Since the new President Xi took office reform has been mentioned in several articles I have read about China. The “third plenum” will bring together Chinese Leaders in an effort to set policy for years to come. Currently, promoting relations with Taiwan, relaxing government regulation in the financial sector, and “overhaul land and household registration rules to sustain growth”. This meeting will not likely propose legislation or concrete plans for going about these policies but simply explain what the new government wants to accomplish in the next 17 years. The economy, as usual, takes priority and currently leaders hope to beginning bring high paying jobs to China.
After reading this article, I wanted to comment on two points the government might push for at the third plenum. With the current urban expansion at the expense of many rural communities, if the government were to further relax household registration rules might this only speed the loss of laborers in the agricultural sector? This continues to be one area that the Communist Party has sought to change from the Great Leap Forward Years. Might the Chinese government try to promote large companies to farm thousands of acres of land like some companies that farm the American Mid West? Finally as seen in the past 5 years relaxing regulations in financial sectors can have negative consequences. American companies played fast and loose with home mortgages that could not be repaid. Corruption is a problem in America but on all accounts(other than possibly Chinese citizens as we learned in class) the National Government keeps a hand in all business that occurs in China. If regulations that are already overlooked or ignored are completely taken away might corruption spread farther and quicker through all sectors of the Chinese Economy? If the Chinese manufacturing sector goes belly up like the American Automotive… who would step up to replace the Chinese Economic Giant?
One Response to Meeting to Promote Change in China
I do not fully agree with the point that continued urban expansion coupled with financial deregulation is a poor initiative for the Chinese government. Rather, I considers these to be continued steps in the right direction. As we discussed in class a few weeks ago, agricultural supply is elastic by nature; thus, the overall income per capita gains in China do not have a significant impact on the prices farmers realize. Instead, the typical outcome is that over time, agricultural productivity increases, generating improved output, depressing prices. The inevitable productivity gains have been making it increasingly difficult for the agricultural communities to earn sufficient income on a per capita basis. Hence, the reduction in the labor force, by migrant workers moving from rural to urban parts of the economy, has enabled the marginal productivity of labor (translates roughly to wages) to remain elevated enough to continue to support agrarian life, but continued sustainability is dependent on the transformation of the economy to increasingly non-agriculture intensive sectors.
Secondly, there are clearly diminishing returns to both financial deregulation and regulation. Regulation unambiguously can mitigate the effect of information asymmetries that are inherent in an economy’s financial system. By improving the facilitation of information, regulating entities can reduce financial frictions and help build a more stable, prosperous economy. However, the opposite can also be true. Excessive regulation can become onerous for an economy, restricting potential, sustainable growth. Regulations can foster financial frictions of their own. China is currently a regulation-intensive economy. Since Deng Xiaoping’s reforms in 1978, the Chinese economy has been slowly diminishing its financial regulation and the economy has realized robust income per capita growth as a result. In order for China to realize its potential as, what many theorize to be inevitable, the second pole in the global landscape (US the other), China will have to continue to liberalize its financial markets, especially regarding its currency.