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In Rare Move, Chinese Think Tank Criticizes Tepid Pace of Reform

By: 2017/5/16 15:46:43
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China’s ambitious plan to revamp its economy has bogged down. Flabby state conglomerates have thwarted attempts to whip them into commercial shape. Rules that treat millions of city-dwelling rural migrants like second-class citizens have barely budged.

Such criticisms are common from skeptical foreign economists who have long argued that President Xi Jinping’s efforts to remake China’s economy and fix pernicious social problems have been too slow and tepid.

But these withering findings on China’s reforms come from a startling place: from within the government itself.

Just as striking, this unflattering report card from a Chinese state think tank — published this monthwith little fanfare — faults misconceived “top-level design” in policies, as well as local bureaucrats and state managers reluctant to change.

It concludes: “Reform has to some extent fallen into stalemate.”

The report brings into focus a sharpening debatein China about economic priorities. Experts inside and outside China say the country’s economy needs to be overhauled to continue growing fast enough to provide jobs and higher incomes for its people.

Blunt public warnings from Chinese government institutes are uncommon, and fly in the face of rosy official propaganda. But some officials have also recently argued that reform efforts are moving too slowly.

Recently, Mr. Xi also bristled with impatience. Leading officials “must shoulder the burden of reforms and have the courage to pound the table on key issues,” a policy group on reform led by Mr. Xi said after a meeting on Friday, according to state media. “Those who don’t shoulder responsibility, who shirk the burden and go through the motions, must be held accountable.”


President Xi Jinping. The few mentions of Mr. Xi in a report critical of economic reform efforts are laudatory. Yet the report may add to arguments that he must move faster to fix economic problems. Credit Lintao Zhang/Getty Images

The report comes ahead of a Communist Party leadership shake-up later this year that is likely to further solidify Mr. Xi’s hold on power. While the report’s few mentions of Mr. Xi are laudatory, it may add to arguments that he needs to move faster to fix economic problems.

Most prescriptions call for China to ease reliance on exports and government spending, nurture its growing ranks of middle-class consumers and let companies make decisions based on market forces instead of political mandates. Toward many of those ends, in 2013 Mr. Xi unveiled a set of 60 main reform goals.

The new report, a 217-page study titled “The Reform Obstruction Phenomenon,” was written by researchers from the Economic System and Management Instituteof China’s National Development and Reform Commission, which steers policy on industry, energy and many other sectors. The head of the commission, He Lifeng, and his deputy, Liu He, both have ties to Mr. Xi. But nothing in the report suggests that it had their blessing. The authors declined to be interviewed.

Chinese leaders say they have struck the right balance between maintaining robust economic growth and jobs and fixing problems threatening long-term growth, such as excessive dependence on state investment. Their catchphrase is “progress through stability.”

But critics argue that the policy changes have slowed or foundered. The report, together with recent comments from a couple of senior officials, indicates that some government insiders agree.

“There must be more political courage and wisdom,” the report said. Despite the vision laid out in 2013, it said, “it’s been quite difficult to reach consensus on specific reform measures, and there have even been policies at odds with this general direction.”

The report credits the government with some progress, including trimming red tape and abolishing the “one-child” policythat limited most urban families. But the researchers found that changes announced at the top often delivered less on the ground.

A shopping mall in Beijing. Most economic prescriptions call for China to ease reliance on exports, nurture middle-class consumers and let companies make decisions based on market forces. Credit Fred Dufour/Agence France-Presse — Getty Images

Efforts to redefine how different levels of government spend and tax have become mired in bureaucratic feuding. Local governments fear losing revenue from selling off land while they must pay for growing demands for services. Personal income and property tax changes have been discussed, “but ultimately it’s brought loud thunder but little rain.”

Repeated attempts to make hospital care less expensive and more accessible have been frustrated by bureaucratic rivalries and a failure to take on monopolistic hospitals and train more doctors, the report said. The result, it said, is that “seeing a doctor has become even more difficult.”

China’s hundreds of millions of migrant workers, who leave their farms and villages for jobs in the cities, usually don’t qualify for urban benefits like health care or education for their children. Experts have called on China to ease up on the limits in order to help turn migrant workers into bigger consumers. But many cities have created point systems that still exclude them, the report said.

State companies — many of which suffer from overcapacity and heavy debt, burdening the broader economy — have resisted plans to rein them in while rival agencies have bickered over the direction of change.

“Over all, progress in every reform of state-owned firms has been quite sluggish,” it said.

Above all, the report said, local officials have been besieged by conflicting demands to be both cautious and courageous, and have become allergic to taking risks that could end their careers or even land them in detention on charges of violating party discipline.

“It’s an inescapable objective fact that the enthusiasm of many local governments to get things done has fallen greatly,” said the report. “The lack of vigor in implementing reform plans has become the most pressing difficulty in our country’s efforts to comprehensively deepen reform across the board.”

But the authors do not blame the sluggishness just on foot-dragging cadres and state executives, an impression sometimes left by state-run news media reports.

Migrant workers at a construction site in Beijing. Such workers usually don’t qualify for benefits like health care or education for their children. Credit Kevin Frayer/Getty Images

Instead, they say that the “top-level design” of promised reforms in state-owned business and other areas has been marred from inception by confusion, vagueness and unrealistic or conflicting demands.

“Currently, a bigger reason why reforms in some of our country’s key sectors have had difficulty moving forward may lie in the thinking behind the top-level design of these reforms,” the report said.

It added, “the source of the obstructions lies in the policy making.”

For example, the report said, a rule that slashed the salaries of managers at state-owned companies backfired. “This undermined the enthusiasm of central state-owned enterprises, so they had even less vigor and dynamism,” it said.

Some senior officials have also been making the case for more urgency in overhauling the economy.

China’s former finance minister, Lou Jiwei, said at a forum in Beijing this month that governments were using debt sustained by lax monetary and financial policies to delay making difficult changes. He didn’t name China but did not exclude it, either.

“This has made people unwilling to endure the pain of reform,” said Mr. Lou, who stepped down from the ministry in November and now runs the state agency that manages social security funds.

Mr. Xi said in 2015 that his reforms faced “obstruction,” and the party has said that his elevation to “core” leader — a vague but powerful title he received last year — was intended to help push through difficult economic changes.

But the researchers also urge the government to become more open and consultative in drawing up policy — something that may not come easily to Mr. Xi, who has centralized power and warned officials against bending orders.

“Give local officials more room to explore and experiment,” the report said. “Don’t settle scores with them even if their efforts fail.”


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