The China Dashboard evaluates progress toward economic reform imperatives Chinese leaders set out in 2013. The full data available for this edition – fourth quarter 2017 – mark four years since President Xi announced his 60 Decisions reform program that year. Political developments in China and abroad are raising the stakes around implementation. With the March 2018 National People’s Congress (NPC) complete, a new team of economic officials is in place, and the wait for new policy leadership should be over. Overseas, the United States has declared an end to its patience for a substantive opening of Chinese trade and investment markets that has steered strategy for the past 25 years and backed that up with restrictive policies aimed at trade and investment. U.S. businesses and other advanced economies find themselves jammed between these two giants and anxious about taking sides and becoming objects of retaliation, although many share Washington’s concerns. Meanwhile, macroeconomic data from Beijing suggest business conditions are excellent amid officials’ claims that the next generation of reforms is largely on track, but these claims are questionable and not backed up by underlying data.
Our fourth quarter 2017 indicators continued to diverge from official reports: fundamental reforms are lagging while stated growth never seems to change. This does not make good sense, statistically or logically. We see eight of our ten policy assessments in neutral or negative territory in this edition, the same as last quarter. Of those eight, three moved further in a negative direction: Trade and SOE reforms were neutral last quarter but now show backtracking. Labor reform moved even deeper into negative territory. The other five of eight in the neutral or negative categories (Competition, Fiscal, Land, Finance, Investment) held steady with our assessments from the last edition. Only two indicators showed positive movement: Environment (based on improved air and water quality readings) and Innovation. However, the innovation story is fraught with foreign complaints that it relies on coercing foreign firms to hand over their technology and intellectual property in order to earn some access to the important Chinese marketplace, thus making progress in this dimension somewhat disputable.
Whether China will respond to economic policies from the United States and other advanced economies with tit-for-tat retaliation or, rather, more ambitious reform is an essential question – perhaps the most important of our time. Policy dynamics in this period under review were primarily about the turnover in Communist Party leadership, with Xi’s new team set for his second term, and an expanded role for the Communist Party in “guiding” the economy and even individual firms (including private and foreign). The March 2018 NPC abolished term limits for China’s presidency and vice-presidency (Xi and Wang Qishan). This elevation of the Party and attenuation of constraints on leaders may well generate long-term negative reactions from Chinese elites. It has also driven international reactions to Xi Jinping more generally, causing global opinion to harden that China is heading in an increasingly “authoritarian capitalist” or “state capitalist” direction. This, in turn, has implications concerning China’s medium-term political resolve to fully implement the market reform agenda announced back in 2013. Beijing, by contrast, claims up front that it is simply employing an alternate development model. Seemingly in the hope of tamping down foreign pressure, China announced some new investment opening in autos and a few other sectors at the Bo’ao Forum in April, but this piecemeal approach is outdated and not likely to mitigate the shift toward more confrontational U.S. policies toward China or a broader revision of existing strategies from other advanced economy governments.