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China Reformer Sidelined

Business, China, Company Strategy, Economics, Polyolefins
By John Richardson on 21-Oct-2012

Cool slides 3.jpgBy John Richardson

AN assumption is that economic reformers will win control of China’s Politburo after the once-in-a-decade leadership transition is out of the way (China’s new set of leaders are set to be announced during the 18th Party Congress, which begins on 8 November).

The blog believes that this assumption needs to be rigorously challenged, as this article from the New York Times (NYT) about the politician, Wang Qishan, indicates.

The “cagey” former banker has a “reputation for forcing difficult decisions through recalcitrant bureaucracies,” writes the newspaper.

He is credited with helping to dismantle thousands of state-owned enterprises (SOEs) in 1998-2003, while opening the way for a boom in private enterprise.

But Communist Party insiders say that his prospects of being appointed to a top job with responsibility for vitally needed economic reforms are dwindling by the day.

Economic policy is instead expected to be left in the hands of Li Keqiang, who is due to replace Wen Jiabao as prime minister next year.

“Li is a highly educated official with an almost professorial style who is said to read voluminous economic policy reports in often minute detail,” says the NYT.

China’s “Princelings” have made a fortune from their close connections with the SOEs, which, despite the 1998-2003 reforms, remain a drag on the economy. For example, in February this year the Hurun Report, the magazine which publishes China’s “rich list”, estimated that the wealthiest 70 members of China’s legislature added almost $90bn to their bank accounts in 2011.

The NYT adds that “a broad consensus exists at senior levels of the Chinese government in favour of shifting the economy toward a more sustainable trajectory.

“That trajectory could rely more on domestic demand than exports, more on consumption than investment spending, more on small and medium-size private companies than SOEs and more on creditworthiness than political connections to allocate loans from the state-owned banking system.”

But someone who is cerebral doesn’t seem to be the right kind of character to take on the “vested interests”.

Tough decisions need to be taken and the anti-reformers sidelined if China is to escape the middle-income trap and avoid the bleak scenario portrayed by the World Bank in its February 2012 report (see above).