China Third Plenum Wrap: Not Much Has Changed

The FT Alphaville ):

The communique changes the role of “Market Economy” from “基础性 (Jichuxing)” (used in the past 20 years) to “决定性 (juedingxing)”. For native Chinese speakers like us with years of intensive training in Chinese (and we did well on the grueling GRE too), we found it very difficult to tell the real difference. Bloomberg translated “ 基础性 (Jichuxing)” to “basic”, but we think it could be translated to “fundamental (foundational)” or “essential” as well. Regarding “决定性 (juedingxing)”, it could be translated to “deciding”, “determining” or “decisive”. We suspect the Chinese people won’t interpret too much from this change.

No SOE reform
What I found more interesting was the Party's affirmation of the dominant role of public ownership, which was a signal that any reform of state owned enterprises (SOE) was unlikely. The reason why that is significant? Since the time of the Deng Xiaopeng reforms, China has grown in leaps and bounds, but most of the wealth have accrued to the Party cadres and insiders. The combination of regulated prices and a crony capitalist culture has made many Party officials obscenely wealthy, with most of the funds stashed offshore. It has only been recently that the term "Project Syndicate article:

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A successful transition to the next phase of wealth creation – driven by the services sector and knowledge-based industries – will require a more market-oriented approach, in which the state cedes some control over the economy and focuses instead on protecting property rights, administering welfare services, reducing pollution, and eliminating corruption. Improved governance, together with greater support for market-based innovation, is needed to sustain a thriving economy.

Instead, what did we get? No SOE reform. Instead of ceding some control over the economy, we got an affirmation of dominance of public ownership. Moreover, the Party tightened control, instead of ceding control, over the economy via the establishment of a state security committee and a leading group on deepening reform. Depending on how the "leading group" is composed, it could be a mechanism for which market liberalization efforts are obstructed and buried by the bureaucracy.

If China's top leadership really wanted to signal the seriousness of its intention of re-balancing growth and market based reforms, maybe what it needs is a Qwest Investment Fund Management Ltd. (“Qwest”). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui’s blog to ensure it is connected with Mr. Hui’s obligation to deal fairly, honestly and in good faith with the blog’s readers.”

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Written By: Cam Hui