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Download this week’s newsletter as a PDF here: CPW No. 19 (June 3-10, 2014)
Dear friends and colleagues,
On the road, so an abbreviated edition this week. Your comments and feedback are always welcome. Old issues are always available at www.chinapoliticsweekly.com. Sign up or unsubscribe by sending an email to email@example.com.
The power of the Premier
The government is increasingly worried about an economic slowdown and the ability to carry out its reform agenda. Premier Li seems desperate to enforce discipline on a massive and recalcitrant bureaucracy accustomed to the current system and inherently resistant to change. For the past two weeks the Premier has castigated ministerial and local level officials for dragging their feet on implementing reforms. He is trying to give his admonishments some bite by sending out inspection teams to evaluate policy implementation at the local level.
The Premier’s sense of urgency is due to the fact that the economy is slowing down faster than top officials had expected. The hope in Beijing was that reforms to reduce government intervention in the economy would lead to productivity and efficiency gains that would offset some of the downward pressure caused by tighter credit conditions and reduced investment. Under this scenario, Beijing would gradually slow the economy down while undertaking restructuring, keeping displacements at an acceptable level.
Unfortunately for Beijing, the downturn in the property market has been greater and happened sooner than anticipated. The government has reacted, at times almost apologetically, with “mini-stimulus” measures, the latest of which was the reserve ratio requirement (RRR) cut for most banks announced this past week.
Businesses can take comfort, at least in the short run, that the government is unwilling to let growth decelerate too quickly. More stimulative measures are likely.
The medium term outlook, however, is more problematic. On the bright side, the rhetoric coming out of Beijing makes clear that the top leadership understands the need to move the economy in a more market-oriented direction. But the mini-stimulus measures show that, when forced to make a choice, the government will always choose growth over reform. In the long run, this is unsustainable.
Ultimately, it doesn’t matter what the policy is if it is not implemented, which is why Li’s exhortations are so interesting. Do they show a Premier unable to control his bureaucracy? Or a dogged reformer who will not back down? The answer holds the key for China’s prospects.
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