Guest Post: China's "383" Reform Roadmap

Reforms are the only way to avoid systemic crisis, rebalance the economy, and unleash growth potential. Barclays notes that government, SOE, factor price and fiscal reform are most needed, though progress is likely to be faster on financial, tax and social security reform. Hopes are high, raising the risk of disappointment, but most think the government will try to meet expectations. History shows that economic growth tends to be lower after major third plenum meetings. This is because structural reforms, while good in the longer term, tend to slow growth in the near term. In advance of its release, the Development Research Center of the State Council, China’s official think tank, presented its own reform proposal – the so-called “383 plan” – which offers a glimpse of the direction that the reforms will take.

Authored by Andrew Sheng and Xiao Geng, originally posted at Project Synidcate,

At the Third Plenum of the 18th Central Committee of the Chinese Communist Party, currently under way in Beijing, President Xi Jinping is unveiling China’s reform blueprint for the next decade. In advance of its release, the Development Research Center of the State Council, China’s official think tank, presented its own reform proposal – the so-called “383 plan” – which offers a glimpse of the direction that the reforms will take.

The need for reform in China is well documented. In order to escape the so-called “middle-income trap” – when a developing economy’s growth levels off, instead of advancing to high-income status (defined in July 2013 by the World Bank as per capita income of at least $12,616) – the underlying structural problems of China’s economy must be addressed.

And the pressure is on. With per capita income of more than $6,000, Chinese are becoming more demanding, insisting on safe food products, clean air, transparent government, affordable housing, quality education, social security, and equal opportunities. At the same time, international calls for China to assume the responsibilities of a major power – not only in areas like trade and investment, but also on issues like environmental protection and global governance – are growing louder.

But the kind of deep and comprehensive reforms that China needs are always difficult to implement, given that they necessarily affect vested interests. In order to win public support for reforms, thereby maximizing the chances of success, the government must offer clear, accessible explanations of its goals. (Japanese Prime Minister Shinzo Abe’s bold economic-reform package, for example, is couched in terms of “three arrows” – namely, monetary and fiscal policy, and structural reform.)

The Research Center takes a holistic approach to the reform process, viewing it as both a systemic change and a change of mindset. Translating its proposals – which are as profound as Deng Xiaoping’s 1978 reforms – into simple, straightforward terms is no easy feat, but one that the 383 plan handles with relative deftness.

The “383” is shorthand for the plan’s content. First, the proposal describes the relationships between the Chinese economy’s three main actors: government, business, and the market. Second, it identifies eight key areas of reform: governance, competition policy, land, finance, public finance, state assets, innovation, and liberalization of international trade and finance. Third, it highlights three correlated goals: easing external pressure for domestic policy changes, building social inclusiveness through a basic social-security scheme, and reducing inefficiency, inequality, and corruption through major rural land reform.

The plan recognizes that reforms must be comprehensive, consistent, and concrete, with clear objectives, executable programs, and effective implementation capacity. At the same time, it accounts for the fact that relationships and perceptions cannot be changed overnight, and that rapid, sweeping transformation is not realistic in a country of 1.3 billion people.

In this context, the new free-trade zone in Shanghai – China’s most international city, with the most experienced and internationalist officials – is a breakthrough experiment in administrative reform and liberalization. The free-trade zone regulates foreign investment by using a “negative list” approach that identifies the fields in which foreign investment is prohibited or restricted, and thus subject to special administrative measures. This scheme alone is almost revolutionary, because it will allow foreign actors to help shape the Chinese state’s relationship with the market.

China’s leadership clearly understands that the economy cannot reach its full potential with central and local bureaucracies serving as substitutes for the market. In fact, a culture of adaptive experimentation and learning from local and international experience is already embedded in the Chinese bureaucracy and built into the planning, piloting, evaluation, fine-tuning, and roll-out of reform projects and programs. Effective implementation is reinforced through executive training programs for officials at all levels.

