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Cover Story
Print Edition> Cover Story
UPDATED: November 25, 2013 NO. 48 NOVEMBER 28, 2013
From Plans to Reality
A detailed blueprint of China's ambitious reform agenda promises decisive results by 2020
By Zhou Xiaoyan
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The detailed reform plan approved at the Third Plenary Session of the 18th CPC Central Committee said 30 percent of the gains of the country's state-owned capital will have to be handed back to the government by 2020.

At present, the proportion ranges from zero to 15 percent.

According to data from the Ministry of Finance, China's central SOEs raked in 1.1 trillion yuan ($180.5 billion) in profits in 2012, but only handed in 95.1 billion yuan ($15.6 billion) to the Central Government. Among the total 95.1 billion yuan, only 5 billion yuan ($820.5 million) was spent on improving people's livelihood.

The increase in dividends that SOEs pay to the state will likely be channeled to aid in the expansion of the social security system, analysts said.

China will also develop mixed ownership to improve the basic economic system while maintaining the dominant role of public ownership. The state-owned economy will play a leading role in this process, encouraging, supporting and guiding the non-public sector, according to decisions made at the most recent plenary session.

Both public and non-public sectors of the economy are important components of the socialist market economy and significant bases for economic and social development, said the detailed reform blueprint.

The reform plan also highlighted reforms in the financial sector, including speeding up the opening of the capital account and currency regime and interest rate liberalization. An additional point promised to increase the number of free trade zones (FTZs) to help open up the economy and invigorate growth.

"On the basis of pushing forward development of the existing pilot FTZ, qualified regions will be selected to build free trade zones or ports," the reform plan said.

Reforms also include plans to make rural land tradable in the land sale market—a move that is expected to give farmers more benefits from the continuous hiking of housing and land prices.

A universal social welfare system, from healthcare to education, has been promised to pave the way for the country's urbanization, which is bound to see more rural-urban migrant workers.

Resistance remains

Having a good plan was only part of the success, and making the ambitious agenda a reality would be the new leaders' true challenge. Much will depend on how the relevant ministries and government agencies follow through on executing the reform blueprint, said analysts.

Jan von Gerich, fixed-income chief analyst with Nordea Bank in Helsinki, said China is moving in the right direction based on the document released after the plenary session.

"But one should not get too carried away, as this will be a long process."

Market forecaster Capital Economics agreed, saying that any policy document, however weighty and well crafted, does not in itself change anything on the ground.

"Whether or not the plenary session ends up as a turning point in China's development depends on how well reforms are implemented."

Wu Jinglian, one of the most influential economists in China, said opposition against the proposed reforms will derive from two aspects.

"The first is people's outdated mindset and the second is from vested interest groups. And the latter is more practical," he said. "For interest groups, the Central Government should on the one hand break down their resistance and on the other lend them a helping hand to solve their practical problems."

For instance, giving farmers property rights over their rural collectively owned land will greatly reduce the income of local governments, worsening the condition of the already heavily indebted local governments, said Wu. "How can they pay their hefty debt when their income has been cut?"

Wu said another thorny issue is the market-based liberalization of deposit interest rates, which is bound to deal a heavy blow to the country's major state-owned commercial banks because they can no longer enjoy the exorbitant profits from the gap between a high loan interest rate and a low deposit rate.

"It will be a tough test on the wisdom and courage of the current generation of Chinese leaders."

Email us at: zhouxiaoyan@bjreview.com

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