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UPDATED: December 23, 2013 NO. 52 DECEMBER 26, 2013
Challenges and Reforms
By Josef Gregory Mahoney

When the term "socialist market economy" was coined in the midst of the reform and opening-up period initiated by former Chinese leader Deng Xiaoping, many outsiders responded with puzzlement if not derision. American and British thinkers in particular had a hard time wrapping their heads around apparent contradiction that the term posed.

For several thousand years, dialectical thinking has been one of the central features of Chinese thought, a fact that is observable in the formulation of Chinese characters during the Shang Dynasty (17-11 century B.C.) and the subsequent emergence of the Yijing (I Ching), Confucianism, Taoism, Zen Buddhism, and Chinese Marxism. It is an uncontestable fact that every major system of thought that has taken root in China has been one with a strong dialectical orientation. This is significant because dialectical thought takes the "unity of opposites" as its starting point, and believes contradictions to be normal states of being, with the understanding that being itself is always changing. This type of thinking is fundamentally at odds with the sort of thinking that has dominated Western thought since Thomas Aquinas helped spark the Enlightenment by initiating a new epistemological tradition that held that Aristotle's law of non-contradiction was the "law of thought itself."

Many have assumed, in a somewhat Orientalist fashion, that the Chinese were finally on track to join the West at the "end of history," with such observers dismissing ideas like "socialist market economy," "one country, two systems," "two-handed foreign policy," "the three represents," the "mass line," and so on as too paradoxical and merely the left-overs of an already passé way of thinking. When they did accept certain terms, like xiaokang society, they did so one-dimensionally and neglected its broader philosophical context, i.e., that achieving and managing well a moderately prosperous, transitional society is an early prerequisite for reaching some version of datong, i.e., an advanced socialist society.

With these points in mind let's turn our attention to the recent Third Plenary Session of the 18th Central Committee of the Communist Party of China (CPC) and its two major milestones—the first, marking the first anniversary of Xi Jinping and the new generation of leaders in power; and the second, a major effort to launch a new round of comprehensive reforms. It has been much remarked in other media that the session concentrated primarily on economic reforms while eschewing significant political reforms. There are two general problems with such analyses. The first problem is that while the session did skew toward economic reforms, it also contained a number of reforms designed to help reshape Chinese society in progressive ways. While such reforms have economic consequences, it is misleading to think of them as being primarily economic in nature. We will discuss these in more detail shortly. The second problem is that while political reforms were not on the table explicitly, every decision taken represented a major political achievement. It is this point that should be understood in the context of the transition from the old to the new generation.

The significance of this transition should not be underestimated. As China advanced under the socialist market economy rubric over the course of the reform and opening-up period, some parts of the Party and government apparatuses were responsible for building up more of the "socialist" side of development while other parts were tasked with pursuing and protecting market-oriented reforms that would help grow the economy and close the gaps between China and more developed nations like the United States and Japan. It was quite normal for competing interests to emerge within the Party itself, and for these to find themselves at loggerheads when it came to advancing significant reforms that affected both. As many have observed, this slowed the pace of reform in such a way that it left a larger and more complicated task.

This was not necessarily a bad thing. As the pressure for reform mounted, it also became clear that comprehensive reform would be required, simultaneously addressing a bevy of issues ranging from economic and social reforms to dealing more effectively with concerns related to ecological degradation and official corruption. Had the pace of reform remained constant through the years, it might have taken more of a piecemeal and even wandering approach, and in turn, failed to construct a more meaningful balance between competing interests or overcome bureaucratic intransigence and other vested interests. Nevertheless, the key to economic reform is finding a political solution. Sometimes solutions come easily to the Party and sometimes they don't. In this case, the need for reform and the need for corresponding political solutions became so great that in many respects, it became what the Party sometimes calls a "primary contradiction": a matter that requires the Party's undivided attention, unified sense of direction and a strong leadership corps. From what we have seen over the course of the past year, this culminated in a new slate of reforms emerging from the recent session in tandem with a long overdue effort to rectify the Party, rally it behind its new leaders, and begin the difficult task of trying to reign in corruption.

Much has been reported on the reforms that emerged from the session. In today's global economy and China's relative importance within it, both as a major financier of debt and a producer and consumer of goods, services and resources, domestic and international attention to the session was keen. Although earlier reform cycles might have been more significant to China's development, such as the Third Plenary Session of the 11th CPC Central Committee in 1978 which initiated the reform and opening-up period and the Third Plenary Session of the 14th CPC Central Committee in 1993, which helped restart and extend reforms aimed at developing what we know today as the socialist market economy. China's rise meant that the world, particularly international markets and political centers, paid attention like never before.

Let us look at what the meeting produced. First, the leadership further consolidated its power in the Part by affirming that reform would be led from the top and would be directed by a small leading group capable of dealing effectively with difficult problems as they emerged. Additionally, a new centralized security committee was also announced to gain better control over decision-making related to domestic and international security issues. At the same time, it was also announced that the market would now play a "decisive" role in policy making instead of the previously "basic" function it was accorded. Nevertheless, the Party also made clear that marketization would have limits. State-owned enterprises will maintain their dominance over core economic sectors. Put succinctly, the Party made it clear that it sees marketization as a tool, one to be used for certain purposes, and not an ideology, to which all others will be subjected. For example, when marketization can be used to facilitate much needed competition in certain sectors, it will be employed; but when it is perceived to be running counter to political and/or national interests, it will be curtailed.

In terms of being "decisive," the market will be the driving force in resource allocation and increasing price liberalization in the communication, transportation, utility and water sectors. While SOEs (state-owned enterprises) are to remain dominant, they are expected to find ways to bring more outside, private investors to the table (to hold 15-20 percent stakes, reportedly), increase transparency, and return higher dividends to the state by 2020. Meanwhile, ongoing financial reforms aimed at liberalizing interest and exchange rates, improving capital accounts and developing new free trade zones (affecting the financial sector particularly), which have been marching along somewhat steadily over the years, received new endorsements. Additionally, in the area of fiscal reforms, budgeting will shift from hitting yearly targets to a multi-year approach that better accounts for the "structure of spending." Finally, property tax legislation will be developed and municipal bonds issued to help cities develop.

Several reforms are aimed at promoting fairness, addressing inequality, encouraging sustainability, increasing transparency, and mitigating corruption. These efforts include loosening the population control policy, tightening environmental protections, improving both rural and urban land use, augmenting rural property rights and making the hukou, or residency system, more equitable, particularly for rural residents and those experiencing unintended discrimination during rural-to-urban migration. Some reports indicate the one-child policy might be relaxed for some families in 2014.

While advancing a strong reform slate is no guarantee for effective implementation, it is a necessary first step. Of course, given the emergence of a strong leadership team, streamlined decision-making, and a much clearer sense of direction for resolving the contradictions found within a socialist market economy, the new reform agenda arguably stands a greater chance of succeeding. In many respects, the sometimes contradictory but often complementary aspects of the socialist market economy have been advanced. To be sure, many unanswered challenges remain, and as always, new problems and obstacles will emerge. For now, the Party is signaling that there is no "end of history" in sight; rather, the need for reform is perpetual, but so is the possibility of progress.

The author is an associate professor of politics at East China Normal University; research fellow with the Center for the Study of Contemporary China at the Institute for Advanced Studies at Fudan University; and assistant editor of U.S.-based Journal of Chinese Political Science

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