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Monday, February 27, 2006

Economic Reform and Single Party Rule in China

Will the market eventually undermine communist party power in China?:

A fierce battle hobbles China’s march to the market, by Richard McGregor, Financial Times: Liu Guoguang, a once influential but long retired Marxist economist, recently burst back onto the scene with an incendiary warning for the Chinese government. If it did not rein in market reforms and deal with the growing, gaping rich-poor divide, China would “change its colour”: code for the “red” Communist party losing power. ... Almost overnight, symposiums were staged around the country to study his “economic thought”, including one at Ya’nan, the Communist party’s old revolutionary base.

“The government has already lost control of many sectors and, of the state enterprises that are left, we seem to be willing to sell them, to foreigners or anybody,” says Liu Rixin, a longtime senior planning official. Nostalgia aside, the words of the retired economist resonated so widely because he explicitly linked the survival of single-party rule to the maintenance of a dominant role for the state in the economy. The nexus between the two is rarely so openly acknowledged but it is the central underlying issue in a ... very nasty battle over economic policy under way in China. It will have a bearing on all manner of reforms, such as privatisation and foreign investment in the finance sector. Some measures have already been delayed – such as a law to clarify private property rights...

On one level, the attack by the elderly economist seemed to symbolise a backlash against Mr Hu’s government. But such straightforward interpretations no longer apply in a China ... How, after all, could Mr Hu be criticised for the rich-poor gap when he, along with Mr Wen, has made tackling it a centrepiece of his economic policy? ...

China is now less equal than the US and Russia, according to the World Bank, and income inequalities are still widening. And while incomes have mostly risen across the board, the social wage ... which provided free health, education, housing and an old-age pension – has been drastically cut, all but disappearing in the countryside.

China spends less than one-fifth of the developed-country average on health and education.... In rural areas, where China’s poorest communities live, nearly 90 per cent of health costs are borne by individuals. ... education researchers are discovering that drop-out rates among rural children from junior secondary schools average 30-40 per cent. “This is the most under-reported story in China – the country’s massive failure to educate its rural youth in the 1990s,” says Yasheng Huang of MIT Sloan School of Management. ...

To old Marxists such as Mr Liu, Mr Hu and Mr Wen have not done enough to uphold government – and, by implication, party – control of the economy. Alongside them, as part of a loose ragtag coalition that marches under the “anti-reform” banner, celebrity economists such as Lang Xianping, who fronts a popular television show in Shanghai, have criticised privatisation as a slow-motion Russian-style theft of state assets.

Many mainstream economists counter that the Hu-Wen administration is shaping up as a disaster precisely because it refuses to tackle the state’s still dominant role. For these economists, pushing the rich-poor gap to centre stage is simply a device by the leadership to increase the role of the state in business...

Li Qingyuan, a veteran official and executive in the finance sector, takes a more sanguine view of where the current debate will lead. It is nothing like the “scary discussions” of the early 1990s, she says, when there was a genuine leftist resurgence in the wake of the 1989 Tiananmen Square crackdown. “This kind of argument comes up from time to time but I don’t think it will last long and obstruct the pace of reform,” she adds. “The general trend is irreversible.”

But that is precisely what worries the Marxists the most. For the octogenarian Mr Liu, until recently written off as a dinosaur in the debate, it is the most powerful argument in years he has been able to muster for reining in the market economy. Such reforms mean a larger private sector and a smaller state – and, ultimately, greater pressure for a more pluralistic politics and institutions able to adjudicate economic disputes free of arbitrary political interference.

But while Mr Liu and the party have allies among an entrepreneurial elite dependent on government favours to build their businesses, it is an alliance that is increasingly resented and under attack. “If westerners think the current growth model can be maintained,” says the Shanghai-based economist, “they are making a big mistake.”...

    Posted by on Monday, February 27, 2006 at 12:47 PM in China, Economics | Permalink  TrackBack (3)  Comments (6)

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    Tracked on Monday, February 27, 2006 at 11:41 PM


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