Yet taken together, the incremental steps promise to reach enough
critical mass to sustain reform momentum and help the world's
second-largest economy shift down fairly smoothly after decades of
red-hot investment-fuelled growth.
It's a 21st century version of Deng Xiaoping's "crossing the river
by touching the stones" strategy of cautious economic
experimentation in the 1970s and 1980s.
The caution is still there, the difference is today China is
crossing that river in many spots at once and the water is probably
Economists say there is no substitute for fundamental changes if
China is to succeed in its transformation from bureaucratically-run,
pollution-spewing industrial powerhouse to a more balanced,
However, reforms such as freeing up bank interest rates or
dismantling state monopolies will cause much short-term pain, and
provide gains only in the long-term. With the economy expected to
grow by 7.3 percent this year, the slowest in 24 years and close to
the level Beijing believes is needed to preserve financial and
social stability, those reforms will have to wait.
"We are doing easier ones first and leaving the difficult reforms
for later," said Xu Hongcai, senior economist at China Centre for
International Economic Exchanges, an influential think-tank in
But Xu and others are encouraged by the progress so far and the
consistency President Xi Jinping and Premier Li Keqiang have shown
in pushing for a greater role for markets across the economy.
"The leadership is committed to reforms, there is no doubt about
that," said Lu Feng, vice dean of National School of Development at
Peking University and a government policy advisor.
Since November, when Communist Party leaders adopted a reform
blueprint for the rest of the decade, no week has passed without new
initiatives in areas ranging from the environment, resource pricing
to capital flows and financial regulation.
"We have indeed seen in the last four or five months a steady
accumulation of steps in key areas," said Louis Kuijs, chief China
economist at Royal Bank of Scotland in Hong Kong and a former World
Bank economist in Beijing.
Financial market liberalization is a good example.
Freeing up of lending rates last July and the doubling of the yuan
trading band in March got most airtime, but they were accompanied by
many other steps making it easier to move capital within China and
across its borders.
Just over the past two months, regulators eased curbs on foreign
investments in Chinese stocks, allowed cross-border share investment
between China and Hong Kong, eased approvals for overseas
acquisitions and domestic mergers and takeovers.
However, a deposit insurance scheme expected to pave the way to
removal of curbs on deposit rates has been slow in coming and it is
clear that a free-floating yuan and opening up of China's capital
account are still years away.
But changes made so far have already had the effect of allowing more
balanced capital flows.
The scaling back of central government's administrative approval
powers and simplified business registration are also expected to
bring not yet easily measurable, but tangible economic benefits.
[to top of second column]
For example, the easing of capital registration rules on March 1
brought a 46 percent surge in that month alone in the number of
newly registered firms over a year earlier.
Gradual removal of distortions in pricing of resources such as gas,
and services like rail transport and healthcare, is another area
where Beijing has been making progress, though many of those steps,
taken in isolation, would have little impact.
While those could be seen as low hanging fruit, the vigour with
which many local authorities have been experimenting with mixed
ownership of state-firms or new management incentives qualifies as
one of positive surprises.
Provinces have also shown similar resolve in launching new pilot
schemes and special economic zones. It is too early to tell how much
impact they may have but the direction is clear: towards more
opening up, more competition, more markets, more smart technologies,
and cleaner technologies.
The thorniest decisions, such as stripping big state firms of an
implicit government guarantee or opening sectors such as banking to
competition, still lie ahead.
Little has also happened with mooted reforms to China's residence
registration system and land property rights needed to boost the
nation's urban population, among Beijing's strategic priorities.
Economists also expect slow progress with the promised revamp of how
revenues, spending and responsibilities are split between Beijing
and local governments, made tricky by high levels of local debt and
the need for new sources of tax revenue.
Beijing's top leaders have themselves warned that resistance from
those affected by change such as powerful managers of state firms or
provincial officials will only get stronger. The say the reforms are
entering "deep waters."
Yet, the overall verdict six months after the reform blueprint was
announced is that so far, despite the economic slowdown and signs of
financial strains highlighted by China's first domestic bond
defaults, Beijing has not strayed from the course.
Royal Bank of Scotland's Kuijs says steps taken by Beijing in the
past two months to prop up the economy such as fast-tracking
spending on some rail lines and debate whether more stimulus might
be needed could leave an impression that reforms have taken a back
"But then if you look at the accumulation of steps on the reform
side, you realize that the reform process is still going on."
(Editing by Raju Gopalakrishnan)
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