China’s Third Plenum: Summary, roundup, and questions

Last week’s Third Plenum of the Chinese communist party in Beijing had something for everyone. A reform of migration restrictions for rural citizens, a relaxing of the one-child policy and banking reform for the urban middle class, and an enlarged profile for the market in economic affairs. At the top of it all, President Xi Jinping solidified his role as the strongest leader since Deng Xiaoping. Yet one question wasn’t addressed: how is the party going to prepare for a country where the middle class  has become a majority and demands the political power that comes with their enlarged status?

With its initial communiqué making a poor impression on the media and the markets, the Central Committee decided to release its program ahead of schedule, with the full text of Xi’s speech to the committee as an additional exposition on the reform measures. China’s Third Plenum was widely expected to introduce a number of sweeping reforms to the county’s policy, particularly in the economic sphere. Echoing the Deng-led 1978 meeting, this meeting was expected to deepen the “reform and opening up” (gǎigé kāifàng, 改革开放) which has led to China’s rapid rise.

Even the modest blip from their double-digit growth rate following the 2008 financial crisis has China worried. While its export-driven model has brought them to becoming the world’s second largest economy, only by developing a middle class—that is, a consumer class—can the country ensure further long-term growth. Commentators had called for loosening restrictions on rural migration, strengthening consumer banking, and liberalizing markets to promote domestic spending and investment.

Summary of the Third Plenum’s Reform Agenda

After an initially baffling statement, the meeting’s policy agenda largely met expectations:

  1. The one-child policy would be relaxed, with couples allowed to have two children if either were themselves an only child.
  2. Rural migrants would be able to obtain an urban houkou more easily. Previously migrants were unable to register as residents of cities, leaving them unable to obtain social benefits or purchase property. For the first time China has become 50 percent urban, but 16 percent live as second-class citizens without an urban hukou. 
  3. Rural land reform, would allow farmers to “more easily” sell, lease, and borrow against their land. Stemming from earlier collectivization, all rural land is owned by the local Party, whose agreement is required for any sale. Not only is this a problem for a farmers looking to expand or change their business, but sales of land have become a way for local officials to generate revenue and line their pockets.
  4. The end of “reeducation through labour” and a limit to the number of crimes to which the death penalty applies. The extra-judicial system has for decades sent criminals and dissidents to labour camps without trial or appeal.
  5. The creation of a National Security Council streamlining foreign affairs, the military, and domestic security, modeled on the similar US council, but with a stronger view towards internal security. China here joins governments worldwide in using their favourite catch-all group of monsters: terrorists, extremists, and separatists. This is to be headed by President Xi, who already sits at the head of the Military Affairs Group of the CPC.
  6. Creation of a reform leadership group, also under Xi’s control, to further “comprehensively deepening reform.” Staffed by high-ranking members of the Politburo, this group’s mandate is broad in scope, overseeing the entire reform process from policy development to program implementation.
  7. The liberalization of the financial market, allowing small- and medium-sized private banks, as well as calls for the development of deposit insurance, the acceleration of market-set interest rates, and the convertibility of the Renminbi.
  8. In broad strokes, the Central Committee has called for an upgrade of the place of the market in society, from a “basic” to a “decisive” role in allocating resources. Private firms can now enter some protected markets, such as railways.
  9. Paradoxically, however, they’ve also called for an increase in the vitality and influence of state owned enterprises (SOEs), although this might be a matter of political expediency. SOEs must now remit 30 percent of their profits, up from 0-15 percent, and their is a move towards more professionalized management, with a separation of their business functions from government.
  10. Sweeping PLA structural reform, with a shift to joint command system and establishment of operational theater commands to replace the current seven military regions.
  11. Calls for a crack downs on pollution, greater control over the Internet, for the creation of an anti-corruption watchdog free from local interference, and for more collaborative decision making with an increased role for the rubber-stamp National Assembly.

President Xi comes out on top, but can he pull it off?

The meeting solidifies President Xi’s position as a new paramount leader. Many of these reforms, such as the creation of the National Security Council, had been proposed by Xi’s predecessors, Hu Jintao and Jiang Zemin, without success. Unable to outdo opposing factions, mainlanders have taken to to calling Hu’s ten-year leadership a “lost decade.” It was widely believed that the era of the strong leader had ended, as consensus decision making gained prominence and an equal role developed for the Premier, particularly in economic matters. Yet, Xi was said to have himself led the team which drafted the resolution, a team which didn’t include Premier Li. By heading both the new security and reform groups, Xi has emerged as the strongest leader since Deng Xiaoping.

However, as the case of Bo Xilai demonstrates, significant power still remains at the local level, although Xi has used a struggle against anti-corruption to remove any obstacles to his reform agenda. Party bosses will be particularly obtuse to any reform of SOEs, which remain an important source of employment and tax revenue for cash-strapped local governments. Even if the reforms promote growth throughout the countryside, it might make governing the country that much more difficult, as power is decentralized following economic growth. It remains to be seen whether Xi can marshal the political muscle to both pull off these changes and weather their effects.

Is the closed society more efficient than the open one?

Along with economic reform, China’s Third Plenum has solidified state security and continued Xi’s crack-down on Internet freedom. As Orville Schell notes, Xi continues the long line of Chinese rulers, from Sun Yat-sen to Deng Xiaoping, with a goal of “not a more enlightened, democratic country, but a nation unified by nationalism and ruled by a single disciplined party that could galvanize China into meeting the historic challenge of becoming a wealthy and powerful, and thus respected, nation in the modern world.”

Thus, while the reforms of the one-child policy and the judiciary seem to be a move towards greater human rights, we have to balance this against the tightening of media controls, the detention of activists, and a rejection of “universal values” of human rights as a bourgeois strategy to weaken the Party’s theoretical underpinnings.

The current leadership, following in Deng’s footsteps, continues to believe that “a closed society with relatively open markets is a more efficient way of generating wealth, power, and respect than an open society paralleled by an open market.” The question is, will the people share that belief along with them? As people move from the country to the city, from poverty to affluence, and from a state of ignorance to a state of education, how long can the Communist Party rely on their continued support?