The man who has to reignite China’s growth

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An important man for those interested on China economy...

The man who has to reignite China’s growth

BEIJING — When then-United States National Security Adviser Tom Donilon flew to Beijing in May to set up a China-US summit, he did not schedule a meeting with one of the most important men shaping China’s future.

President Xi Jinping quickly made clear that was an oversight.

“This is Liu He,” Mr Xi told Mr Donilon, pointing to a tall, scholarly-looking aide by his side. “He is very important to me,” he added, according to officials familiar with the exchange.

China is turning to the quiet, 62-year-old Liu, a Communist Party apparatchik known to colleagues and Western leaders as an economic reformer, to lead development of the latest blueprint for the economy. It is to be unveiled next month at a closed-door session of the top 450 party officials.

The session, held every five years, has in the past been a vehicle to announce some of the country’s biggest economic changes. This year’s meeting is crucial because of fears that the economy is losing its fire.
Gross domestic product expanded 7.5 per cent year-over-year in this year’s second quarter, down from 14.8 per cent in the second quarter of 2007. Without substantial changes in the next five years, International Monetary Fund economists estimate that growth could fall to an average of 4 per cent annually through 2030.

Mr Liu’s formal power comes from his recent appointment to the directorship of the Office of the Central Leading Group for Financial and Economic Affairs. That office advises Mr Xi and the other six members of the Politburo Standing Committee, China’s final arbiters of power. It operates somewhat like the White House’s National Economic Council, influencing decision-making by framing the options leaders debate.

The goal of the top leadership is to attempt to create a more US-like economy: Promote a consumer culture — encourage citizens to buy more of the cars, clothes, appliances and electronic gizmos that China currently exports — while also encouraging innovative private firms. That would be a departure from the country’s old formula of relying on cheap exports abroad and vast investment at home in building roads, railways and even new cities.

However, standing in its way are many of the biggest beneficiaries of the country’s past growth model. These include state-owned enterprises and local governments, which benefit from state-directed lending. Some local leaders also blame market reforms for deepening income inequality. Others have used the investment splurge as opportunities for graft.

The choice of Mr Liu as the prime architect of China’s new plan, confirmed by a number of officials, academics and other people familiar with the matter, has buoyed hopes that market-oriented reformers will win the day.

He has pressed since the 1990s for market-based policies over the objections of government officials who would rely on Maoist-style production quotas.

“China must change its mode of economic development more quickly”, including increasing domestic demand, Mr Liu wrote in a 2011 paper.

He used the document to take a swipe at party leftists.

The party, he said, must be “a ruling party rather than a revolutionary one”, referring to its history of trying to transform the country through central planning and by mobilising peasants and students.

It is unclear how far China will go with its new economic plan. Academics and Chinese and Western officials familiar with proposals vetted by Mr Liu and others say they believe change is likeliest in the financial sector. Mr Liu has powerful allies there to press for freer movement of capital into and out of the country.

Those changes are seen as crucial to increasing competition in the financial sector, which is dominated by four huge state-owned banks. They make easy money lending to other immense state-owned companies, which themselves dominate businesses such as energy, transportation and commodities.

Mr Liu and his allies believe that giving foreign capital a bigger role and making banks compete on interest rates, among other changes, would funnel more money to privately owned high-technology and service firms and help remake the economy.

Less likely, participants say, are steps to dramatically overhaul the largest state-owned firms directly. They have quashed past proposals to enhance oversight or privatise some of them.

Also facing resistance: Efforts to liberalise rules restricting migrant labourers and their families from obtaining healthcare and education outside of their home cities. Economists say changes like these would propel more migrants into the middle class; local governments object because they do not want to pay more for social services.

Yet many observers believe at least some changes are likely, in part because Mr Xi has shown a willingness to confront a slowing economy and to use the slowdown to push reforms. He worked for years in the southern coastal provinces of Fujian and Zhejiang, which prospered by their connections to the West.

“The timing is right” for change, said one party official with direct knowledge of the leadership’s thinking. The new leaders “have 10 years ahead of them” in office. “If they were to sit on their hands, the economy would become a disaster.” Dow Jones

http://www.todayonline.com/chinaindia/ch...nas-growth
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