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6 White Paper on the Business Environment in China
1.8 Suggestions
Continue with Reform – Urgently economy, should first be the keystone of reforms. Currently,
local government units and SOEs are the main beneficiaries
(This suggestion section “Continue with Reform” is incorporated of China’s investment and industry-driven growth model,
from our 2015 White Paper.) and Mr. Tao says, they pose “the main barriers to reform.”
China’s reform, said Mr. Tao, should start by breaking up
It is now obvious to any China-watcher that the coun- the local governments’ monopoly of the land market and
try under President Xi Jinping’s leadership is continuing its allowing farmers to develop land on their own. That would
ambitious reform program. The question most pundits are take local governments out of the real estate game and reduce
pondering is, are these reforms going to be sufficient at this their incentive to support the status quo. He also proposed
time in order for President Xi’s administration to achieve its that private players should be allowed a stake in monopoly
stated goals by 2020, or, in view of the sharp slowing down of industries such as telecoms and utilities to encourage
China’s economic engine, will it be a case of too little, too late? competition. But the crucial point Mr. Tao makes is “it’s
the monopoly power of local governments and SOEs that
As early as February 2012, the Wall Street Journal had gives them an effective veto on crucial economic reforms.
previewed “China 2030”, a report co-authored by the World Breaking the monopolies breaks the power of the anti-reform
Bank and the Development Research Center (DRC)—a coalition.” This, according to Mr. Tao, would pave the way
Chinese government think tank that reports to the State to other necessary reforms like market-based interest rates, a
Council and which counts among its members, Liu He, floating yuan, higher dividend payments by SOEs, and more.2
a senior adviser to the Politburo Standing Committee, and
said that the report calls urgently for the implementation of Yes, there are incredible, painful challenges ahead in the
“deep reforms, including scaling back its vast state-owned ongoing road to reform for China’s leadership but we as the
enterprises and making them operate more like commercial writers of this paper are confident and believe, much like
firms.” The report also “recommends that state-owned firms Daniel Rosen, author of the 2014 Asia Society report pro-
be overseen by asset-management firms” and “urges China to duced in collaboration with the Rhodium Group, that China
overhaul local government finances and promote competition knows these reforms are for the benefit of its own national
and entrepreneurship.” The report also recommends a sharp interest and, therefore, must be achieved. Since it laid out its
increase in the dividends that state companies pay to the reform agenda in the Decisions at the 2013 Third Plenum of
government, boosting government revenue and helping to the Chinese Communist Party, we believe, along with Daniel
pay for new social programs. The report urges that Chinese Rosen, that China’s leadership is making “real headway” in
social expenditures be funded more by dividends from state- its bold program to overhaul and liberalize its economy and
owned firms and by property, corporate and other taxes. that, if President Xi’s administration succeeds in carrying out
The report was quite adamant about pressing its case for the its tasks, China will be on track in maintaining “a respectable
urgency of reforms to be implemented, stating unequivocally 6% growth rate” by 2020.3
that if reforms are not carried out – by 2030, China faces “an
economic crisis,” the Wall Street Journal said. In a statement In coming up with a 6% forecast - if all reforms are fully
to announce the report’s release, World Bank President implemented — Mr. Rosen’s report focuses on nine “clusters”
Robert Zoellick said, “The report lays out recommendations of economic and political reform aimed broadly at reducing
for a development growth path for the medium term, helping centralized control over the Chinese economy and opening it
China make the transition to become a high-income society.”1 up to more market influence. In all, Mr. Rosen’s analysis finds
that “quiet progress is being made in some politically sensitive
In a subsequent interview with the Wall Street Journal areas of reform.” Much like Mr. Tao before him, Mr. Rosen
following the release of “China 2030”, Tao Ran, a professor said the starting point for the reform agenda is “a more funda-
with the Renmin University School of Economics, that the mental overhaul of the fiscal relationship between the central
report’s proposals are “well-intentioned” but are “doomed to government and the provinces.” The current arrangement has
fail”, because “they don’t strike at the underlying reason” why allowed “an imbalanced division of power and responsibility
China’s reforms will stall: “opposition from local governments between central and local authorities [which] has given rise to
and SOEs.” Mr. Tao says that breaking up the monopoly pressing misallocations of resources and provincial resistance
control by local governments and SOEs of key sectors of the to central reforms,” Mr. Rosen wrote.3
102
1.8 Suggestions
Continue with Reform – Urgently economy, should first be the keystone of reforms. Currently,
local government units and SOEs are the main beneficiaries
(This suggestion section “Continue with Reform” is incorporated of China’s investment and industry-driven growth model,
from our 2015 White Paper.) and Mr. Tao says, they pose “the main barriers to reform.”