In the last few years, case studies conducted by Chinese authorities, with the help of academics and think tanks, have shown that the interface between state and market lies primarily at the municipal level, especially in the key sectors of industry, services, land, infrastructure, and finance. The studies also reveal that 17 Chinese cities, each with populations of more than three million, have already reached high-income status. These cities’ combined population stands at 155 million (11.5% of China’s total population), and their GDP amounts to $2.1 trillion (29.1% of China’s total output).

With home-ownership rates running at 80% in urban areas, household wealth, particularly in landed property, already exceeds that of many middle-income economies. According to official price estimates (which are lower than market prices), the value of real estate in China has already reached 261% of GDP – similar to the ratio in the United States.

Clearly, China’s export-driven, manufacturing-based industrial revolution has enabled it to accumulate substantial domestic wealth. But, as China’s ongoing growth slowdown demonstrates, this model has its limits.

A successful transition to the next phase of wealth creation – driven by the services sector and knowledge-based industries – will require a more market-oriented approach, in which the state cedes some control over the economy and focuses instead on protecting property rights, administering welfare services, reducing pollution, and eliminating corruption. Improved governance, together with greater support for market-based innovation, is needed to sustain a thriving economy.

The Third Plenum aims to digest China’s experiences, as well as international best practices, in order to forge a consensus for a coherent reform strategy that fosters an inclusive, innovative, and sustainable growth order. As Xi himself has said, it is time for China to allow the market to work where the government cannot.

Comments

[Dewey Cheatum Howe]

http://www.secretsofthefed.com/china-poised-demand-u-s-land-payment-u-s-...

NEW YORK – Could real estate on American soil owned by China be set up as “development zones” in which the communist nation could establish Chinese-owned businesses and bring in its citizens to the U.S. to work?

That’s part of an evolving proposal Beijing has been developing quietly since 2009 to convert more than $1 trillion of U.S debt it owns into equity.

Under the plan, China would own U.S. businesses, U.S. infrastructure and U.S. high-value land, all with a U.S. government guarantee against loss.

Yu Qiao, a professor of economics in the School of Public Policy and Management at Tsighua University in Beijing, proposed in 2009 a plan for the U.S. government to guarantee foreign investments in the United States.

WND has reliable information that the Bank of China, China’s central bank, has continued to advance the plan to convert China’s holdings of U.S. debt into equity owned by China in the U.S.

The Obama administration, under the plan, would grant a financial guarantee as an inducement for China to convert U.S. debt into Chinese direct equity investment. China would take ownership of successful U.S. corporations, potentially profitable infrastructure projects and high-value U.S. real estate.

The plan would be designed to induce China to resume lending to the U.S. on a nearly zero-interest basis.

However, converting Chinese debt to equity investments in the United States could easily add another $1 trillion to outstanding Obama administration guarantees issued in the current economic crisis.

As of November 2012, China owned $1.17 trillion in U.S. Treasury securities, according to U.S. Department of Treasury and Federal Reserve Board calculations published Jan. 16.

Concerned about the unrestrained growth in U.S. debt under the Obama administration, China has reduced by 97 percent its holdings in short-term U.S. Treasury bills. China’s holding of $573.7 billion in August 2008, prior to the massive bank bailouts and stimulus programs triggered by the collapse in the U.S. mortgage market, dwindled to $5.96 billion by March 2011.

Treasury bills are short-term debt that matures in one year or less, sold to finance U.S. debt. Holdings of Treasury bills are included in the $1.17 trillion of total Treasury securities owned by China as of November 2012.

In addition to a national debt in excess of $16 trillion, the U.S. government in 2010 faced over $70 trillion in unfunded obligations, including Social Security and Medicare benefits scheduled to be paid retiring baby boomer retirees in the coming decades, with unfunded obligations showing no sign of being reduced with Congress at a deadlock over reducing federal government spending.

Yu Qiao observed that if the U.S. dollar collapsed under the weight of proposed Obama administration trillion-dollar budget deficits into the foreseeable future, holders of U.S. debt would face substantial losses that the Financial Times estimated “would devastate Asians’ hard-earned wealth and terminate economic globalization.”

