By Pradyut V. Hande:
China’s new leadership has signalled its intention to facilitate a more proactive role played by market forces in the economy over the next decade as the Dragon seeks to chart out a new course of socio-economic progression whilst keeping growing cross-regional competition at bay. This was made evident through a communique released by the Communist Party at the conclusion of the 4 day conclave of its 205 member strong Central Committee.
After riding the wave of rapid economic development for over three decades, China’s economy is akin to an overheated automobile engine, sputtering in a bid to maintain its erstwhile admirable performance. Excessive reliance on and investment in the manufacturing sector has resulted in overcapacity whilst demand on a domestic and international scale has dwindled in the wake of the global economic slowdown. Thus, perhaps the very industry that bestowed upon the country a perceptible differential resource, cost and execution advantage; has gradually become a liability of sorts. This has increased the overall debt burden whilst driving down competitiveness significantly. In an era where technology changes at blistering pace, the Chinese can ill afford to fall too far behind in the “emerging economy race“. Set in this backdrop, a greater emphasis on innovation and quality control would go a long way in improving its long term global export and domestic consumption prospects. Moreover, encouraging the burgeoning service sector also ought to form a prudent cog in its future wheel of development.
The need for economic reform is always tantamount. However, it assumes even greater significance in a developing economy that is striving to identify future growth drivers in its quest to maintain its regional and global position of ascendancy. Perhaps it is after the path breaking reforms undertaken under the talismanic Deng Xiaoping that laid the foundations for China’s phenomenal current day economic success; that the Communist Party today finds itself at the crossroads of another “pivotal bend in the reformatory road“. The need to reorient its philosophies in order to keep pace with the changing realities both at home and abroad whilst remaining true to its Communist ideals presents a veritable challenge that requires more than just a sizable effort. The fact that the leadership also has its hands full dealing with increasingly irate and sensitised citizens that continue to clamour for a greater say in governance further complicates matters. Pursuing a path of progression whilst striking a balance between capitalism and communism, in the absence of a democratic framework, is no mean task.
Set in this backdrop, the onus on the ruling party to encourage greater private involvement and investment also becomes critical to the State’s long term prospects. However, the Government does not appear to be showing any urgency in its bid to reduce the influence of State-owned and controlled enterprises that currently hold significant sway over the economy as a whole. Encouraging private players would not only reduce some of its debt burden but also enhance productivity, performance and competitiveness.
However, before China augments a more effective Public-Private partnership; there needs to be significant tax and fiscal reform. Establishing a unified land market in both rural and urban areas is also critical in the long run. These reforms must also be complemented by certain civil welfare undertakings such as the establishment of an all-encompassing social security system. The Government must realise that in order to ensure political stability in the long run, a slew of socio-economic reforms on multifarious fronts is of vital consequence. Clamping down on “dissidents” with impunity cannot be a “go to” solution forever. Bestowing greater civil rights on its citizens in the future has got to be viewed with more favour.
Whatever be the case, indubitable is the fact that China’s spectacular albeit tumultuous growth story has hit a minor “speed breaker” of sorts. It is now up to the likes of President Xi Jinping and Premier Li Keqiang to not just restore the faith of foreign investors in the country but also its very own disillusioned denizens. After all, it is the People’s Republic of China.