China’s reform, said Mr. Tao, should start by breaking up
It is now obvious to any China-watcher that the coun- the local governments’ monopoly of the land market and
try under President Xi Jinping’s leadership is continuing its allowing farmers to develop land on their own. That would
ambitious reform program. The question most pundits are take local governments out of the real estate game and reduce
pondering is, are these reforms going to be sufficient at this their incentive to support the status quo. He also proposed
time in order for President Xi’s administration to achieve its that private players should be allowed a stake in monopoly
stated goals by 2020, or, in view of the sharp slowing down of industries such as telecoms and utilities to encourage
China’s economic engine, will it be a case of too little, too late? competition. But the crucial point Mr. Tao makes is “it’s
the monopoly power of local governments and SOEs that
As early as February 2012, the Wall Street Journal had gives them an effective veto on crucial economic reforms.
previewed “China 2030”, a report co-authored by the World Breaking the monopolies breaks the power of the anti-reform
Bank and the Development Research Center (DRC)—a coalition.” This, according to Mr. Tao, would pave the way
Chinese government think tank that reports to the State to other necessary reforms like market-based interest rates, a
Council and which counts among its members, Liu He, floating yuan, higher dividend payments by SOEs, and more.2
a senior adviser to the Politburo Standing Committee, and
said that the report calls urgently for the implementation of Yes, there are incredible, painful challenges ahead in the
“deep reforms, including scaling back its vast state-owned ongoing road to reform for China’s leadership but we as the
enterprises and making them operate more like commercial writers of this paper are confident and believe, much like
firms.” The report also “recommends that state-owned firms Daniel Rosen, author of the 2014 Asia Society report pro-
be overseen by asset-management firms” and “urges China to duced in collaboration with the Rhodium Group, that China
overhaul local government finances and promote competition knows these reforms are for the benefit of its own national
and entrepreneurship.” The report also recommends a sharp interest and, therefore, must be achieved. Since it laid out its
increase in the dividends that state companies pay to the reform agenda in the Decisions at the 2013 Third Plenum of
government, boosting government revenue and helping to the Chinese Communist Party, we believe, along with Daniel
pay for new social programs. The report urges that Chinese Rosen, that China’s leadership is making “real headway” in
social expenditures be funded more by dividends from state- its bold program to overhaul and liberalize its economy and
owned firms and by property, corporate and other taxes. that, if President Xi’s administration succeeds in carrying out
The report was quite adamant about pressing its case for the its tasks, China will be on track in maintaining “a respectable
urgency of reforms to be implemented, stating unequivocally 6% growth rate” by 2020.3
that if reforms are not carried out – by 2030, China faces “an
economic crisis,” the Wall Street Journal said. In a statement In coming up with a 6% forecast - if all reforms are fully
to announce the report’s release, World Bank President implemented — Mr. Rosen’s report focuses on nine “clusters”
Robert Zoellick said, “The report lays out recommendations of economic and political reform aimed broadly at reducing
for a development growth path for the medium term, helping centralized control over the Chinese economy and opening it
China make the transition to become a high-income society.”1 up to more market influence. In all, Mr. Rosen’s analysis finds
that “quiet progress is being made in some politically sensitive
In a subsequent interview with the Wall Street Journal areas of reform.” Much like Mr. Tao before him, Mr. Rosen
following the release of “China 2030”, Tao Ran, a professor said the starting point for the reform agenda is “a more funda-
with the Renmin University School of Economics, that the mental overhaul of the fiscal relationship between the central
report’s proposals are “well-intentioned” but are “doomed to government and the provinces.” The current arrangement has
fail”, because “they don’t strike at the underlying reason” why allowed “an imbalanced division of power and responsibility
China’s reforms will stall: “opposition from local governments between central and local authorities [which] has given rise to
and SOEs.” Mr. Tao says that breaking up the monopoly pressing misallocations of resources and provincial resistance
control by local governments and SOEs of key sectors of the to central reforms,” Mr. Rosen wrote.3
102
