China’s National People’s Congress 2016: Reforms Entering Uncharted Waters
By Gang Chen

China’s National People’s Congress 2016: Reforms Entering Uncharted Waters

Mar. 21, 2016  |     |  0 comments


The dual parliamentary sessions of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) in every March, commonly known as the lianghui (literally the “two meetings”), constitute one of the most important events on China’s annual political agenda and an important forum for debate over socio-economic issues and the approval of laws, policies, the budget, and government reports. During the NPC and CPPCC sessions in March 2016, the three-year old Xi Jinping-Li Keqiang leadership faced the daunting challenges of reviving the anaemic economy and pushing through a domestic restructuring programme that had entered uncharted waters and was encountering unprecedented resistance from vest interests.

The NPC is a once-a-year occasion for the ruling party to legalize government work plans. Often dubbed as a rubber stamp, the NPC is becoming increasingly important for the new generation leadership since its policy and reform agendas cannot be justified without the NPC. The Chinese leadership has encountered critical challenges including an economic slowdown, industrial overcapacity, sluggish foreign trade, accumulation of local debt, environmental pollution, and an unstable security environment in East Asia. After experiencing last year’s unprecedented stock market rout and the Renminbi’s sharp depreciation, public confidence in the government’s ability to manage economic restructuring and solve tough socioeconomic problems has dwindled.

While the Western media has regularly labeled the dual NPC and CPPCC sessions as a rubber stamp event, the increasing media coverage and growing influence of social networking sites like Weibo (the Chinese mini-blog equivalent to Twitter) and Wechat have put the two sessions under intense spotlight and scrutiny. Domestic worries like property bubbles, wealth and income disparities, corruption, and pollution were among the top concerns of the increasingly media-savvy population. The approximately 3,000 NPC delegates understand that the mishandling of these issues might affect social stability and even upset state power. However, with the ruling party’s tightened control over the media and ideology, the NPC and CPPCC delegates this year have become much more cautious than before in publically sharing out their personal views on such sensitive issues as financial reform, state-owned enterprises, property development, official corruption, and foreign policy.

In his government report submitted to the NPC, Premier Li Keqiang lowered China’s gross domestic product (GDP) growth target to the range of 6.5 percent to 7 percent, the lowest in 20 years. In 2015, China’s GDP grew by 6.9 percent, the nation’s slowest economic growth in 25 years, narrowly missing the government’s self-proclaimed target of 7 percent. Indicative of a wane in the importance of economic growth as a source of the Chinese government’s legitimacy, even such a moderate economic goal may not be easily achieved in 2016 when mounting local debts, rising labor costs, and serious industrial overcapacity at home are taken into account. With traditional drivers of growth weakening, more structural reforms are needed. Premier Li said on the first day of the NPC session that the government “needs to give particular emphasis to structural reform on the supply side, reducing supply in some areas while increasing it in others” (Li, 2016, p. 13). Premier Li called for efforts to make the world's second-largest economy move from an export-led growth model fuelled by government investment to one driven by higher domestic consumption and a larger services sector.

Given the country’s huge social imbalances, Chinese society can remain stable — and firmly in the hands of the Communist Party of China — only if the state can guarantee jobs and income growth for the majority. While Li promised that the Chinese economy would continue to grow at an average annual rate of at least 6.5 percent from 2016 to 2020, he admitted that this would not be easy to achieve, and “fundamentally, development relies on reform and opening up, through which the market should play the decisive role in allocating resources” (Li, 2016, p. 10).

There are bright spots in China’s economic restructuring. According to Li, the service sector as a proportion of GDP rose to 50.5 percent, accounting for more than half for the first time. The contribution of consumption towards economic growth reached 66.4 percent. High-tech industries and equipment manufacturing grew faster than other industries. Energy consumption per unit of GDP fell by 5.6 percent in 2015. Of particular note, the employment situation overall remained stable, with 13.12 million new urban jobs created over the course of the year, surpassing the year's target and becoming an economic highlight (Li, 2016, p. 1).


Many are suspicious about whether the Chinese government still has the courage and capability to eradicate so-called “zombie” state-owned enterprises.

2016 is however expected to be a painful year for China’s economic restructuring. The leadership is undertaking unfinished reforms left by former Chinese Premier Zhu Rongji who was well-known for his bold policies that led to the bankruptcy of thousands of state-owned enterprises and China’s accession to the World Trade Organization in 2001. A month ago, the Chinese government announced it would lay off 1.8 million workers in state-owned steel and coal factories over an unspecified time period. Mass layoffs in Zhu Rongji’s time claimed more than 50 million jobs at state-owned enterprises. The politically risky reform on SOEs proved to be a success in dismantling the emblematic “iron rice bowl” in China’s state firms. The transformation (gaizhi) of most SOEs into privatized or state-owned shareholding companies has produced new personnel management systems including contract-based employment. Correspondingly, the previous employer-guaranteed medical care and pension system for SOE staff has been transformed into a new mechanism in which most of the welfare is “socialized” (shehuihua) and provided on the basis of insurance policies funded by the individual, the employer, and the state altogether (Brødsgaard and Chen, 2014, p. 90). Double-digit growth rates in the late 1990s to 2000s ensured alternative job creation. This time around, many are suspicious about whether the Chinese government still has the courage and capability to eradicate so-called “zombie” state-owned enterprises, especially given the potential for worker unrest during an era of much slower growth and swelled local debt. The industrial overcapacity and local property bubbles have become so serious that any deleveraging and destocking that come too fast may lead to systematic collapse.

Xi’s anti-corruption campaign is still going on unabated. On the eve of the start of the NPC meeting, Wang Min, a political heavyweight who used to be the party boss of two provinces, was put under investigation by the central authorities. The move made many influential officials and business people attending the NPC and CPPCC sessions fear that they may face a similar fate in the near future. Last year, despite a huge surplus in its current account, China experienced surges in capital outflow. In the juncture of reform, many people who had profited from China’s nexus of business and politics may be losing confidence in the world’s second largest economy.

Despite his overarching power and ambition, Xi still encounters critical challenges when implementing bold policy changes. Power centralization and the anti-corruption campaign have dampened many officials’ enthusiasm in making breakthroughs in their careers. The leadership has to find a way to incentivize the millions of bureaucrats to enforce policies promulgated by the Party’s Third, Fourth and Fifth Plenums.

References

Li, K. (2016). Report on the work of the government. Delivered at the Fourth Session of the 12th National People's Congress. Retrieved from http://online.wsj.com/public/resources/documents/NPC2016_WorkReport_English.pdf

Brødsgaard, K. E. and Chen, G. (2014). Public sector reform in China : Who is losing out? In Kjeld Erik Brødsgaard (ed.), Globalization and Public Sector Reform in China. Abingdon: Routledge, pp. 77-99.

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