“The basic idea is to turn Asian savings, China’s in particular, into real business interests rather than let them be used to support U.S. over-consumption,” Yu Qiao wrote, reflecting themes commonly suggested by Chinese government officials. “While fixed-income securities are vulnerable to any fall in the value of the dollar, equity claims on sound corporations and infrastructure projects are at less risk from a currency default,” he continued.

[Dewey Cheatum Howe]

http://www.wnd.com/2013/01/china-poised-to-play-debt-card-for-u-s-land/#...

Yu Qiao’s plan included four components:

1. China would negotiate with the U.S. government to create a “crisis relief facility,” or CRF. The CRF “would be used alongside U.S. federal efforts to stabilize the banking system and to invest in capital-intensive infrastructure projects such as high-speed railroad from Boston to Washington, D.C.
2. China would pool a portion of its holdings of Treasury bonds under the CFR umbrella to convert sovereign debt into equity. Any CFR funds that were designated for investment in U.S. corporations would still be owned and managed by U.S. equity holders, with the Asians holding minority equity shares “that would, like preferred stock, be convertible.”
3. The U.S. government would act as a guarantor, “providing a sovereign guarantee scheme to assure the investment principal of the CRF against possible default of targeted companies or projects”.
4. The Federal Reserve would set up a special account to supply the liquidity the CRF would require to swap sovereign debt into industrial investment in the United States.

“The CRF would lessen Asians’ concern about implicit default of sovereign debts caused by a collapsing dollar,” Yu Qiao concluded. “It would cost little and help the U.S. by channeling funds to business investment.”

Apparently they hate us for our centrally planned fascist system we have here and want in on it.

[lasvegaspersona]

DCH

So what happens to all the  other holders of US debt?

Does Japan get the same deal?

I doubt the avarage US citizen would approve of that kind of special treatment.

I suspect that the US will stick to the original plan to debase the currency and let the chips fall  where they may. There is simply too much debt to try to fix things.

I suppose that  a deal with China could slow the process however.

[Dewey Cheatum Howe]

No idea on the answer but repudiating debt isn't going to happen without a full out war to go along with it. All I know is it shits all over 'free market' and is just another iteration of TBTF chinese style.

[NIHILIST CIPHER]

@DEWEYCH               So, how do you feel about Chinese boots on the ground in Hawaii this week? I'm not getting a  warm fuzzy feeling myself.

[Oracle 911]

Full out war with China=say good bye to the biosphere of the Earth. Why? Because Russia, if this or any US administration try avoid paying its dept to Chinese Government or BRICS Government and start a war, then the Russians will side with Chinese and the Indians and probably the Pakistanis to will side with Chinese. And in a full out war between superpowers with atom warheads, will escalate into atomic wars and the "elites" may survive that war in bunkers, but they can't survive the destroyed biosphere.

It is not a TBTF Chinese style, it seems like sustainable economy Chinese style.

[thisandthat]

I doubt the avarage US citizen would approve of that kind of special treatment.

Don't worry, they wouldn't have a say...

[The_Dude]

It is the establishments of Chinese Tongs but on a national scale.

http://en.wikipedia.org/wiki/Tong_%28organization%29

Tongs have been traditionally been used as support networks by Chinese to facilitate bringing large numbers of immigrants into a new area.  Along with it comes all the good and the bad that the community has to offer. 

Looks to me that we are opening the door wider to even more immigration from China to facilitate Obama's/TPTB goal of cultural destruction and race/civil war.  

[GMadScientist]

"Talk about outsourcing. At a sprawling manufacturing complex here, hundreds of Chinese laborers are now completing work on the San Francisco-Oakland Bay Bridge.

Next month, the last four of more than two dozen giant steel modules — each with a roadbed segment about half the size of a football field — will be loaded onto a huge ship and transported 6,500 miles to Oakland. There, they will be assembled to fit into the eastern span of the new Bay Bridge.

The project is part of China’s continual move up the global economic value chain — from cheap toys to Apple iPads to commercial jetliners — as it aims to become the world’s civil engineer.

The assembly work in California, and the pouring of the concrete road surface, will be done by Americans. But construction of the bridge decks and the materials that went into them are a Made in China affair. California officials say the state saved hundreds of millions of dollars by turning to China."

