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How China can rely on a strong public sector and state planning to weather the storm

The foremost challenge is now to build an efficient and democratically accountable system, says BEN CHACKO

The sound and fury over former Chongqing Communist Party secretary Bo Xilai’s trial is fading into memory, but there are no signs of a let-up in President Xi Jinping’s anti-corruption drive.

Hardly a week goes by without another high-ranking scalp being taken - this week’s casualty being former Anhui province vice-governor Ni Fake, dismissed on charges of taking bribes.

The rumbling investigation into malpractice at state-owned energy giant PetroChina continues, with a raft of senior officials facing jail alongside Jiang Jiemin, who as head of the State-owned Assets Supervision and Administration Commission occupied one of the most powerful economic posts in the country, effectively directing a public sector which accounts for over half of China’s output.

And that itself followed a suspended death sentence for Liu Zhijun, the former railways minister, another official with control of a vast state-owned industry.

Rooting out corruption is being accompanied by the Communist Party’s “mass line” campaign, a wide-ranging bid to revitalise grass-roots activism, rid it of “formalism, bureaucracy, hedonism and extravagance” and return the world’s largest political party to its origins as a mass popular movement - leading the Chinese people rather than ruling them.

It may be early days yet but indicators are that this is having an effect, certainly if the howls of protest from a restaurant and hotel industry which has seen a sudden collapse in lucrative official bonanzas are anything to go by.

But previous anti-corruption drives have generally come a cropper due to a tendency to concentrate on punishing the guilty rather than addressing the root causes of corruption.

That’s why all eyes are on the forthcoming third plenum of the party’s central committee, due to take place next month and being bigged up on a daily basis by government officials.

Third plenums are traditionally the forum for major strategic decisions, since the first and second plenums focus on personnel appointments.

Serious shifts in policy are reserved for them - everyone in China knows it was the third plenum in 1978 that set the country on its “reform and opening up” course, and Prime Minister Li Keqiang is hinting at major reforms to be announced at this November’s session.

Mass urbanisation is one major headache on the agenda. Chinese planners talk of “megalopolises” of 30 or 40 million people and “wheel” conurbations where one giant city acts as a hub with satellite cities of “only” five or 10 million people being built on the spokes.

Another is a significant economic shift as China moves from an export-led model to one based on its increasingly well-off citizens consuming more.

But most closely associated with the anti-corruption drive is reform of the state sector of the economy.

The trial of rail chief Liu was not nearly as exciting as that of Bo. There was no fiery self-defence and no crowds of supporters rallying outside.

But some of the allegations were perhaps more significant. Liu was found guilty of taking bribes and abuse of power, just like Bo, and deemed responsible for “huge” losses of public money.

But witnesses complained that this had been possible because the railways ministry had become “an empire unto itself,” a vast unaccountable bureaucracy which even ran its own police and courts system.

Liu had long blocked the integration of his department into the Transport Ministry, but Beijing merged the two in March to clip the institution’s wings.

Similar complaints about other giant state-owned enterprises are rife, with PetroChina being the latest example.

These are the pitfalls of bureaucratic industries run without proper accountability - not something unique to China. Britain’s Communist Party leader Robert Griffiths detailed similar flaws in the British post-war public sector in his Morning Star pamphlet Britain Needs Public Ownership - the Case for Democratic Nationalisation.

So most Chinese politicians now agree that the sector needs reform. The question is what sort of reform.

Britain’s example of turning publicly owned industries into profiteering monopolies or cartels which make their customers pay through the nose while continuing to leech money out of the state’s coffers is clearly undesirable - which is why the very phrase “public-sector reform” tends to send shivers up British socialists’ spines.

But China’s reform context is very different from Britain’s. It’s a common Western canard that since 1978 China has reformed economically but not politically, but this is nonsense - China has undergone almost constant political reform since the People’s Republic was established in 1949.

It partly stems from ignorance - as Loretta Napoleoni notes in Maonomics, most Western “observers” failed to notice the massive expansion of local democracy and contested elections in China from the 1990s.

And it’s partly down to a narrow liberal definition of politics itself - so the huge improvements in labour law and workers’ rights during the Hu Jintao presidency (2003-13) are not deemed “political.”

China has been marching down a very different road to the West in recent decades.

Where Washington and London sold off their public sectors, China used its own as an engine of economic growth. Where they worshipped at the altar of the free market, China championed the role of state planning.

Where they deregulated sectors of the economy it has increased regulation of key industries such as finance and energy and where they took the axe to workers’ rights, working conditions and wages it has improved them.

“Reform” in the West almost always means deterioration, but China has a more “can-do” attitude to problems. For example, faced with an ageing population, Britain’s “solution” involves cutting pensions and dropping hints that the NHS is no longer affordable, while last month China unveiled a plan for a “comprehensive elderly care system” to be established by 2020. This involves the creation of 10 million new skilled jobs and committed to providing “daily tendance, medical care, psychological counselling and emergency aid” to a projected 250 million pensioners.

So a senior Beijing economist’s hint this week that the third plenum will see “financial reform, tax and fiscal reform, resource-pricing, social welfare and income distribution reform” is unlikely to presage the neoliberal onslaught feared by some on the left, particularly as Li Keqiang says job creation will be one of the meeting’s key concerns.

The ever-cautious approach to policy-making - Deng Xiaoping’s “crossing the river by feeling for the stones” - means most analysts predict structural change in China’s public sector will proceed slowly.

But the challenge - to build an efficient and democratically accountable system - is momentous, with the potential if successful to turn China into a pioneer of real economic democracy.

It could also go the other way. The private-sector lobby would love to get its hands on state-owned industries, natural monopolies that could reap super-profits for speculators.

We’ll have to wait and see. But China’s record gives us grounds for optimism.

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