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The Man Who Would Reform China's Economy


Peering at the intricacies of Chinese political decision-making can be like trying to see through the thick smog that frequently hangs over many of its cities. Analysts and journalists are frequently left with nothing to do but speculate on what actions Chinese leaders might take when big decisions loom, and there’s plenty of speculation swirling around this weekend’s Third Plenum, a grand meeting of Communist Party’s Central Committee. But one man whose savvy decision-making and long-term agenda has kept him in power for longer than usual might shine some light on what to expect in the way of reforms.

Zhou Xiaochuan was supposed to retire last year when he hit the mandatory retirement age of 65. At his last big speech, thinking he was about step down from his position as the governor of the People’s Bank of China, Zhou tore into those at the “top” of the government for holding back economic reforms. In surprisingly candid remarks to an audience that included the Party officials in charge of the economy, as sources told the WSJ, Zhou said the government had failed to put forward plans to ease restrictions on the economy and the banking sector. He’s still on the job, and is seen as a powerful advisor with the ear of China’s top economic and political leaders.

As the WSJ reports in a must-read essay,

[Zhou] has long championed a more consumer-based economy in which ordinary people have more money to spend and more loans are available to private firms rather than state-owned behemoths. To that end, his priorities include creating deposit insurance for banks, making higher interest rates available to depositors, creating more privately owned banks and opening China more to foreign investors.

At a conference earlier this year, he said China needs “to further promote trade and investment, improve financial services to the real economy and improve people’s livelihood.” He has spent years putting forward a road map to meet these goals and over time has won the confidence of Xi Jinping’s economic advisors, the influential former Party chief Jiang Zemin, and Wang Qishan, a member of the Politboro’s Standing Committee and a key economic decision-maker. Over the past year Zhou has traveled widely with President Xi Jinping, including on a recent trip to central Asia that yielded billions of dollars in energy and trade deals, and Zhou is frequently the face of the Chinese economy at international meetings. As Hank Paulson put it, if the Chinese “are to successfully drive the transition to an economy that is more reliant on private markets and less on the state…they will rely heavily on Zhou.”

But Zhou must tread a narrow lane. China needs to maintain a GDP growth rate of 7.2 percent, Premier Li Keqiang said yesterday in one of the few times a top Chinese leader has publicly cited a concrete number. In order to retool the economy, China’s leaders have said they are willing to accept lower growth, but, as Li’s remarks show, there is a limit. Nevertheless, they understand that reforms are necessary to avoid long-term damage to the economy, and some are expected to be unveiled this weekend. As the New York Times put it, the bottom line is “how to create a consumer-led economy and arrest a steep increase in unemployment among young, educated Chinese.”

Indeed, from a policymaker’s point of view, one of the more troubling developments in China’s economy is youth unemployment. There don’t seem to be enough jobs for educated young people. “Young people now with college degrees just don’t want to work in factories,” one factory owner told the TimesAlong with banking reforms and opening up the Chinese economy to more foreign capital, addressing the high unemployment rate among China’s dynamic, educated young people is one of Zhou’s priorities. In September he wrote in a Party magazine that China must “support private capital to set up private banks and guide them to position themselves in serving small and micro companies.”

Overall, the message from Zhou and his allies as well as his critics is “tread slowly and carefully.” His louder critics have pointed to the recent economic troubles of Brazil and India in warning against some reforms. And yet, it has become necessary to act, and Zhou doesn’t look like he’ll abandoning his agenda anytime soon.

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  • Todd Fletcher

    The last few weeks have seen a massive increase in Bitcoin client downloads and purchasing led by China. Because of this the price per btc has risen from about $210 to pass the all time high of $266.

    Several events in China have fed this rally: Baidu, a major Chinese internet services company has started accepting bitcoin for payment for some services, and a state TV program had a feature on Bitcoin that was very favorable. Some are speculating that this means the Chinese government is signalling that it approves of the purchase of Bitcoin by citizens in China.

    All of which makes sense in light of this article: if there is move to liberalize the Chinese economy it’s hard to imagine a firmer sign then the government approving consumer adoption of Bitcoin.

    • Jacksonian_Libertarian

      The Chinese have accumulated $1 Trillion in US Treasuries, in it’s effort to manipulate its currency and give its exporters a price advantage. Bitcoin’s can’t be manipulated in this way, as there isn’t any Bitcoin Treasuries. So it isn’t that China approves of Bitcoins, it’s that China sees no way of taking advantage of them and is ignoring them for the moment.

      • Todd Fletcher

        Interesting thanks

  • lukelea

    There are beautiful ideas in China. But entrenched interests rule. And I mean deeply entrenched. It’s hard to imagine the Party reforming itself short of a collapse.

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