If only we had a steel industry that could service these needs domestically. /sarc

[Seer]

"NEW YORK – Could real estate on American soil owned by China be set up as “development zones” in which the communist nation could establish Chinese-owned businesses and bring in its citizens to the U.S. to work?"

That's the model as established by the US: perhaps not large pools of US workers, but enough "experts" etc...

The chickens are coming home to roost...

[TeresaE]

Seer, funny thing is China in NO way allowed US "workers" to go forth into China.  The imported US knowledge/skills were closely monitored and completely controlled.

Visteon - spun off by Ford in a failed attempt to break the unions (fail) and offshore more research and engineering jobs (win!), spent over $140 million of Ford's $$$$ to open a state of the art research center in China.

A couple months before opening (from memory, seems this was 2008/2009), China notified Visteon that no more than 5% of staff could be foreign born.  Visteon was *shocked!* and has spent millions more educating and training Chinese engineers to staff the facility to not lose their complete investment.

But OUR government has NO problem with allowing these companies to import 100% foreign born staff. 

Buffett made a statement back while Bush was still in office (and he 'hated' big gubment, which he now seems to love, fickle genius, isn't he?), he stated if the US people didn't wake up, our children would wake up sharecroppers paying tribute and taxes to both Beijing and WDC.

And, it looks like the PTB are doing all to make that happen.

And we keep allowing the wholesale undermining of our economy while applauding this as "capitalism."

It isn't capitalism, and it isn't a "fair" trade and a balanced field in which to compete.

China isn't as concerned with raising up their citizens standards of livings, as they (and OUR PTB) are with lowering ours.

The reality of this has yet to occur to most people.  Those alive in 20 years will be hard pressed to deny it.

[Cognitive Dissonance]

Comrade Yellen's got my back.

/sarc

<Maybe the Fed will finally leave my butt alone.>

[RockyRacoon]

Oh, CD, always the optimist!  Shirley you jest? 

/double sarc

[Dr. Engali]

"Chinese are becoming more demanding, insisting on safe food products, clean air, transparent government, affordable housing, quality education, social security, and equal opportunities."

Let us know when you get those things, especially the transparent government part. Here is the U.S.S.A we have the most transparent government in the history of the country. I know this because they tell me so.

[Seer]

Well, we CAN see right through their schemes, no? </sarc>

Ain't it all just the same?  It's the illusion of being able to deliver the impossible, to placate ever-increasing numbers of people while also promising that you'll raise them all up to the wealth stratrosphere.  This planet has its work cut out for it...

[Cognitive Dissonance]

I see your conditioning is progressing nicely.  :)

<Now roll over and bark. Your Fed commands you.>

[redd_green]

Transparent government? In China?  Ahhaaaaaa!!!  hahahahaaaaa!!!!   That is the funniest thing I have ever heard.   The government that controls every tiny bit of media, who throws people into jail for disagreeeing with any corrupt government official, transparent?    That is the single most preposterous, ridiculous thing I have ever heard.  Thanks for the laugh Tylers

[GMadScientist]

I've stopped seeing "reform" as an affirmative verb and taken it back to its roots..."re"...to do again..."form"...to shape. They're just changing the rules, which doesn't actually improve anything as much as concretely legitimize the newly rigged set of rules for this round.

[Seer]

The reason why nothing will resolve in a positive way is because the premise is flawed.  All these "reforms" are but variations against the backdrop of the impossible- perpetual growth on a finite planet.  The just keep moving the carrot around.  The carrot will NEVER be able to feed all that are chasing it...

[GMadScientist]

On this I sadly agree. especially annoying since we could change our ways to avoid that outcome, but are hell-bent (pun intended) on doing anything but.

[Seer]

I really see no way that we could "decide" what to do.  The mechanisms aren't pleasant to think about... so, Mother Nature will be the arbiter.

I just hope that people will understand that growth ultimately does us in and that maybe we can figure it out in the future.  But, there's NO way that there can be any "solution" if we cannot [first] understand what the "problem" is.

