More than a year into Chinese President Xi Jinping’s tenure, Beijing’s economic mantra has remained remarkably consistent and clear: China’s growth model is broken and needs to change.
The Chinese Communist Party enshrined that pledge in its economic reform agenda at last year’s Third Plenum, and then reaffirmed it in March at the annual session of China’s legislature, the National People’s Congress. But such clarity of purpose cannot obscure the fact that the actual execution of economic reforms will not succeed unless the Chinese state reshapes itself in far-reaching ways.
For one thing, as we argued last December, the scope of state power in China needs to be rolled back. The plenum’s most important policy decision was to announce that the market would now play a “decisive” role in allocating resources. If that is to be true, then many of the functions that the state currently performs, such as setting prices, must instead be left to the market.
Yet even as China needs to curtail certain state powers, it still requires a resilient and effective state -- to enforce rules and standards, provide public goods, and perform a vast array of administrative functions. And it needs those tasks to be handled at the right administrative level. Beijing too often does things that would be better left to provinces and municipalities. Local governments, for their part, frequently take on responsibilities that Beijing could handle more effectively. This has led to several significant problems: unfunded mandates, confusion about who is in charge, and policy paralysis.
Put bluntly, China needs a new “federalism” -- a realignment of central and local government power -- that can adapt to the conditions of a rapidly changing economy. And that is precisely what is under debate in China today.
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