主任，政法委書記孟建柱可能出任副主任，公安部副部長傅政華將任國安會秘書長兼公安部長，現任公安部長郭聲琨調任政法委副書記。According to Hong Kong’s Apple Daily, the council will include representatives from diplomacy, military, intelligence and Hong Kong, Macau and Taiwan affairs.
   4. Some believe it may more benignly rein in security forces to prevent them from obstructing reform in other spheres. Political commentator Chen Ziming said that the move is to nationalize all security arms into a government body 國家安全方面，中國一直沒有專門國家機構，只有黨的中央政法委，長期下去「名不正言不順」，如今成立國家機構處理安全問題，也算是向法治國家發展的一個步驟。
   5. Other analysts are less optimistic and saw it as a step to further upgrade stability maintenance against domestic dissents, making it akin to the KGB of China. Willy Lam believes that the Chinese NSC will specifically target Hong Kong’s Occupy Central. NY Times Jane Perlez described the new body as both evidence of and a potent addition to Xi’s personal power.
   6. Qin Gang, Ministry of Foreign Affairs spokesman, indicated the new commission would have a wide focus, including domestic affairs. “That should make terrorists, extremists and separatists nervous. Anyone who would disrupt or sabotage China’s national security should be nervous.”
3. Give market a “decisive role” instead of the previous “fundamental role”
   1. Financial reforms
      1. (1) Improve the market-based RMB exchange rate formation mechanism (making RMB more convertible) and speed up the marketisation of interest rates. (2) Relax control on interest rates. (3) Establish a robust and prudent overall management framework for foreign debt and capital flows and speed up the implementation of renminbi capital account convertibility. (4) Allow qualified private investors to set up financial institutions including small- and medium-sized banks
      2. WSJ: [this] mean that financial institutions, including the state-owned banks, will be forced to compete for deposits and lend on the basis of risk-adjusted returns. That should drive credit toward the most productive enterprises and over time reduce the Communist Party’s control over the business elite.
   2. Resources pricing
      1. (1) Promote a market pricing mechanism and hand over prices that can be set by market forces to the market. The government should not make inappropriate interventions. Push forward price reforms in sectors including water, oil, natural gas, power, transportation and telecommunications. (2) Government-set prices will be mainly applied to key public utilities and public services. Such pricing must be transparent and monitored by the public.
4. Tax and Fiscal reforms
   1. 1. Improve budget management by implementing a standardised and transparent budget system, set up a budget mechanism to ensure long-term balance of income and expenditure
      2. Allow local governments to broaden their financing channels, including bond issuance, to raise money for city construction
      3. Set up a standardised system to manage central and local government debt and establish a risk-alert mechanism
      4. Straighten out the expenditure responsibilities between central and local governments: Central and local governments should jointly shoulder the spending responsibility on the construction of some social security network and inter-regional key projects. The central government can delegate some of the spending responsibility to local governments through fiscal transfer payment.
5. Land Reform
   1. 1. Allow rural collectively-owned land to be transferred, rented and pooled as shares. Such land will be given the same rights and prices as state-owned land on the land market.
      2. Establish a distribution system for land sales revenues that will cater to the interests of the state, collectives and individuals.
6. But little on SOE reforms
   1. 1. The document still upheld the dominant role of public ownership.
      2. Reforms on SOE are only limited to the following:
         1. Encourage non-public firms to participate in SOE reform, and allow non state-owned capital to purchase shares in projects invested by state-owned capital
         2. Encourage cross-shareholding and fusion of various types of capital
         3. Transfer some state assets to the social security fund.
         4. Raise the proportion of dividends paid by state assets to the public to 30% by 2020 to be used for social security and improving people’s livelihoods. Currently, they surrender 10-30% of profits to the central government.

