China heads back to the 90s in economic reform drive

 The need for an energetic push on economic reform is acute, not least because easier reforms have been done and China's economy will respond in more muted fashion

 

BEIJING: China is poised to launch its most serious economic reform drive since the 1990s after a series of top appointments at the weekend put the architects of Zhu Rongji's clash with state owned enterprises in charge of key economic agencies. 

Vice Premier Ma Kai, Finance Minister Lou Jiwei and central bank governor Zhou Xiaochuan were all Zhu lieutenants at the State Commission for Restructuring the Economy, which drew up the blueprint to sever the army's ties with business and make millions jobless as state-owned enterprises (SOEs) were reformed. 

They headline a clutch of officials in Premier Li Keqiang's new line-up, who are broadly considered pro-business economic reformers able to finish the work started by arch-reformer Zhu when he was premier in a way that meets the different economic conditions of today. 

"China is about to bring on the structural reforms that will ultimately reduce the old SOEs to ashes," Paul Markowski, President of New York-based MES Advisers and a long-time adviser to China's financial authorities, told Reuters. 

"This is changing the economic policy team in a way that would be akin to bringing back the Clinton economic team to run President Obama's economic initiatives," said Markowski, who met with senior officials - including those at the central bank and the powerful planning agency the National Development and Reform Commission (NDRC) - during China's annual parliamentary meeting this month. 

Zhu was credited with getting China into the 
World Trade Organisation in a move that required shutting thousands of inefficient businesses and ultimately set the nation's exporters on course to become the world's most prolific, driving the economy to No.2 spot behind the United States in the process. 

The pace of reform hasn't been matched since; allowing SOEs to expand their share of economic activity and retain their preferred borrower status at the nation's banks, which critics say starves the private sector of capital and chokes innovation. 

The need for an energetic push on economic reform is acute, not least because easier reforms have been done and China's economy, now more than five times the size it was when Zhu left the stage, will respond in more muted fashion. 

In his first news conference since taking charge of the world's second-largest economy, Premier Li pledged on Sunday to take on vested interests in order to ensure the economic restructuring needed to recalibrate China's growth engine and keep it ticking over smoothly for the long term. 

PRODUCTIVITY GAINS NEEDED 

China has set a 7 per cent annual economic growth target in its five-year plan that runs until 2015 and has pledged to double household income over the coming decade, implying the growth target will stay for 10 more years. 

Economists say China must raise economic productivity massively to do so, especially as it plans to spend 40 trillion yuan ($6.4 trillion) in the next phase of urban development, which envisages shifting 400 million people from the countryside to cities over the next decade. 

Li mentioned reform more than two dozen times when answering journalists' questions, leaving little room for doubt about his policy emphasis at the start of his anticipated decade in power. 

It will likely be autumn when the initial reform programme is unveiled at a high-level meeting of top officials from China's ruling Communist Party. 

Until then, the best guess is Li's agenda will be focused on fiscal changes that redistribute income and promote private consumption, cutting China's reliance on investment-led, export-oriented growth while pursuing the next phase of urbanisation that is designed to drive domestic economic activity. 

Ting Lu, chief China economist at Bank of America/Merrill Lynch in Hong Kong, cautioned against playing down the reforms since the end of the Zhu era even if the pace of change clearly slowed.