Foreign and Defense Policy, Asia

Possible successes of China’s plenum

Image Credit: David Berkowitz (Flickr) CC

Image Credit: David Berkowitz (Flickr) CC

The battle of words between “dominant” public ownership and “decisive” market role at the now-concluded Chinese Communist Party plenary meetings doesn’t look good for the market side. Among other problems, private firms are permitted only to cooperate more with state firms, not to compete with them. But there are potential bright spots. While the plenum communique was vague about land and labor reform, it was vague on the encouraging side.

The communique repeatedly refers to more property rights for farmers, as well as a combined rural-urban land market. If farmers’ rights to their properties were indeed increased closer to the level of urban residents, it would mimic in some ways the granting of rights to farmers associated with the famous 1978 plenum.

That one opened the reform era and began China’s rise. The current round would be far less dramatic in terms of degree but could have the same kind of economic impact: more income for farmers, migration of excess agricultural labor to cities, and an ensuing boost to manufacturing.

Labor reform could complement this. The communique promises “a new and integrated system of urban-rural relations will allow people living outside cities equal participation.” It could be an empty phrase or it could be a major modification of the current system of household registration (hukou), through which urban residents receive far greater state-provided benefits than rural residents.

Right now, people cannot move freely to where the best jobs are and employers cannot hire the best employees because benefits do not transport. (For Americans, imagine how damaging it would be to lose your retirement savings or your health care if you move from one city to another.) China is a largely unified market for goods and capital but it is not for labor, and this greatly harms national productivity.

If benefits are equalized and, more to the point, integrated, the labor market will be much more efficient, with jobs and workers matching each other much better. Land reform could raise the quantity of workers and labor reform the quality of workers.

These changes would be especially valuable given the well-documented aging labor force. Land and labor reform could postpone or partly mitigate the impact of an older society, which tends to drain economic vitality.

In so doing, they would buy more time, time for the party to recognize that competition is the reason the market allocates resources efficiently and to finally take steps on that front. The result would not measure up in speed or comprehensiveness to what was done in 1978 or 1993 but it would move the economy forward and perhaps encourage further reform efforts down the line.

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