[act-ma] CME: China Study Group, April 11 Thursday 7:00 - 8:30 p.m.

[Sandra Rosen]

China Study Group, April 11 Thursday 7:00 - 8:30 p.m.

Presentation on "Today in China: New Leaders, Changing Economic  
Policies" followed by discussion

Place: Center for Marxist Education, 550 Mass. Ave, Central Square,  
Cambridge




Today in China: New Leaders, Changing Economic Policies


Duncan McFarland
March 25, 2013
published online by Portside

China held its most important political meetings in ten years with  
the Communist Party Congress in Nov. and the National People's  
Congress in March 2013. A new leadership group assumed power: Xi  
Jinping is the new CPC general secretary and national president, Li  
Kejiang the premier of the state council. New officials assumed all  
but two positions in the political bureau's standing committee.



, ,


China held its most important political meetings in ten years with  
the Communist Party Congress in November and the National People's  
Congress (national legislature) in March 2013.  A new leadership  
group assumed power:  Xi Jinping is the new CPC general secretary and  
national president, Li Kejiang the premier of the state council and  
new officials assumed all but two positions in the political bureau's  
standing committee, the top decision making body of the communist  
party.  China's term limits regulations mandated the large turnover  
of leadership, which gives a good opportunity for setting new  
policies for the next ten years.

A major decision is that China will change its economic development  
strategy.  Outgoing General Secretary Hu Jintao's important report to  
the 18th party congress (Nov. 8, 2012) made clear the decision to  
"speed up the creation of a new growth model."  Officially adopted as  
basic policy, Hu's model of sustainable "scientific development"  
changes the focus to driving the economy by domestic demand, moving  
to higher value-added and high-tech production, higher wages and  
spending more on social services for the people.  New cities will be  
built in China's vast interior as population shifts from rural to urban.

Since the 1980s rapid economic growth has been driven by both large  
state funded projects and expansion of the private sector.  This  
included foreign direct investment in export oriented factories  
serviced by low wage migrant labor.  A huge success in increasing the  
production forces, this model however has led to increasing  
imbalances and problems; and now these issues must be addressed.

Many Chinese have been upset by the income gap, the disparity between  
the wealth of the newly affluent and the average working people.   
Chinese workers have staged increasing strikes and protests over  
labor and environmental issues, leading to fears for social  
stability. Premier Li Keqiang, in his first press conference, said,  
"the Chinese government needs to increase care for the most needy to  
prevent them from challenging the society."  (China.org.cn, March 17,  
2013).  In February the government announced detailed plans to  
address the issue, which the Wall Street Journal described as  
"sweeping policy guidelines to narrow the growing gap between rich  
and poor...and pay for ambitious welfare programs."  (Feb. 5, 2013)   
The Guardian headlined, "China unveils major tax reforms to make rich  
pay more."  (Feb. 6, 2013)

These plans include: a goal of doubling citizens' incomes in the next  
ten years; raising taxes on profitable state-owned enterprises to  
better fund social services; caps on  managerial salaries in SOEs;  
paying higher interest rates on individual savings; greater benefits  
and safety net access to migrant workers; fair compensation to  
farmers selling land for developments; and other actions.  The plans  
are far reaching, if implementation is effective there will be  
progress in closing the gap.  (1)

During the 1980s and 1990s, China's focus was on rapid economic  
development as the basis of a strong, prosperous country.  This  
included changing from the mostly state-owned economy of Mao's last  
years to a more balanced mixed economy with state ownership of the  
strategic sectors of finance, heavy industry and infrastructure  
combined with fast growing private markets and production.  This  
program was a historic success, as China transformed itself into an  
economic powerhouse, greatly increasing the standard of living for  
most people and lifting 400 million people from poverty (according to  
both the UN and the World Bank poverty alleviation statistics,  
available online).  There was rapid growth in foreign trade not only  
with the West but also Asia, Africa and Latin America.

However, problems associated with China's economic transformation  
continued to mount: corruption, the increasing gap between the  
wealthy and average earners, exploitation of migrant worker labor,  
growing pollution and damage to the environment, partial breakdown of  
the social security system and safety net.  With Chinese public  
opinion starting to demand action on these problems, General  
Secretary Hu Jintao several years ago introduced "scientific  
development."  According to Hu, with powerful production forces now  
in place, China's long-term strategy must shift to a balanced,  
sustainable and people-centered approach.  That is, rapid GDP  
expansion should be tempered to emphasize quality and innovation and  
not just quantity, environmental damage and resource limits  
necessitate building a green economy, and central to everything must  
be the income, cultural life and well-being of the people -- the core  
mission of the communist party.   New General Secretary Xi Jinping's  
"China Dream" speech to the National People's Congress (People's  
Daily, March 18, 2013) emphasized the importance of education, jobs  
and housing for the people.

The great recession of 2008 led to a loss of export markets for China  
and 20 million Chinese workers lost their jobs.  The state responded  
with a huge program of spending on public works.  Politically, the  
great recession dealt a major blow to the position of Chinese  
economists and officials advocating continued emphasis on foreign  
investment and the export sector.  State banks again began to  
prioritize investment in state-owned enterprises. Consensus grew that  
a change in economic policy was necessary.

Most members of China's 82-million Communist Party agree that both a  
strong state sector and dynamic private markets are necessary for  
development.  The question is getting the right balance -- what is  
the emphasis?  The 18th Party Congress reaffirmed the importance of  
the state sector and economic and social planning.

  There is much enthusiasm for the center-left effort to correct many  
of the imbalances of rapid industrial expansion; but as one pundit  
said, "the plans are grand but the obstacles many."   In particular,  
central government decisions supported by the people often meet  
resistance by mid-level officials and local groups and  capitalists  
with a different agenda. Serious corruption and bureaucracy can make  
government initiatives ineffective.  The sheer size of China creates  
momentum that will take years to alter.

However, change is already apparent.   The Wall Street Journal,  
commenting on the business investment environment, reported on Jan.  
17, 2013, "A long-term trend of rising wages and other costs has made  
China less attractive, especially for basic manufacturing... total  
foreign direct investment flowing into China fell 3.7% in 2012."

The focus in coming years will be on the success of actual  
implementation of the new economic model.  With China's economy on  
track in coming decades to equal and surpass the US as the world's  
biggest, it is important for all of us to watch how this unfolds.

Notes: The plans are detailed in, "China Issues Proposal to Narrow  
Income Gap," (NY Times World, Feb. 5, 2013) and "Highlights of  
China's income distribution reform plan," (Xinhua, Feb. 6, 2013).

______________________________

Duncan McFarland is member of the National Coordinating Committee of  
the Committees of Correspondence



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