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Thursday, June 15, 2006

Reformers edge ahead in Chinese debate


HONG KONG -- Since Deng Xiaoping began the process of reform and opening up almost 28 years ago, China has repeatedly had internal debates, often heated, as to whether changes had gone too far.

A recent well publicized article in the official People's Daily newspaper shows that another debate is raging, but party leaders, including President Hu Jintao, have come down decidedly in favor of pressing ahead with reform.

The authoritative nature of the article published earlier this month was reflected by the wide publicity given to it by the official media. It called on all party members to "unwaveringly uphold reform" and said China had no choice but to deepen market reforms and open further to the outside world.

The strong opposition to reform and the problems that have surfaced -- including widespread corruption, exploitation of farmers by local officials who make deals with property developers and the widening gap between rich and poor -- have led to criticism that the government has to clamp down and not allow the market to operate unfettered.

The debate over the pace and direction of reform led to the shelving of a law on private property that had been scheduled to be enacted during the National People's Congress session in March. However, it now appears that the legislation is not be dead but will be presented at the congress' annual session next year.

There is also a supervision law in the works, which will detail procedures for the Parliament to supervise the work of the government. It, too, is likely to stir controversy and may be seen as one element of political reform.

Hu gave a strong endorsement of reform during the NPC session. According to the Xinhua News Agency, the party leader while visiting the Shanghai delegation declared: "We should unswervingly adhere to the reform orientation and fully exercise the basic role of the market in the allocation of resources."

While the debate is couched in terms of market forces vs. government control, it also reflects another debate below the surface of increased political participation versus continued authoritarianism. Interestingly, President Hu, asked about plans to enhance human rights, civil liberties and religious freedom while he was in the United States in April, responded that in his view, "there is no modernization without democracy."

The Chinese leader, referring to Marxist theory, provided a link between economic and political reform, saying, "I believe that the development of the political infrastructure must be compatible with the economic foundation." This suggests that once economic reform has developed to a certain extent, political reform will follow.

Hu's five-year term as the party's general secretary comes to an end next year, though he is likely to win a second term. This means that the coming months are a crucial period, when decisions will be made as to who will be promoted within the party and who will make up the core of the next generation of leaders. The next term should see Hu in much more firm control than hitherto.

Reform in China is hindered not only by the emergence of practical problems, which have led to 87,000 big protests across the country last year. It also faces the problem of reconciling changes to Marxist theory. China, after all, insists that what it is implementing is not capitalism but rather socialism with Chinese characteristics.

Thus the People's Daily article was careful to stress that while the private sector would develop according to market forces, the public sector should maintain its "guiding" role in the economy.

The article quoted former President Jiang Zemin as having said: "In creating the socialist market economy, we cannot miss out the word 'socialist.' "

Recent debate over reforms have centered on financial reforms, in particular to what extent foreign buyers should be allowed to hold equity shares in China's banking institutions.

China's banks, which have been undergoing restructuring, have been looking for strategic foreign partners. For example, the Bank of America last year paid $3 billion for a 10 percent stake in China Construction Bank. HSBC and Citigroup have also bought stakes in Chinese banks, triggering criticism that foreigners should not be allowed to control the strategic financial sector.

Such criticisms, however, reflect emotionalism more than rationality. After all, the foreign banks involved are not state-owned and their interest is to maximize efficiency and profitability -- goals that are entirely consistent with China's national self-interest.

If their participation in management results in better banking institutions, it is China that will benefit. China's leaders evidently realize that the country's interests lie in continuing to press ahead with reform.

Frank Ching is a Hong Kong-based journalist and commentator.


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