Third Plenum of the 18th Central Committee: Context and Significance

IITM CSC Article #67
05 December 2013
Third Plenum of the 18th Central Committee: Context and Significance
The Chinese Communist Party (CCP) recently concluded the Third Plenum of the 18th Central Committee. In this Plenum, as expected, some important decisions regarding the functioning of the Party and the Chinese state were taken. These decisions, although mostly on the expected lines, primarily have the potential to transform various aspects of governance as well as state society relations inside China. The significance of this Plenum is that China has now moved a step ahead of the notion of socialist market economy and has decided to accord a decisive role to the markets in the country’s political economy.
In order to understand the significance of the third Plenum in its holistic sense, it is important to comprehend the sociopolitical situation in contemporary China. One of the most important and basic perceptions, shared by the CCP leaders as well as by the outsiders is that there has been a glaring gap between the country’s political structure and its masses. Chinese President and the Secretary general of the CCP Xi Jinping recognized this gap in June this year when speaking to the Party members he instructed them to adopt the mass-line; basically a relic of the Mao era, mass-line entails a list of guidelines “under which the CPC is required to prioritize the interests of the people”. The fact that the new leadership had to make a
special effort to reconnect to the people who formed the base of the CCP when it was formed highlights the level of disconnect that is there between the two. The four evils, or the undesirable work styles, that the yearlong mass-line campaign is aiming to thoroughly cleanup include formalism, bureaucracy, extravagance and hedonism. These undesirable work styles emerge from corruption, misuse of power and overexploitation of guanxi or lineages and networks of influence in order to get things done. While the Neil Heywood case epitomized this syndrome, it is far more common at lower levels. Thus mass-line aims to keep the party relevant as well as in the good books of the people.
In this context, the Third Plenum of the 18th Central Committee was being watched closely. In the order of events in China’s political structure, the third plenum is always used as the platform where the political and more importantly the economic thinking of the incoming leadership are vetted by the members of the Central Committee. Even in the past, usually the Third Plenums have been the platforms for major policy announcements; in 1978, reforms were announced in the third plenary session of the eighth Central Committee and similarly, in 1993, the third plenary session of the 11th Central Committee announced the concept of the ‘socialist market economy’ that authoritatively established markets at the centre of China’s political economy, helping the government shed its inhibitions about the role of the markets, especially in context of the 1989 Tiananmen protests.
The 383 Scheme document prepared by the Development Research Centre (DRC) of China’s State Council and released in the days before the third plenum showed some glimpses into the direction of reforms that were expected to be followed after the plenum. The 383 Scheme gets its name from “a three-in-one reform principle in eight key reform areas, with three correlated reform combinations” (China Briefing, 2013). It envisaged reforms in order to improve the market system, government functioning and inspire innovation by reforming eight areas including, general administration, monopolized industries, land ownership rights, financial institutions, State Owned Enterprises (SOEs), taxation and fiscal policy making, openness, and innovation reforms.
While the expectations about major reforms announcements were high, the outcomes of the Plenum did not match the expectations as Xi Jinping’s reforms in many ways signify continuum rather than a significant departure from the existing policies. Nonetheless, these outcomes are noteworthy.
The CCP said that markets would play a “decisive” role in the future economic activity and in the allocation of resources. It is noteworthy that the Communiqué referred to markets on 22 occasions. Some have also taken this to mean that economic institutions will be freed from pressures of political patronage and allegiances. The Third Plenum recognised that the past political interventions were responsible for creating inefficiencies.
Banking sector reforms was the major announcement. Lending and deposit rate reforms as well as creating more competition were the core announcements. China has decided to relax the hukou system in some of the medium level cities. It
will benefit its floating population as they are less likely to be excluded from the social benefits of urban dwelling. Reform in the One Child Policy is also an important outcome of this Plenum. Reforms in the land ownership, especially for the farmers, are the next major step. This is a natural progression from the previous step of legal right to compensation that was brought in earlier.
It is aimed at improving efficiency. China will have for the first time a National Security Advisory Structure that will help improve communication between various agencies responsible for security and the government. It was also announced that a new advisory body for further reforms would replace the National Development and Reform Commission and the Economic Reforms Commission. This move is also seen as Xi Jinping’s consolidation of power at the top of the hierarchy. Taken together, these reform measures attempt to establish more accountability on part of the government, improve decision-making and avoid state’s interference in the market processes.
One can see that the outcomes of the Third Plenum are on the lines of these expectations albeit somewhat toned down from the think-tank policy guideline, for example, SOE reforms have been postponed to another date or would be undertaken more softly. Part of the reason why the reforms are less than expected is that the consensual nature of Chinese leadership at the top. Therefore, gradualism will be the key as far as the policy actions in future are concerned.
It is important to note that the process of China's economic reforms has often been termed in the phrase, “groping for stones to cross the river”. One can see that Xi’s reforms are in the same line. These reforms are responses to the immediate and future challenges to the political economy of the state, namely middle-income trap and fears of hard landing. These reforms can be expected to be deliberated further within China and turned into laws when the National People’s Congress meets in March, 2014.
Avinash Godbole,
Research Assistant, Institute for Defence Studies and Analyses
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