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China opens key meeting to set economic reform agenda

A street vendor displays a souvenir with pictures of Chinese President Xi Jinping (L) and the late Chinese Chairman Mao Zedong to visitors a
A street vendor displays a souvenir with pictures of Chinese President Xi Jinping (L) and the late Chinese Chairman Mao Zedong to visitors a

By Benjamin Kang Lim and Ben Blanchard

BEIJING (Reuters) - Chinese leaders began a four-day secret meeting on Saturday to set a reform agenda for the next decade as they try to push more sustainable growth after three decades of breakneck expansion.

However, analysts have cautioned against expectations for big changes as they say stability remains the watchword for the leadership.

President Xi Jinping and Premier Li Keqiang must unleash new growth drivers as the world's second-largest economy loses steam, burdened by industrial overcapacity, piles of debt and soaring house prices.

The meeting - held under tight security at a Soviet-era hotel in western Beijing - will show just how committed the new leadership is to reform after formally taking power in March.

Economic reforms will dominate the meeting of the 205-member Central Committee of China's ruling Communist Party. Little if any news will be released during the event, but official news agency Xinhua traditionally issues a dispatch on the last day.

Xinhua confirmed in an English-language dispatch that the meeting had begun, with the agenda led by a discussion over a draft document on deepening reform, "which pools the wisdom of the whole Party and from all aspects".

It added: "Comprehensively deepening reform means the reform will be more systematic, integrated and coordinated." It gave no other details.

Some media reports have said top policymakers could take bold steps to deal with entrenched vested interests, such as state monopolies.

The Development Research Centre, a think-tank for China's cabinet, set out last month eight key areas for reform at the plenum - finance, taxation, land, state assets, social welfare, innovation, foreign investment and governance.

"These are just recommendations. There is still strong opposition" to the proposed reforms, a source with ties to the leadership told Reuters, requesting anonymity.

Powerful interest groups, including leftists or conservatives, local governments, state-owned enterprises and state banks, oppose some of the reforms such as freeing up interest rates, allowing private banks and turning Shanghai into a free trade zone, several sources say.

However, the party will put on a unified face once Xinhua issues its communique at the end of the plenum on Tuesday, pledging reform without providing too many details.

The People's Daily's influential tabloid, the Global Times, cautioned in an editorial on Saturday that the country's leaders would be unlikely to live up to the huge expectations.

"They can hardly be as ambitious as some sections of the public hope. The most ambitious government in terms of reforms would still be considered conservative when faced with these expectations," it wrote.

The government has pledged to let market forces play a bigger role in setting the price of capital, energy and land, and to cut red tape.

That suggests the biggest changes may be fresh measures to free up interest rates and fiscal changes to let local governments to manage their debt better and move away from reliance on land sales for revenues.

HAWKS AND DOVES

In a bid to end the debate between hawks and doves, Xi declared in January that the second 30 years of Communist rule, when reforms transformed China into an economic powerhouse, should not be used to "negate" the first 30 years under Mao Zedong when chaos, poverty and hunger prevailed.

Conservatives blame China's policy of reform during the second 30 years for a yawning wealth gap and other problems.

Liberals revile Mao not just for the chaos of the 1966-76 Cultural Revolution, but also for the tens of millions who died in a man-made famine in the years after the 1958 Great Leap Forward.

On the eve of the plenum, the party's history research office published a full-page article in the official People's Daily, repeating the warning against "negating" the two periods, a sign that debate still simmers.

Adding to Xi's troubles, the political fallout from the downfall of Bo Xilai, a former contender for a seat at the apex of power, still haunts the party.

Bo, disgraced party boss of the southwestern city of Chongqing, was jailed for life in September on charges of accepting bribes, corruption and abuse of power, but still has many supporters and sympathizers with his pro-Mao policies.

A party document circulated this week urged officials to toe the line and learn from Bo's mistakes, sources said. They were told to conform with the party's decision to expel and prosecute Bo, a second source said.

Underscoring the party's worries, supporters of Bo have set up a new political party, in a direct challenge to the de facto ban on new political groups.

SOCIAL REFORMS

The meeting may also decide to loosen the household registration system, which blocks migrant workers and their families from access to education and social welfare beyond their home villages.

The system is seen as a hurdle to attracting more people to urban areas, a social equality trend the government seeks to promote as it looks to boost domestic consumption.

The leaders may also push land reforms to allow farmers to sell land when they leave their villages. Currently, they cannot sell land freely and many do not leave their farms for fear local governments could grab them for development.

While some social and political issues could be tackled, such as corruption and pollution, Western-style political reform is certainly not on the agenda.

Historically, third plenums in China have served as a springboard for key economic reforms.

Former leader Deng Xiaoping launched reforms to open the economy to the outside world at a third plenum in 1978.

That was followed by a third plenum in 1993 that endorsed the "socialist" market economy, paving the way for sweeping reforms spearheaded by then Premier Zhu Rongji, which led to China's entry into the World Trade Organization.

But the third plenum in 2003, under Hu Jintao and Wen Jiabao, predecessors of Xi and Li, failed to yield key reforms. In 2008, they unveiled a 4 trillion yuan ($656 billion) stimulus package, which fuelled a property frenzy and saddled local governments with debt of more than 10 trillion yuan the economy is still trying to absorb.

(Additional reporting by Kevin Yao and Adam Rose; Editing by Nick Macfie)

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