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Last week the Central Party Committee of China’s Communist Party, led by president Xi Jinping, wrapped up the four day “Central Committee Economic Work Meeting,” convened to set the national economic agenda for the coming year. The dull sound of the meeting and the highly controlled language in which its prescriptions were issued neutralize the resonance of the Party’s upcoming challenges, and show the government’s caution in terms of betting on political and economic trends.
The “6 tasks” prioritized at the meeting were broad. They included reducing structural overcapacity throughout the economy, improving food safety and security, resolving the shortage of “good” housing, and opening to the outside world through the accelerated “negotiation” of free trade zones of the kind introduced in Shanghai in October.
The most radical departure from the status quo concerned debt management at the local government level. Starting next year, the central government will no longer guarantee the debts of local governments. As an observer named Zhi Long Chen noted, this move indicates the severity with which the Central Government is treating the debt levels of local governments, whose financial troubles, in some cases, are “worse than Greece’s.”
In the aftermath of the 2008 global financial crisis, local governments across China began to take on large amounts of debt to fund economic development, a process that accelerated in 2012 and 2013, contributing to fears of a “cash crunch” that hit the banking system in June. According to Xinhua, debt accumulation by local governments owed in part to the “worshipping” of GDP targets, which were often achievable only by taking on debt (not to mention degrading the environment) that officials assumed their successors would pay back. Debt levels are still manageable, Chen argued, but can’t be taken lightly.
From 2014 on, GDP and growth levels will no longer serve as the main criteria for official evaluation. Instead, officials will be graded on “quality” growth, of which healthy debt levels are one aspect. “Cities like Kaifeng, Xinzheng, Shenmu, Ordos, Guiyang and Wenzhou have already provided us fresh ‘Chinese versions’ of Detroit,” Chen wrote. But do the new rules about debt responsibility indicate that the Central Government is willing to let these cities fail like Detroit?
The other interesting item produced by the meeting concerned something that the CPC didn’t say. While it mentioned the need to increase the stock both of “quality” and cheap rental housing, it didn’t vow to control housing prices, a subtle, yet critical omission that distinguishes this year’s conference from 2011 and 2012. In the view of housing expert Yang Hong Xu, this is a clear indication of the Party’s willingness to yield to the “invisible hand” of the market. In October, President Xi said that with respect to housing the government would act as a basic guarantor, while the market would act as allocator.
But the lack of attention or absence of other issues from the list of “6 Tasks” suggests that the Party is not willing to relax its grip on the economy across the board. These include reform of the household registration system— which ties the public services that citizens receive to the municipality in which they are registered — and land reform, including granting farmers title to their land. Reforming these two areas would mean granting the Chinese people —especially farmers —huge increases in social mobility. The household registration system (hukou) legally binds farmers to rural areas, but it is their lack of legal ownership rights to their land that poses the biggest economic deterrent to migrating to the city. Only in a few pilot zones around the country can farmers who look elsewhere for work lease or sell their land to other farmers who might use the land more effectively. Nevertheless, tens of millions of rural residents leave the countryside every year.
China’s urbanization formed the backdrop of the Party’s 4-day meeting last week, the longest in history. A welfare securities analyst named Guan Qin Fan attributed the length of the meeting to this thorny subject. The Party is deciding how best to channel the tidal wave of urbanization while simultaneously giving way to a freer system. From the looks of this meeting, “freeing” will occur, for the moment at least, primarily in areas where the government can retain the most control.
A Layover in Wuhan 