Chop and reform

The historic four-day meeting of China's top policymakers starting tomorrow is expected to launch reforms that will affect not only its 1.mini storage3 billion people but also many others beyond the Middle Kingdom. Dubbed the third plenary session of the 18th central committee, it will bring together behind closed doors the 376 core members of the ruling Communist Party. The plenum is expected to resolve "outstanding conflicts and challenges that China faces in the course of its development," Xinhua News Agency said this week. Policymakers will aim to chart a course that "achieves sustainable and healthy economic and social development." Many commentators are not very hopeful and have cautioned against having expectations of the plenum that are too high. But even the most ardent skeptics realize China has no choice but to deepen reforms to ensure the remarkable achievements of the past three decades are protected. Such plenums come in for close scrutiny, for it was at such a session, a meeting of the 11th central committee, that Deng Xiaoping launched the "reform and opening-up initiative" that ushered the nation into a new era of prosperity. What will happen this time now that there is no Deng? Well, policymakers have received a blueprint for further opening up the economy. Drafted by the Development Research Center of the State Council, it is known as the "383 Blueprint." The first number in the title stands for the trinity of market, government and corporations. The eight refers to areas requiring reform - monopolies, land, financial sector, taxation, state-owned assets, innovation, foreign investment and governance. The last is a reference to the number of major objectives of reform, namely strengthening competition, boosting the social security system, and fostering a market-based land disbursement system. State enterprises Policymakers now have to decide what areas will be their primary focus. The answer to this lies in what the country's new leadership, who formally assumed power in March, have done so far. Like many rulers before them, the administration of President Xi Jinping and Premier Li Keqiang has come down hard on corruption. But what makes the latest anti-graft campaign different - some would say remarkable - is that it targets strategic profit- making state enterprises. The first corporation to feel the heat was the PetroChina Group. In September, its former chairman, Jiang Jiemin, was probed by the Central Commission for Discipline Inspection for "serious disciplinary violations" - a euphemism for corruption. Quickly removed from his then position as director of the State-owned Assets Supervision and Administration Commission, Jiang was allegedly involved in graft cases during his tenure at the oil giant. Four senior managers of PetroChina were also removed. SASAC looks after all state-owned enterprises, which make up largest chunk of the domestic economy, and comes under the State Council. By targeting PetroChina at the start of their reign, Xi and Li could be signaling big changes are on the horizon. That was foreshadowed by SASAC deputy director Huang Shuhe's telling Beijing Business Today this week that several large SOEs will see huge changes post-plenum. State firms, he said, had to undergo "marketization" - a catchword for restructuring and consolidation - because their efficiency is under scrutiny. Nearly 43 percent of the country's gross domestic product was the direct result of contributions by 117 SOEs in 2011, according to SASAC. Given favorable policies and resources from Beijing, they made up 62 percent of the country's top 500 enterprises, 82 percent of the total revenue and 84 percent of the total profits for last year, China Enterprise Confederation said. However, the average return on assets by SOEs has been slipping to as low as 3 percent since 2008 and their contribution to the country's gross domestic product has also weakened, recent reports show. "SOEs, overprotected by the current policies, would go bankrupt in a competitive market," warned Cui Changlin, a researcher at China Society of Economic Reform, one of the nation's top think- tank. "Their contribution is not proportional to resources allocated," . What many SOEs have is essentially monopoly status in certain industries. The "383 Blueprint" calls for these monopolies - namely in oil, gas, railway, power generation and telecommunications - to be broken up. Possible spin-offs from these gigantic vertically-integrated companies - such as divesting pipeline business from state- owned oil and gas giants - could see the light of day on the Hong Kong stock exchange. By curbing the powers of the SOEs, policymakers hope to spark the entry of more private capital into various industries. This will be done by reducing entry limitations that, according to the "383 Blueprint," are essential for boosting competition. The blueprint calls on authorities to come up with new polices to support private financial institutions and encourage internet firms to tap the microfinance industry. In fact, so far this year, 15 private enterprises have submitted applications to set up banks. Alibaba, China's largest e-commerce firm, is not exactly waiting for a green light. It has extended loans worth a staggering 130 billion yuan (HK$165.4 billion) to small and medium-sized enterprises since 2010 on its B2B platform. Land SOEs are not the enduring legacy of old-style socialism in China. The regulatory