China’s future economic growth rests on realising decade-old reform goals, think tank chief says

Chi Fulin tells the International Forum on China Reform in Hainan that China has fallen short of various targets, including capital account convertibility, set in 2013
Chi’s call comes as private sector and foreign investment confidence in the economy weakens

China's economic recovery

Mandy Zuoin Shanghai

Published: 8:00am, 30 Oct 2023

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China has failed to achieve some major economic goals set a decade ago and needs to press on with reforms to reach them, a prominent pro-market researcher said on the weekend amid concerns about the increasingly state-led economy.

Calling for bolder changes to boost the country’s lacklustre post-Covid growth, Chi Fulin, president of the Hainan-based China Institute for Reform and Development, said there had been a lack of substantial progress in goals set out in a national strategy in 2013, including capital account convertibility.

“Economic growth remains the key to solving all problems in China,” Chi told the International Forum on China Reform in Hainan province on Saturday, adding that further reform is where the “shoe pinches”.

Chi’s assessment is the latest call for more reforms ahead of the third plenum of the Communist Party’s Central Committee, a meeting usually held every five years to send important signals on the economy. A date has not been released for the gathering.

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It also comes after the sudden death on Friday of former premier Li Keqiang, who pursued market-oriented reforms and foreign investment, and sought to cut government waste.

Chi, a former member of the country’s top political advisory body, said that since the third plenum in 2013, the first under Xi Jinping as state leader, China’s development had been hindered by poor implementation of certain reforms pledged at that meeting.

The failures included slow progress on liberalising capital assets, limiting the internationalisation of the yuan considering China’s huge economic size, he said.

Change to the hukou system – the residence system that determines social benefits – also remained sluggish, dragging on income growth and urbanisation. Chi said many people had moved to towns and cities but had not been able to change their hukou, locking them out of the associated government services.

He also called for government “behaviour” to be standardised to improve conditions for business. “Practice shows that only by greatly reducing the government’s direct allocation of resources can the black box of regulation be broken,” he said.

At the 2013 plenum, the leadership promised to give markets, instead of the state, the “decisive role in allocating resources” but the trend has been in the opposite direction over the past decade.

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The economy showed some positive signs of recovery in the third quarter, but it still faces great challenges including a massive property slump, widening local government debt, and weak confidence among the private sector and foreign firms.

The economic malaise is “not caused by cyclical factors like Covid, but by a failure to reform the country’s economic system”, according to a report jointly compiled by Rhodium Group and the Atlantic Council earlier this month.

The report said China was facing unprecedented structural threats to economic stability, and the authors expected growth to remain weak given the lack of major reform on the horizon.

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