China to loosen central planning

The Chinese government is planning for private businesses and market forces to play a larger role in its economy, in a big policy shift intended to improve living conditions for the middle class and to make China a stronger competitor on the global stage.

The Chinese government is planning for private businesses and market forces to play a larger role in its economy, in a big policy shift intended to improve living conditions for the middle class and to make China a stronger competitor on the global stage.

In a speech to party cadres, new Prime Minister Li Keqiang said this month the central government would reduce the state's role in economic matters in the hope of unleashing the creative energies of a nation with the world's largest economy after the United States.

On Friday, the Chinese government issued policy proposals that seemed to show that Mr Li was serious about reducing government intervention in the market, and giving competition among private businesses a bigger role in investment decisions and setting prices.

Whether Beijing can restructure an economy that is thoroughly dependent on state credit and government directives is unclear, but analysts see such announcements as the strongest signs yet that top policymakers are serious about revamping the nation's growth model.

"This is radical stuff, really," said Stephen Green, an economist at British bank Standard Chartered and an expert on the Chinese economy. "People have talked about this for a long time, but now we're getting a clearly spoken reform agenda from the top."

China's leaders are under pressure to change as growth slows and the limitations of its state-led, investment-driven economy become more evident. This month, manufacturing activity contracted for the first time in seven months, according to an independent survey by HSBC. Economists are lowering their growth forecasts and weighing the risks associated with high levels of corporate and government debt that have built up over the past five years.

The proposals include expanding a tax on natural resources, taking gradual steps to allow market forces to determine bank interest rates and developing policies to "promote the effective entry of private capital into finance, energy, railways, telecommunications and other spheres", as a directive issued on the government's website says.