Beijing's reform bid echoes best of both worlds

When the Chinese Communist Party released its master plan for reform on Tuesday night, at the third plenum of the 18th Party Congress, commentators and analysts struggled to find bold reform messages to cheer for.

Though the party has promised to grant the invisible hand of the market a "decisive" role in resource allocation, the plan remains vague and falls short of the heightened expectation from many quarters.

At the heart of China's economic reform is to redefine the relationship between the government and the market, an eerie echo of the debate in the West after the global financial crisis.

Beijing vows to let the market play a determinative role without saying how. However, the party's undiminished love affair with public ownership suggests its faith in market power is limited.

The reform of the privileged state-owned sector, which sucks up disproportionate amounts of resources, is widely regarded as a litmus test of Beijing's resolve to break the reform impasse.

On this front, the party communique is a disappointment. It has reaffirmed the importance of state-owned enterprises in China's political economy.

It used the phrase "unshakably developing and consolidating the state sector", while at the same time promoting the development of the private sector, which is the most dynamic part of the economy, employing more than 60 per cent of the population.

Guan Yuqing, the deputy head of research at Minsheng Securities, said in a late-night conference that the basic position of the state sector remained unchallenged and the reform of the sector would likely stay at corporate level rather than at structural level.

Just a day before the release of the communique, the state-owned Assets Supervision and Administration Commission, the body overseeing 117 of the largest state champions, moved swiftly to shut down a China Daily report about allowing private capital to buy up to 15 per cent of shares in state-owned companies.

"Strong backing for the state sector is hard to square with the desire to give markets a much greater role. The party leadership may believe it can achieve both, but as long as state-owned enterprises retain their privileged position, markets will remain skewed," said Mark Williams, chief Asia economist of Capital Economics.

However, a senior Chinese financial services executive currently visiting Australia said he was upbeat about the prospect of reform and the government would soon grant banking licences to private sector players.

A significant move when and if it happens.

As people scramble for hints of bold reform measures, one of the most promising concrete steps is the formation of a small leading group at the highest level of the party apparatus to design, champion and co-ordinate reform.

A leading group is a small team of high-ranking party officials overseeing an important policy area such as economy and foreign affairs.

Many commentators regard this as a positive sign that reform is taken more seriously this time.

When Deng Xiaoping unleased the ground-breaking reforms of the 1970s and '80s, there was a structural reform commission charged with overhauling the country's economic system. The body was widely lauded for its pioneering work. It is still early days to see whether the new group will be able to fill the big shoes of its predecessor.

The communique also touched on an important area of land reform in China, a vexing issue that is driving much of rural social unrest as corrupt officials grab farmers' land without fair compensation.

There is not much new detail in this "master plan for reform"; a lot of encouraging language and hints but few specifics.