Agencies
By throwing Shanghai’s doors open with the launch of a free-trade zone in 2013, Chinese leaders put an ambitious economic engine into gear, with vows to create a bastion of international trade, free capital flows and far less government intervention in business operations.
And more importantly, the undertaking would act as “an experimental field to conduct economic reform”, laying the groundwork for the pilot zone’s success to be shared, promoted and replicated across the country.
The Shanghai Pilot Free Trade Zone was touted as the most significant attempt at economic reform since Shenzhen established the country’s first special economic zone in 1980, next to Hong Kong. And leadership was aiming to elevate China’s decades-old model for economic reform and growth to new heights.And the pilot zone has indeed seen an extraordinary rise in terms of industrial development and economic size, hallmarked by Tesla’s Gigafactory and several other mega projects. Some of the pro-business perks – including the removal of some bureaucratic approvals, as well as the zone’s smaller “negative list” that outlines sectors off-limits to foreign investors – have gained popularity at other such zones across the country.
But at the national level, many of the 336 pro-market tasks outlined in leadership’s broader 2013 reform document, which was then regarded as a key means of unleashing the country’s long-term growth potential, have progressed more slowly than the market expected.
On the ground, pressure continues to be felt as various domestic problems persist unabated, including a property crisis, local-level financial woes, stubbornly high youth unemployment and an air of malaise in the outlook for investors.
So, where is China’s economy heading? And what will be gained or lost from Beijing’s moves to shore up domestic security and protect its markets that have been roiled by a protracted trade war with the United States that began in 2018? Those are among the biggest questions brewing ahead of the delayed third plenum, as as authorities announced on Thursday that it would be held from July 15-18.
Analysts at home and abroad want to know if the Chinese economy is deviating from the overriding doctrine of letting the market play a decisive role. And if not, they wonder what substantial measures will be deployed to rebuild investor confidence and get the national economy back on track.
“It’s high time for us to reflect on the actual implementation of the hundreds of tasks outlined in the 2013 plenum,” said Wu Jinglian, an outspoken and respected economist who helped chart China’s reform path from the era of former paramount leader Deng Xiaoping.
“At this juncture, we must identify unfulfilled tasks, hone in on the root cause and finish them in earnest,” Wu, 94, said in an article in the March issue of the Exploration and Free Views academic journal.
On the surface, even after weathering trade disputes and the pandemic, China’s gross domestic product grew by 125 per cent from 2013-23, from 56 trillion yuan to 126 trillion yuan (US$17.35 trillion).
The world’s second-largest economy is also transforming fast – the size of the digital economy is second only to that of the US, and China has moved up quickly on the global value chain with fast progress in tech development. In terms of innovation, Beijing was ranked by the World Intellectual Property Organization as 12th most innovative last year, compared with 35th in 2013, and is now leading the world’s green transition with a dominant share in the production of electric vehicles and solar panels.
However, many economists have questioned sustainability, as GDP growth has slowed significantly in recent years and growth prospects remain dim when factoring in a rapidly ageing population, high debt mountain and external headwinds.
The economy’s main growth drivers in the last few decades – namely the property sector and private investment – have been sputtering, while foreign investors have been enticed to reshore or nearshore their production facilities amid geopolitical de-risking moves – if not explicitly decoupling – by two major trading partners: the EU and the US.
Meanwhile, the national debt has accumulated to such a level that an immediate deployment of reforms, rather than further government loosening, could be on the cards.Although Beijing has said that more than 2,000 measures were taken in the past decade, many economists and market watchers have attributed the current economic doldrums partly to Beijing’s incomplete pro-market reforms.
