Reform roadmap before key meeting

Pragmatic approach

For some observers, the plenum is important as the new leadership comprising economists, lawyers and humanists provides a more pragmatic approach toward reforms.

Michal Krol, research associate at the European Center for the International Political Economy in Brussels, says the present leaders are mostly individuals who have spent most of their working life with government organizations. "They have an appetite for reforms, not least to meet the ongoing social, economic and environmental challenges," he says.

Krol adds that while there is no doubt China has set stiff targets, its eventual success depends on how much leeway policymakers allow — and how they plan to streamline market liberalization.

"State-owned and State-controlled enterprises dominate the sectors with the highest potential for service productivity and employment growth. Liberalization of transport, finance, telecommunication, healthcare and business sectors by allowing more firms is the most effective way to foster reforms," Krol says.

Echoing Krol's views is David Fouquet, director of the Europe-Asia Research Network in Brussels. "This implies a reconciling of the roles of large State-owned enterprises and what might be termed the true fundamental economy, as well as the provision of social and life services to the majority of the population."

Many observers feel China's reform should be gradual as it has been in the past decades. Duncan Freeman, senior researcher at the Brussels International Institute of Contemporary China Studies, says President Xi Jinping and Premier Li Keqiang have been part of China's leadership for years and says they subscribe to the basic policy consensus that has long existed.

"In this sense, any new policy initiatives will be based on the same principles of gradualism that have been the basis of reform for the last 30 years," Freeman says. "However, they have spoken of the need for greater political courage in tackling reform, so I would hope to see a package of reforms that take significant steps toward addressing fundamental issues faced by China today."

The basic reform goal for China should be to continue to push ahead with the welfare of the Chinese people, which would involve not just GDP and income growth but also issues such as healthcare, education, welfare, the environment and social and political development, Freeman says.

The domestic challenges are many. They are a complex of interrelated problems that cannot be solved individually. The risks in areas such as the financial sector, investment, the environment and others are many and threaten the sustainability of what has been achieved so far.

Freeman says: "A key area is investment, and how it is allocated, because this has an impact not only directly on issues like overcapacity, but also to other areas such as risk in the financial system, the environment and energy and the economic welfare of the ordinary Chinese people because they are losers in a system where overinvestment is prevalent."

Another key area is institutional reform and capacity building, because this is central to reform.

Maria Jesus Herrerias, senior research fellow of contemporary Chinese Studies at the University of Nottingham in the United Kingdom, says China needs to promote further economic reforms to avoid the middle-income trap, which can be addressed at domestic and international levels.

At home, China needs to improve the efficiency of banks. Small and medium-sized enterprises need to get access to credit to finance their investment projects and convertibility of the yuan to facilitate international transactions. Meanwhile, China also needs to generate more incentives to boost domestic consumption, at the expense of traditional savings, to offset the predominance of foreign demand as a source of economic growth.

"The continuous dependence on external demand exposes China to international shocks such as the current economic crisis," Herrerias says.