In early November, as Beijing braced for the Communist Party’s Third Plenum, the high-level conference that would decide major policies for the next decade, President Xi Jinping appeared to deliberately raise expectations for major economic reforms. He spoke of a “comprehensive” reform plan and invoked Deng Xiaoping, the man who changed history by overhauling China’s economy and politics at an earlier Third Plenum, in 1978.
Yet no sooner had the plenum closed and the party released its initial communiqué than observers dismissed the meeting as a bust. Markets slumped. Hong Kong’s Hang Seng Index dropped 1.9 percent, to its lowest level in ten weeks. The Shanghai Composite lost 1.8 percent. Many commentators argued that China’s leaders, faced with their first big test, were disinclined -- or else too timid -- to undertake the sweeping economic reforms that Xi had promised.
But then the verdict abruptly shifted with the release of a follow-up 60-point decision document, which presented a sweeping economic reform agenda that included new commitments to financial liberalization, the repair of China’s social safety net, new protections for property rights, and greater reliance on market forces. Across Asia, the markets shot upward.
Several factors explain this quick swing from pessimism to exuberance, not least of which is a volatile combination of high expectations for China as the world’s second-largest economy and deep cynicism about the Chinese leadership’s intentions and political will to overcome vested interests that oppose reform. Many look to Beijing to change its investment-led growth model to one based on consumption and innovation. And many will continue, therefore, to see what they want to see in the plenum’s reform agenda -- both its promises and shortcomings.
But it is vital to assess the plenum’s commitment to reform against the realities of China’s political economy and the Chinese government’s own goals. And, on that score, the plenum has reinvigorated a reform process that will, in time, make the Chinese economy more