reself storageime governing land transactions and transfers is in more urgent need of change due to rapid urbanization and an aging population . In the "383 Blueprint," the spotlight shines brightly on land reform. UK-based Barclays Bank expects Beijing to define and register land rights for rural residents by next year. Beijing is likely, according to a report by the bank, to allow rural collective land to be transferred by 2015. The country will also increase land compensation to farmers and improve planning and usage of urban and rural land beyond 2015, the report speculates. The land reform - to be the fourth since the Communist Party took the power in 1949 - will be aimed at reducing social tensions, enhancing farmers' income and increasing supply to tame soaring property prices. The country's land - although all owned by the state - is classified into several categories. In rural regions, plots are held collectively but divided into agricultural and rural construction land. The latter cannot be used for mass residential, commercial or industrial use unless local governments requisition sites and change their usage. About 6.5 trillion yuan worth of such rural land can be activated and circulated in the market following measures that could be floated at the plenum, according to a recent report. Around 700 million out of the country's total 1.3 billion people still reside in villages and small towns, occupying 170,000 square kilometers. Land occupied by each rural resident - mostly farmers - is more than triple that taken up by urbanites. Also, land in rural areas is priced at an average of just half of comparable plots in the city. China Securities Daily has already cautioned authorities that land reform must be gradual because local governments may not be able to handle too many rural sites being released into the market for commercial use. "Land revenue has been and will be the major source of local government revenue. The proposed land reform should only be tested on a small scale, for example in economically-developed Jiangsu and Zhejiang provinces," the paper urged in an editorial in September. Gu Yunchang, vice chairman at China Real Estate & Housing Research Association, attributed China's soaring home prices to limited land supply as four-fifths of the nation's land resources are locked away in rural regions - mostly as rural construction land. "As urbanization continues, China needs to revise its laws to fully realize the value of rural land and truly improve farmers' living standards," Gu said. Land in urban areas was sold at an average of 3,286 yuan per square meter in the third quarter, up 1.85 percent from the previous three months and the highest in six quarters, the Ministry of Land and Resources said. Against this backdrop, home prices rose for the 17th straight month in October when properties were sold at 10,685 yuan per sq m in 100 major cities - up 1.24 percent from September and nearly 11 percent higher than a year earlier, according to Soufun, China's largest real estate information platform. Home transactions hit 270,700 in 54 large cities last month - the second single- month high this year, Centaline agency said. Authorities have vowed to release new measures, such as expanding the property tax to establish a long-term mechanism in the real estate market. Last week, Xi pledged to meet the goal of building 36 million affordable homes in the five years leading up to 2015. He assured the public that "the government will focus on providing affordable homes while allowing the market to play a dominant role in housing supply to meet the diverse needs of the people." Xi's words may have signaled the eventual demise of current cooling measures. Population China's rapidly-aging population is one issue the nation's leadership can no longer delay tackling. The "one-child" policy is expected to be loosened soon or even abolished to offset more people leaving the workforce. China now has more than 200 million people who are aged over 60. Last year, one person retired every minute, a senior official from the Ministry of Human Resources and Social Security told Beijing Times. The consequences of the one-child policy, instituted in 1979, include a plunging birth rate and a shrinking workforce that has put further development in the mainland in jeopardy. So, couples coming from one-child families are expected to be allowed to have a second child, reports said. Hukou - the household registration system - a long established and controversial population mechanism - is also expected to be relaxed. The "383 Blueprint" seeks to set up a new national fundamental social security scheme. It is believed that once worries over health care, education and retirement are eased, people will be willing to spend more. This, policymakers believe, will veer the economy away from being over- reliant on exports and lead to one being led by domestic consumption. China has the world's highest household savings rate of more than 50 percent - compared with the global average of 20 percent. As of August, bank savings exceeded 43 trillion yuan for three consecutive months, with per capita savings reaching more than 30,000 yuan. Last but not least, favorable policies are expected to be instituted to boost clean energy companies and energy-saving product makers. Overcapacity in sectors causing a lot of pollution - such as cement and steel - is set to be chopped. grace.cao@singtaonewscorp.com 迷你倉