7. Relax One-Child Policy
   1. Allow couples to have two children if one of the parents is an only child 坚持计划生育的基本国策，启动实施一方是独生子女的夫妇可生育两个孩子的政策，逐步调整完善生育政策，促进人口长期均衡发展。
   2. While some predict that the new exception could herald the one-child policy’s eventual abolition, Chinese family planning authorities have played down the changes. According to SCMP, Wang Peian, the deputy director of the National Health and Family Planning Commission, said that allowing couples to have a second children when only one parent was an only child represented a minor change. He even disputed using the word “relaxation” to describe it.
   3. More about China’s easing of One-Child policy on WSJ and on China File
8. Household Registration System
   1. Speed up the reform of the household registration (hukou) system, completely lift registration restrictions in towns and small cities, gradually relax restrictions in medium sized cities, and decide the criteria for settling in large cities in a reasonable way. Strictly control the population of mega-cities
   2. Steadily roll out basic urban social services to all long-term residents, and allow rural residents who switch to a city registration to become completely integrated within the housing and social security system.
9. Abolish Labour Camp System
   1. …which Xinhua described as “part of efforts to improve human rights and judicial practices.”
   2. Under the system, which has been in place since 1957, police are allowed to imprison people in labour camps for up to four years without formal arrest or trial.
   3. Read more on Bloomberg
10. A limited degree of judicial reform: judicial independence, fewer death penalty
    1. “Guarantee that judicial powers and prosecutorial powers are exercised according to the law, independently and fairly. Reform judicial management systems, promote the unified management of human resources in courts and procuratorates at the provincial level and lower, explore the establishment of judicial jurisdiction systems that are suitably separated from administrative areas, guarantee the uniform and correct implementation of State laws.”
    2. “Perfect structures for the judicial protection of human rights. The State respects and protects human rights. Further standardize judicial procedures for detention, custody, asset freezing and dealing with assets involved in cases. Complete mechanisms to prevent and correct misjudged cases, and to pursue responsibility, it is strictly prohibited to extort confession by torture, engage in corporal punishment or abuse, strictly implement the rule that illegal evidence is thrown out. Progressively reduce the use of charges carrying the death penalty.”
11. Strict control on the Internet
    1. Expand the strength of legal management of the Internet, accelerate the improvement of the leadership system that governs the Internet and ensure the security of the national network and of information. 加大依法管理网络力度，加快完善互联网管理领导体制，确保国家网络和信息安全。
    2. Read more on WSJ

Next steps

The devil, as always, is in the implementation.

Wall Street Journal: The test now for Mr. Xi will be how to implement the plan’s goals, including whether they will be introduced in coming months or more gradually. The leadership is likely to face resistance ranging from local governments to state enterprises and the bureaucracies that oversee them. Many of the goals adopted by China’s previous leadership, under former President Hu Jintao, were never completed.

Economist: More details of what Mr Xi has in mind are likely to emerge in the weeks ahead. Party and government leaders will hold another meeting in December to decide an economic strategy for the coming year. A similar meeting devoted to rural issues will be held later in the month. The rhetoric is very positive. But Mr Xi will have to battle a deep resistance to change among state-owned enterprises, local governments, and even an urban middle class that likes his notion of “social fairness” but does not want to see its own privileges eroded by the granting of equal access to health care and education to migrants from the countryside. As the resolution rightly said, reforms have entered “deep water”.

Further reading

Asia Society: http://asiasociety.org/blog/asia/what-does-chinas-third-plenum-suggest-about-prospects-reform

Foreign Policy: http://www.foreignpolicy.com/articles/2013/11/14/xi_jinping_third_plenum_china

Economist:

http://www.economist.com/news/leaders/21589882-xi-jinping-has-made-himself-most-powerful-leader-deng-xiaoping-probably-good

WSJ China Real Time: http://blogs.wsj.com/chinarealtime/tag/third-plenum/

FT: http://www.ft.com/intl/cms/s/0/95fb7758-4e07-11e3-8fa5-00144feabdc0.html#axzz2lB2TKy8P

Bloomberg: http://www.bloomberg.com/news/2013-11-12/china-vows-bigger-role-for-markets-as-party-closes-summit.html

Brookings: http://www.brookings.edu/blogs/africa-in-focus/posts/2013/11/18-china-third-plenary-africa-sun (Implication for Africa)

BBC: http://www.bbc.co.uk/news/business-24919043

East Asia Forum: http://www.eastasiaforum.org/2013/11/18/chinas-third-plenum-communique-moves-from-nouns-to-adjectives/

CDT on How Twitter responds to Third Plenum: http://chinadigitaltimes.net/2013/11/playing-politics-weibo-responds-third-plenum/

Cartoonist reflection on Third Plenum: http://chinadigitaltimes.net/2013/11/drawing-news-third-plenum-reflections/