Forum participants urge China to follow through on economic reforms

By Wang Cong Source:Global Times Published: 2016/9/11 20:08:39

A few months have passed since the release of the 13th Five-Year Plan, a blueprint of China's economic development and reform agenda for the next five years, but discussions on how the reforms will be carried out and what opportunities or challenges lie ahead for domestic and foreign companies are still attracting a great deal of attention. At the Global Times Leader RoundTable on Thursday, business leaders and experts discussed how the world's second-largest economy is approaching a crucial turning point in its development.

Zhang Yansheng, secretary-general of the Academic Committee of the National Development and Reform Commission, speaks at the Global Times Leader RoundTable on Thursday in Beijing. Photo: GT

In the next five years, the Chinese economy will enter a new phrase of development that will require a new set of policy tools and new reforms to adapt to the changes within the Chinese economy and mitigate the accompanying challenges, experts and business leaders said at the Global Times Leader RoundTable on Thursday in Beijing.

The event, which was co-hosted by Global Times and Beijing-based public affairs consultancy North Head, focused their discussions on what role multinational companies (MNCs) should have played under the 13th Five-Year Plan (2016-20).

Experts and business leaders agreed that the government's reform agenda contains solutions for some of the challenges facing the economy, and MNCs could play a constructive role in overcoming them, but they need better market access to help.

Ditch the old tools

"China's [successful economic] story of the past 35 years has come to an end," Zhang Yansheng, secretary-general of the Academic Committee of the National Development and Reform Commission, China's top economic planner, said at a panel discussion at the RoundTable.

"Over the past 35 years, what China has done was to improve productivity, provide food and shelter for its citizens and initiated market-oriented economic reforms," Zhang said. "But one thing we didn't do was to establish a market economy governed by the rule of law. We did not establish the rule of law in the past 35 years."

He noted that the core of the market reforms for the next five or 10 years will be to establish a fairer and more open economy.

The reform should also focus on addressing the overcapacity problem in the economy through structural adjustments and innovation, which are all key elements in the 13th Five-Year Plan, Zhang noted.

The widespread phenomenon of overcapacity is a product, to some extent, of the misallocation of capital and poor implementation of certain reforms, said RoundTable panelist Patrick Horgan, vice chairman of the European Union Chamber of Commerce in China.

To address the overcapacity issue, a new set of policy tools and more market openness are necessary, Horgan said. It won't work to just to employ old methods such as targeting specific areas for indigenous development and innovation.

"[If China sticks to its old way of doing things], it is more likely rather than less likely that the same problems of the past will be repeated…a repetition of excess capacity in targeted sectors, a repetition of the misallocation of capital," he said.

The 13th Five-Year Plan contains a number of solutions to address overcapacity, and China should follow through on the agenda, Horgan said.

"A clear recommendation of would be to dust off the reform agenda as it was articulated at the time of the Third Plenum, and to put some fresh political leadership and momentum behind that reform agenda," he said.

However, there are concerns that the government is sending mixed messages, Horgan said. On the one hand, the government has said the market should play a decisive role in the economy. But on the other hand, programs such as the Made in China 2025 plan make it seem as if the emphasis is once again on indigenous innovation.

Embrace the MNCs

"Innovation cannot be done effectively inside a nation state box," Horgan said at the forum. "There is a problem if you define the innovation agenda purely and primarily as an indigenous innovation agenda, but actually that actively discourages innovation and the best ideas from flowing into society." MNCs can help with innovation, he added.

Zhang said MNCs can help Chinese officials gain much needed experience in regulating the market and staving off monopolies.

"My suggestion to the government is that if you don't know how to do it, you should cooperate with MNCs…because MNCs know things the government doesn't," Zhang said.

He noted that there are a lot of opportunities for MNCs under the reform plan.

"The next 35 years will be a golden era for MNCs," Zhang said. "[In 35 years], the Chinese economy will be very different. It will provide MNCs a lot of opportunities, not only at home but also overseas through initiatives like 'the Belt and Road initiative'."

Open up the markets

However, for MNCs to fully participate in the reform agenda, they need greater access to the Chinese market, attendees at the RoundTable said.

To ensure sustainable growth in the Chinese economy, there is requirement for openness and participation on equal terms, Horgan said, adding that China should change its attitude of utilitarian use of MNCs to support a particular aspect of the development agenda, and move instead to a genuine market economy based on openness where the ownership of the equity or the origin of the capital is not the key consideration.

At a time when there is growing suspicion of international trade and international business - as seen in the UK's vote to leave the EU and anti-globalization rhetoric in the US presidential race - it is necessary for China exercise political leadership and  demonstrate openness, Horgan said.

To ensure a fairer and more open market for investors, it is necessary to accelerate the completion of the bilateral investment treaty between China and the US (China-US BIT) and a robust EU-China Comprehensive Agreement on Investment (CAI).

"The negatives list and pre-establishment national treatment under the BIT will provide foreign investors with a fairer, more open environment that is better governed by rule of law and principles," Zhang said. "I believe the BIT will become China's second WTO."

John Russell, North Head's managing director, concluded that it is also important for MNCs to adapt to the China market. "Many of the challenges faced by MNCs arise due to the fast pace of changes of the Chinese market," he said. "Some MNCs are struggling because their structures and processes are developed for slower growth markets elsewhere. They will be increasingly vulnerable as more flexible Chinese competitors become more professional and innovative."

Newspaper headline: Changing tactics

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