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China Vows Market Reforms

Beijing — Facing increasing doubts about the sustainability of their economic model, China’s Communist leaders promised at a key meeting Tuesday to deepen reforms and let the market play a more important role in the economy, but provided few specifics about exactly what they intended to do.

In a communique released after the Third Plenum of the 18th Central Committee of the Communist Party, they also promised to set up a new State Security Committee, a long-mooted plan to centralize control of foreign and security policy along the lines of the U.S. National Security Council. And they vowed to establish a new “leading team” to design, coordinate and supervise “comprehensively deepening” economic reforms.

“The core issue is to properly deal with the relationship between government and market, and to let the market play a decisive role in allocating resources and to better perform the functions of the government,” the communique said, according to state media.

But while it promised to promote the private sector, the Communist Party seemed to shy away from comprehensive reform of the country’s massive and powerful state-owned enterprises, promising as usual to maintain the dominance of the public sector and stating that “the basic economic system of the publicly owned economy ... is an important pillar of Socialism with Chinese Characteristics.”

Many economists say China’s economic model is running out of steam and is far too reliant on government investment in infrastructure and a boom in credit. The playing field is also heavily tipped toward an increasingly inefficient state sector. They are hoping to see measures to empower private entrepreneurs and encourage innovation, boost domestic consumption spending and rein in free-spending local governments, but many worry that economic reforms will run up against powerful vested interests.

Tuesday’s communique seemed like a step in a new direction, but given that reforms have been talked about for a decade and not implemented, the statement is unlikely to convince the skeptics. Much may depend on the makeup of the team empowered to push through the changes, and the determination to overcome opposition.

“The Third Plenum has achieved a midway result,” said Chen Gong of the Anbound Consulting think tank in Beijing. “The fact that a leading team has been formed to deepen reforms shows a conclusion could not be reached over many issues at the meeting. It shows the complexity of the situation and the need to do a lot more work.”

Chen welcomed the party’s recognition of the important role of the market but said reforms needed to be negotiated with powerful groups that have formed over many years. “The phrase ‘the government leads’ has been used a lot in the past, but now the government realized they don’t have enough resources to play the leading role in all areas,” he said. “But all of these are just directives; we have to see how far they can go.”

Bill Bishop, publisher of the Sinocism newsletter, agreed that the recognition of the market’s role was a “big shift,” and that the new committee to push through changes could be both “powerful and influential.”

While the communique represented a broad framework with deliberate ambiguity contained within it, he said it could potentially come to be seen as a very important document in pushing through economic reforms. “This is not something that is going to change overnight,” he said. “It is going to take months or years to effectively flow through the system.”

The communique also announced that China would implement land reform and grant more property rights to peasants, who are often forced off collectively owned land with minimal compensation to make way for development — a major source of social unrest.