Chinese president Xi Jinping has taken charge of drawing up ambitious reform plans to revitalise the economy, sources close to the government said, shunning policy stimulus for fear it could worsen local government debt and inflate property prices.
A consensus had been reached among top leaders that reforms would be the only way to put the world’s second-largest economy on a more sustainable footing, said the sources, who are familiar with the plans and Xi’s involvement.
China’s economic growth is at its weakest in 13 years, although still the envy of any major economy.
Xi will present the reforms at a key meeting of the ruling Communist Party later this year that will set the agenda for the next decade, signaling his seriousness to see breakthroughs, the sources told Reuters.
Some of the sources cautioned that the reforms could face resistance from vested interests, especially state firms.
Broadly, the measures would liberalise interest rates and overhaul the fiscal system for local governments to ensure they had a steady stream of tax revenues rather than relying on volatile land sales to raise funds.
The reforms would also free up China’s rigid residence registration, or hukou, system that precludes people from access to basic welfare services outside their official residence area, the sources said.
“A top-level team has been set up to draft reform plans for the party meeting, with Xi taking personal charge,” said a senior economist at a top government think-tank in Beijing.
“Xi is keen to see some real changes,” said the economist, who requested anonymity due to the sensitivity of the issue.
Big injections of policy stimulus appear to be off the table after Premier Li Keqiang was quoted by state media as saying on Wednesday there was limited room to use government spending to boost the economy.
“China’s economic model has reached a point where it must be overhauled, although reforms are probably easier said than done,” said Shi Xiaomin, vice head of the China Society of Economic Reform, a government think-tank in Beijing.
“The sense of crisis of Xi and Li is significantly higher than their predecessors.”
Xi and Li assumed their government posts in March during a once-in-a-decade leadership transition.
Some critics said the previous administration of President Hu Jintao and Premier Wen Jiabao had delayed economic reforms and failed to deal with the fallout from China’s 4 trillion yuan ($650 billion) stimulus package in 2008. The package insulated China from the global financial crisis but left a mountain of local government debt and record house prices.
Xi and Li, by contrast, have been leaning toward reforms rather than short-term policy stimulus to bolster the economy.
“They are more eager to tackle long-term issues through reform measures. China’s economic slowdown is mainly caused by structural factors,” said Wang Jun, senior economist at the China Centre for International Economic Exchanges (CCIEE), a well-connected government think-tank in Beijing.
