Friday 11 May 2012

China braces for more reforms (PO)

By M D Nalapat
China’s rapid economic growth has been the envy of the world. Policymakers from different countries have visited the country in an effort to understand just how the Chinese Communist Party (CCP) was able to generate such an expansion in incomes after Deng Xiaoping took over three decades ago. However,so secretive is the CCP that few have gained accurate insight into the ways in which policy has been formulated in China. Almost all high-level discussions take place in secret,and thus far,there has neither been a Chinese Gorbachev ( who destroyed the system that he sought to reform) or a Chinese Khruschev ( who revealed secrets about the functioning of his predecessors,as the USSR’s Nikita Khruschev did about Stalin). The CCP has kept its high-level internal differences private. However,recently,with the ouster of a top official,Bo Xilai,there has been a spate of comments in NATO media about him.

In China,there is a lot of freedom given to a citizen’s private life,and in some respects,parts of society in big cities are even more socially adventurous than the inhabitants of London or Copenhagen. As usual,NATO media lock on to insubstantial details and convert that into the core of a story. The reality is that Bo’s fall was related to economic policy. He was among the most prominent of CCP leaders who favoured a continuation of the monopoliesawarded to state-owned enterprises (SOEs) in China. Since 1949, SOEs have enjoyed a privileged position in the economy, and in most sectors of the economy, law and regulations work to protect their monopoly positions.Any private player in China posing a challenge to an SOE gets taken over,the way it has happened in the civil aviation sector,for example.

Although SOEs are huge in China,and some of them are even efficiently run,the fact is that their dynamism and growth potential is far below that for private industry in China.The people of the world’s new superpower are among the most entreprneurial in the world.Had the private sector in China been given the freedom that it enjoys in NATO countries,for example,there would today have been many more Chinese companies in the Fortune 500 list than at present. Of course,this would mean a dilution in the privileges given to SOEs by the CCP. Such concessions were helpful at a particular time,in that they ensured that the SOEs grew to giant scale. However,in a world dominated by innovation and the rapid morphing of opportunities,SOEs cannot react and adapt the way private Chinese companies would be able to,were they allowed to grow.

China needs a further stage of economic reform,and this has to be the providing of a level playing field to private entrepreneurs in China. Otherwise, the country will continue to lag behind the NATO countries in terms of branded goods The CCP has shown that it is capable of adapting to changing times.Indeed,this columnist is of the view that when a system of democratic election based on universal suffrage gets established in China,it will be because the CCP will follow the KMT model” of Chiang Ching-kuo, who converted authoritarian Taiwan into a democracy. Such a “political change from above” worked very well on that island,which today has become a fully-fledged democracy.The KMT could have held on to power for many more decades,but it switched to the embrace of democracy and in the 2000 and 2004 elections,even lost power to its rival,the Democratic.

Progressive Party (DPP), now led by the charismatic Madame Tsai Ing-wen. In the case of the CCP, while it has been revolutionary in its adoption of economic policies,the party leadership has thus far been conservative in pushing forward the boundaries of political reform. Clearly,the chaos that ensued in the former Soviet Union ater the collapse of the Communist Party (CPSU) in 1992 has had a huge effect on the CCP leadership,which does not want a similar situation to take place in China While political reform may still be far away, the signs are increasing that a fresh round of economic reform may get launched,especially if economic reformers dominate the new 9-member Standing Committee of the CCP. Such reform will mean an end to much of the shackles that have been holding back the expansion of the private sector in China,and therefore to the monopolies enjoyed by the SOEs.

The ingenuity and business sense of the Chinese people make it clear that such an empowerment of the private sector would create immense expansion in output of goods and services.What the SOEs lose through competition from private companies would be more than made up by the increased output of private players.Of course,such a move would be opposed by the few within the CCP who have benefitted greatly from the monopolyposition enjoyed by the SOEs.Such individuals would be opposed to economic reform that takes away some of their privileges,and can be expected to fight against such moves within party fora. One of the most high-profile defenders of SOE monopolies has been Bo Xilai. The high-profile regional boss was open in his view that only state-owned companies ought to have what Jawaharlal Nehu in the 1950s described as the “commanding heights” of the economy.In India as well,during the Nehru period and now during the Sonia Gandhi period,the private sector was hobbled in order to ensure the dominance of state agencies. The negative effects of the neo-Nehruism of Sonia Gandhi is being seen in the crash of the Indian rupee,from Rs 43 a US dollar just a year ago to Rs 54 a dollar now and falling. Should China avoid the next stage of economic reform,which is to release to the full the immense potential of its own entrepreneur class,the country will inevitably witness a slowdown in growth,the way it is taking place in India,where growth may fall to 4% by 2013 as compared to 9% when the present coalition came to office in 2004. Had Bo Xilai had his way,the effect on the Chinese economy would have been as disastrous as the effects of the UPA’s economic policies are on India,with Telecom,Energy,IT and Education falling sick.Indeed,by the middle of 2013,more than 400 million of India’s 680 million mobile telephone users may have to see services discontinued,because all but a few mobile telephone service providers are likely to close down by that time.

The removal of Bo Xilai from office was because the CCP leadership headed by Hu Jintao and Xi Jinping understands the importance of a new wave of economic reform,this time to energize the Chinese private sector by stripping away the state monopolies that have held back dynamism for so long. The fall of Bo indicates that economic reform is around the corner in China.Once it comes,the country will resume its high-growth trajectory.If only India had a leadership with the vision and the will to implement reform rather than retreat to the 19th century creed that is Nehruism in the 21st century.

—The writer is Vice-Chair, Manipal Advanced Research Group, UNESCO Peace Chair & Professor of Geopolitics, Manipal University, Haryana State, India.

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