Saturday, May 26, 2018

On reforms in China

While the 19th Congress of the Communist Party of China (CPC)  that was held last October and the annual National People’s Congress  held last month garnered a great deal of international attention, little attention is being paid to the sweeping government restructuring going on in China.
Under this plan the CPC has enhanced its authority across the board, even while the government has been dramatically restructured. The end result is that  President Xi now has  more direct control over the levers of money and power and will push ahead with a series of reforms which will, first and foremost, moderate the risk that the  unreformed Chinese economy confronts, and then, if things work according to plan, take China to new heights of achievement. 
Actually in some areas China is mainly playing catch up, creating  new ministries and governing institutions to address the unmet needs of its huge economy. Many areas of regulation have been found wanting, people have taken advantage of regulatory loopholes and corruption has been rampant in many areas. Uncoordinated governance has also resulted in huge waste, while ineffectively supervised state owned companies piled on debt.
On March 21, the CPC released the Plan to Deepen Reform of Party and State Institutions. This forms the basis of the most drastic restructuring of the government and some Party organization in decades. The idea was to improve the control of the CPC, enhance, policy coordination, governance and efficiency. China has a parallel system where the Communist Party has its institutions which dominate those of the country, viz the People’s Republic of China (PRC). Famously, for example, the Chinese military is the armed wing of the CPC and not the PRC.
Earlier China worked on the assumption that over time, the Party will recede into the background and strong State institutions will be the norm just as they are in the rest of the developed world. But Xi clearly believes that this has encouraged unprecedented corruption and inefficiency and threatened the dominance of the CPC. So he has sought to clean up the CPC and make it central to the Chinese system again.
The thrust of the reorganization is two-fold. First, it seeks to moderate the risk the Chinese economy is facing because of its massive debt and deficits. And second, it seeks to equip China with instruments and institution s to manage its continuing rise.
As part of this, the new reforms Central Banking will become more central. The People’s Bank of China (PBOC ), their equivalent of our RBI,  now has gotten powers to write rules for much of the financial sector and its powers will pivot on the new Central Banking and Insurance Regulatory Commission.
Another key area that the new reforms will look at is that of the environment. The environment ministry is being  expanded, creating a new ministry of ecology and environment. By now it should be clear that the Chinese are serious about cleaning up their environment and this is evident from the huge  strides they have taken in Beijing.
The expansion of Chinese economic power globally will now be aided by a new foreign aid agency, the State International Development and Cooperation Agency (SIDCA), like the USAID or the Japanese JICA,  which will essentially formulate and execute China’s global outreach, including the Belt and Road Initiative. It will be headed byWang Xiaotao
 A new State Market Regulatory Administration  will be a powerful new regulator for companies operating in China. It will take over the work of the State Administration for Industry and Commerce, the China Food and Drug Administration and the General Administration of Quality Supervision. This is the first agency which will focus on anti-monopoly issues and also oversee the new State Intellectual Property Office. The SIPO will strengthen the creation, protection and application of IPR and give a push to Xi’s policy of promoting an innovation-based economy, and also provide a response to critics who charge China with large-scale Intellectual property theft.
As far as the Party is concerned, the reform has targeted Central Leading Groups which are high-powered groups of ministers, officials and Party members and who are the real decision-makers in China. Under the new plan, the CPC  abolished several Central Leading Groups and created new ones and promoted several from leading groups to central or commissions.
The central leading groups for deepening overall reform, cyberspace affairs, financial and economic affairs and foreign affairs are being given the rank of central commissions. It is no surprise since  Xi Jinping himself chairs these Central Leading Groups.
Among the new commissions coming up, the most significant is the National Supervisory Commission which will look into discipline and corruption cases. Unlike the Central Commission on Discipline and Inspection (CCDI) whose work is confined to the Party, the NSC will function at every level and in every part of life in China—universities, multi-national companies, banks, and so on.
One of the big losers is the National Development and Reforms Commission (NDRC) the Chinese equivalent of our Planning Commission.  It was known as the “little Cabinet” and wielded power in a range of areas from high-speed rail projects to electricity rates. It will remain as one of the 26 bodies of the State Council as the PRC government is known, but it will shed many of its functions to other agencies.
This could trigger a dramatic shift in the Chinese economy towards allowing the market play a decisive role in allocating resources, something that the Party wants, but which has been blocked by various vested interests. However, at the end of the day, the real proof of the pudding will be in its eating.
Greater Kashmir April 23, 2018

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