China is set to introduce further liberalisation methods, including an easing
of the controversial ‘one child per family’ policy introduced in 1979 to check
population growth, according to state media.
The announcement follows the recently-concluded third plenary session of
the Communist Party of China (CPC) central committee, which apparently decided
to maintain state control of the economy and continued public ownership while
allowing further modernisation of the financial system.
Media reports also stated that China will end its controversial ‘re-education
through labour’ system of administrative, extralegal detentions which can send
people to prison for four years without conviction. The system, giving authorities
the power to detain critics and opponents without due process, has long been criticised
by human rights groups. A communiqué issued since the talks concluded earlier this
week mentions moving to more market-based pricing, liberalising resources and
financial markets and allowing more equal competition between private and state
enterprises. It offers a little more detail than the vague statement issued
three days ago.
Chinese leaders pledge to establish a system for insuring bank
deposits, prepare a mechanism for financial bankruptcy and ease controls on
prices for energy, water, telecommunications and other services. They will also
increase the amount of profits that the country’s massive state-owned
enterprises pay to the government.
The government also promises to improve the rule of law and to develop
a more law-focused and service-oriented administration.
UK news reports quoted Steve Tsang, a professor of Chinese
studies at the University of Nottingham, who said that the policy change on
limiting families “should lead to a significant reduction in the abuse of human
rights, in terms of forced termination. This is still a very, very, very big
issue, and it is one of the most regular abuses of human rights that happen in
Tsang added that China’s unwillingness to abolish the
policy altogether suggested it was more concerned with the economic, rather
than human cost. “Until now, the growth of the Chinese economy has been
propelled by a demographic surplus, and that has been turning into a
demographic deficit,” he said.
Credit ratings agency (CRA)
Fitch commented that this week’s announcements suggest that China’s top leadership perceives a need for structural
reform and could lay the groundwork for measures that help rebalance the
economy – and thereby limit the build-up of further stresses on the sovereign
However, Fitch added that it does not view these announcements as a
definitive roadmap for, or last word on, reforms, as may have been anticipated
by many market participants.
China is only at the start of a
busy policy-making calendar leading up to the National People’s Congress in
The main factor weighing on
China’s sovereign ratings is the unsustainability of its current investment-led
and credit-fuelled growth model. The post-session communiqué provides two
important signals which suggest that the authorities are approaching this
One signal is the increased
emphasis on the market for allocating resources, including basic inputs such as
financing, power, water and land, with the government consigned to a regulatory
role. This could ultimately erode an implicit subsidy long enjoyed by large
firms, and prove important for a more efficient allocation of capital. This is
significant, as investment has risen to just short of 50% of China’s gross domestic
product (GDP) – a rate which is without parallel and likely to be
unsustainable. But any expectation of a rapid adjustment in the way investment
allocation is decided has been tempered. This is because the authorities have
also reiterated the dominant role played by state-owned enterprises – which
have driven much of the country’s investment.
Another signal is the establishment of a central leadership team on reform. Chinese state news agency
Xinhua reported that “the team will be in charge of designing reform on an
overall basis, arranging and coordinating reform, pushing forward reform as a
whole, and supervising the implementation of reform plans”.
Fitch cited other notable announcements which hinted at fiscal reforms to
improve the alignment of income and spending responsibilities between local and
central governments; financial reforms that gradually introduce liberalisation
by the establishment of additional free trade zones (FTZ); and land reforms to
facilitate further urbanisation – by the provision of greater property rights
Lacking so far is a further detailed report on the indebtedness of local
governments which the State Council has asked the National Audit Office (NAO) to
undertake, updating an earlier version completed in 2011.
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