How far has China come on its path of reform?

By Zheng Yongnian
0 Comment(s)Print E-mail, February 25, 2013
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China has started a new round of organizational reform, also known as "structural reform" to the governmental agencies. To understand how far China has progressed in its restructuring is a prerequisite for drawing up a blueprint for the next stage.

In short, structural reform in China has undergone two major stages since some 30 years ago, when the country started implementing its reform and opening up policy.

The first stage took place between the 1980s and the beginning of this century, in which the objective was to de-politicize the state-owned enterprises (SOE). The second stage, situated between the Sixteenth and the Eighteenth National Congress of the Communist Party of China (2002-2012), aimed at merging the ministries and shifting the government role to a more regulatory one, meaning the government should exert a more effective role to regulate the nation's business sector.

Both stages meant to coordinate the country's economic reform and development.

The first stage intended to bring into being an administrative and regulatory mechanism via economic decentralisation to cope with the country's budding market economy.

In the old (planned) economic system, the government both administered social orders and conducted economic activities; whereas in a market economy, the economic sector makes its own business decisions, independent of the government's intervention.

The process was difficult. Despite the first wave of structural reform during the 1980s that halted many central administrative departments directly intervening businesses, local governments still clung to their economic powers, reluctant to hand them over to the companies.

Robust local economic powers contributed to the rise of what the academic circles call the "developmental state." Local governments competing with each other at the same time effectively boosted local economy across the country. However, this also fostered local protectionism, which in turn undermined the market development on a national scale.

The year 1992 was a remarkable one. During this year, Deng Xiaoping undertook his tour of southern China, and the CPC held its 14th national congress, formally putting forward the notion of a so-called socialist market economy. From that time on, the government, especially the local ones, was beginning to give more economic power to the companies. This wave reached its peak when Zhu Rongji was serving as China's premier.

It was a time when China's SOEs were experiencing various difficulties, such as overstaffing, low efficiency and huge deficits.

Soon afterwards, around the mid-1990s, the central government took the initiative to "invigorate large enterprises while relaxing control over small ones," a change directly brought on by the notion of the socialist market economy.

Invigorating central SOEs facilitated such enterprises' incorporation and legal personalization, transforming them into real-sense companies that would only function as economic entities; whereas in the past, their functions also included political and social ones.

In the mean time of reorganizing central SOEs, the government engaged in privatizing middle and small businesses. Only a small number of local SOEs remained untouched in terms of their proprietorship. Privatization was different in its effect nationwide though. In some places, such effort was met with huge obstacles.

This process was the precondition for the later success of the structural reform in governmental agencies. Only when the government truly extracted itself from any direct business involvement, its staff number could shrink while empowering the companies to independently conduct businesses.

In 1998, then-Premier Zhu Rongji personally saw to cutting down 11 central governmental agencies, limiting their number to 29. Quitting direct economic activities, the government laid the foundation for further reform, namely to establish a regulatory government.

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