The surprisingly frank economic advice that Xi Jinping gets
The minutes of a party meeting show voices in favour of bolder reform
In politics, fringe ideas can become mainstream and vice versa. The “window of political possibility” can expand or move, as Joe Overton, an American political analyst, once put it. The same is true even in communist China. In 1978, for example, the country’s Overton window made a momentous shift. Two years after the death of Chairman Mao Zedong, it became possible for the party to acknowledge that the great helmsman was not infallible. This pragmatism paved the way for faster economic reform and for Deng Xiaoping to become China’s paramount leader. The change was sealed at a landmark meeting of the party’s central committee: the “third plenum” of December 1978.
China is now preparing for another third plenum, which will be held from July 15th to 18th. It has been over a decade since such a meeting was devoted to economic reform. In principle, the gathering could signal a renewed determination to tackle China’s long-standing economic problems, including weak consumer demand, narrow taxes, miserly social spending, restrictions on internal migrants’ access to services and bureaucratic impediments to private enterprise. It is, therefore, a good time to examine the country’s Overton window: the range of permissible economic opinion within Chinese officialdom.
On the face of it, the window is narrow. The ideological ferment of 1978-81 is notably absent. The country’s current helmsman, Xi Jinping, has made costly mistakes: an unsustainable zero-covid policy, clumsy restrictions on China’s internet platforms and a poorly calibrated crackdown on the property market. But no leader would dare say of him what Deng said of Mao: that he was only 70% right, 30% wrong.
Indeed, some critics of China’s economic model worry that Mr Xi operates in an information bubble. Perhaps the leader has fallen prey to his own personality cult. He does not correct his blunders because he thinks they are triumphs. But the explanation for his mistakes is not so simple. In the realm of economic policy, the range of permissible opinions is wider perhaps than many people realise. On a number of economic issues, including the woes of private enterprise, the shortfall of consumption and the need for social spending, some advisers are surprisingly frank.
One example is Yang Weimin, who helped draft the documents for the third plenum in 2013 and served in the Chinese People’s Political Consultative Conference (CPPCC), an official advisory body. “The core problem”, he told Caixin magazine last year, “is that the government carries out too much direct allocation of resources and too much unreasonable intervention.” China suffers from overcapacity, for example, not just because of the blindness of the market, but also because of “blind investment driven by local governments”.
The CPPCC is made up of all sorts of party members, from artists to entrepreneurs. It has negligible power. Nothing its members say is guaranteed, or even likely, to turn into policy. But by the same token, nothing its members say can be considered outside the Overton window. So we delved into the minutes of the CPPCC’s standing-committee meeting on June 4th-6th (it convenes every few months) to check what remains sayable. Scattered amid the dogma are some good ideas.
“Both theory and practice have proven that the market is the most efficient way to allocate resources,” noted Yi Gang, a former governor of China’s central bank, at the meeting. The phrase echoed a line Mr Xi himself wrote after the third plenum of 2013. The government, Mr Yi added, should concentrate on providing public goods, responding to market failures and maintaining fair and competitive markets.
Li Longxi, another standing-committee member, pressed the government to “vigorously boost the confidence of business entities”, by removing hidden barriers that prevent private firms from competing with state-owned enterprises. The government claims to treat firms equally regardless of their ownership. But equal treatment is “easier said than done”, he pointed out.
Mr Li urged the government to hasten the passage of a private-sector promotion law, which it began drafting in February. The measure aims to protect firms from what one delegate called “arbitrary actions, multiple inspections [and] selective law enforcement”. It also hopes to stop new officials from washing their hands of old contracts and commitments to private enterprises. He proposed that party officials should be evaluated on their success in cultivating private enterprise. Another delegate advised the government to “let private enterprises and entrepreneurs truly feel that they are ‘our own people’”, setting their minds at ease. The government’s actions should be like dingxinwan, he said. The term roughly translates as “chill pills”.
Firms will not thrive without strong demand for their products. The “three horses” driving growth are consumption, investment and exports, pointed out Sun Jiye, another delegate. But “the role of consumption in driving the economy is not strong enough,” he argued, echoing economists outside the party. To “eliminate consumption worries”, the government should boost employment and wages and “expand the channels” for residents to earn income from their property, presumably by renting it out. Other delegates recommended giving “full play to the redistributive role of an effective government”, revising taxes to favour low-income groups.
Consumers will also spend more and save less if they have fewer concerns about paying for their retirement and potential medical expenses. Government spending on health care and social security has increased as a share of GDP in the past 15 years. Nonetheless, pensions remain inadequate. “There is a lack of economic security in old age,” one CPPCC member observed, especially in rural areas. Many gig workers also fall outside the pension net. The delegate called on the government to transfer more state-owned capital to the social-security pot, which is meant to fund workers’ pensions.
Another way to increase consumer spending is to reform China’s hukou system of household registration, which denies migrant workers equal access to public services. One speech noted “the policy inertia that regards migrant workers as passers-by”. Many internal migrants are unwilling to give up their rural hukou for an urban registration if it means forfeiting their collective land rights in their home villages. CPPCC members therefore urged the government to build on pilot schemes that allow these rights to be sold or leased.
Will China’s leaders adopt any of these suggestions? Not every third plenum amounts to much. The meeting in 1978 eventually shook the world. “But no third plenum since the turn of the century has had even a fraction of that impact,” writes Mark Williams of Capital Economics, a consultancy. The gathering in 2013, a year after Mr Xi took power, looked bold on paper. But it ultimately failed to live up to its promise to give the market the “decisive role in allocating resources”.
The false promise of that meeting will cast a shadow over the gathering in July. Even if the third plenum makes encouraging commitments, the people who most need to hear its message may not believe it. Third plenums are an opportunity for the country’s leaders to advertise their priorities to the party. But to revive confidence in China’s economy, they will have to convince a far bigger audience: the country’s disheartened entrepreneurs, homebuyers and consumers, who take part in the everyday plenum of the marketplace. ■
This article appeared in the China section of the print edition under the headline “Blowing against ill economic winds”