[Seer]

Do people demand a really just system? Well, we'll arrange it so that they'll be satisfied with one that's a little less unjust ... They want a revolution, and we'll give them reforms -- lots of reforms; we'll drown them in reforms. Or rather, we'll drown them in promises of reforms, because we'll never give them real ones either!!

- DARIO FO, Accidental Death of an Anarchist

[Seer]

"and reducing inefficiency, inequality, and corruption through major rural land reform."

Translation: property take-over by corporations.

This shit is as old as...

It's those in the city wanting MOAR, at the expense of those trying to hold on to independence from centralized control.  Sadly, most of those who promote "free trade" end up undermining it all by allowing the corporate+govt combo to trash the rural communities...

[dick cheneys ghost]

Peru complains of ''cheap chinese imports''..............

''ever since a free-trade agreement between Peru and China came into effect in 2010, and similar agreements have been signed with Colombia and others, Gamarra merchants have been hemorrhaging customers.''

''Chinese products are 40 percent cheaper than the Peruvian apparel, "making it very difficult to compete."

http://www.france24.com/en/20131110-cheap-chinese-textiles-slam-perus-ga... 

[redd_green]

Heh.     "and reducing inefficiency, inequality, and corruption through major rural land reform."      The Chinese government IS corruption, and inefficiency.   They will never, ever fix that, since it is what makes them so filthy rich.

[GMadScientist]

Allow to me to grant you use of my politburo to english translator:

"We have a large number of cronies to dispose of in the near future and will take advantage of the positive spin provided by 'reforming' them."

[Seer]

Yeah, like the Chinese govt invented corruption...

Govt = corruption, as "govt" is a power center and, well, POWER CORRUPTS

Really, do we need to always have to point out the fucking obvious?

[deerhunter]

two miles from my house on I-90 which is no small potatoes interstate highway sits an approximately 300K square foot facility with dozens of truck bay doors and it is soley owned by Communist China.  They are already here and I believe they are buying not only manufacturing and other businesses but farmland as well.  If you own a countries food production capabilities you own the country.  Rant off.

[GMadScientist]

You are not wrong. They are smart little buggers in their way and they know that real assets will be much more valuable than a mountain of rotting fiat reserves; I see them less as undermining our food production capabilities as pre-emptively protecting their own. I hate them for the way they exploit their labor pool and leveraging their environmental standards to undercut the US and others, but you must respect their foresight with respect to the viability of US debt and currency.

[Seer]

Takes a buyer and a seller, that's the "capitalist's" way, no?

Did you catch the BIG DEAL with Smithfield?

Can you provide a name for that company with that 300k sq ft facility?  Should be able to look up the actual ownership...

But, up in Canada there's concerns over farmland being bought up.  You either disallow foreign ownership (this is the case down in the Philippines- I state this only because my wife is from there) or you buy out those selling, which would likely translate into some govt solution.

The bottom line is that those selling are unable to make enough profit to keep things going.  This translates to demand not being sufficient.  And when it comes to farming I'd have to point out that we've shot ourselves in the feet by so horribly subsidizing mass-produced food that we've become habituated to low-cost food (other goods and services gain an advantage from increased disposable income).  This puts impossible strain on smaller farmers.

I am thankful that I get lower taxes on my property for keeping it in Ag.  And I'm building up on my production, in which case I'm holding up my end of the deal (which is what I WANT to do- and if for some reason I was "taken over" I'd only ask that I could continue to work and live on the property that I have cared for [beats being dragged off to some factory]).

[redd_green]

look at the cr@p in this article. Who writes this garbage anyway?

[vote_libertaria...]

What if one of the 'reforms' is a Chinese Social Security system?

Doesn't that mean rather than buying US Bonds with their profits they send out pensioner checks?

[Seer]

Margin compression.  Aging population.  Increased imports of energy.  These are tell-tale signs that the peak is ahead.

[LongMarch]

No. 

[Hagen]

Conneries!

[scrappy]

"383" reminds me of the Plymouth Roadrunner.

So where's Wilie Coyote, and where's the cliff?