China's Leaders Promise To Speed Up Economic Reform

The Communist Party's new leadership has pledged to change China's slowing economy by putting a greater emphasis on private enterprise and reining in huge but far less profitable state-owned businesses. Economists say the party has no choice but to update if it wants to stay in power, but they doubt that a genuine overhaul is in the works.

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In China, the Communist Party's new leaders are starting to sound a lot like American free-market capitalists. They're calling for less government involvement in the economy. The concern is that state-owned monopolies are actually hurting China's economic growth, and there's a growing sense that if the Communist Party fails to deliver economic reform, it could ultimately lose its grip on power. From Shanghai, here's NPR's Frank Langfitt.

FRANK LANGFITT, BYLINE: China's leadership issued a directive late last week, telling officials to get rid of regulations that stifle competition. The leaders also pledged over time to open crucial, state-controlled sectors - such as banking and telecommunications - to private investment.

ANDY ROTHMAN: This is really important, because it's private companies, entrepreneurs that are driving China today. Eighty percent of urban employment, for example, is private companies.

LANGFITT: Andy Rothman is the China economist for CLSA, an Asia-focused research brokerage firm.

ROTHMAN: Private firms in China today are growing their profits at 18 percent year on year, whereas state-owned firms only 3 percent.

LANGFITT: Rothman says to appreciate how state-run companies have become a drag on growth, take a look at government-owned steel firms.

ROTHMAN: Right now, they're basically losing money with every ton of steel and aluminum they produce, yet production growth is not slowing down, because none of these firms want to give up market share, and they're able to continue getting money from the state banking system to continue doing this. This is obviously an insane situation.

LANGFITT: But in China's form of capitalism, where some sectors serve the state, Rothman says there is a certain logic. Over-production keeps steel costs down for public construction projects. The recent rhetoric about shrinking government's role is nothing new. The party's talked about doing this for years. But Rothman says by hitting this theme hard early in their term, China's new leaders are signaling they're serious, and putting pressure on themselves to deliver.

ROTHMAN: This is not optional. If the party does not continue to withdraw from micromanaging people's lives and businesses, if the party doesn't continue to create an environment that's more friendly to private companies, the party will not be running this place in 25 years.

LANGFITT: Or even sooner.

XU BIN: It's going to be very hard.

LANGFITT: Xu Bin is a professor of economics at China Europe International Business School in Shanghai. He says introducing private competition into government-controlled monopolies is opposed by powerful vested interests here.

BIN: The monopoly profits are going to be eroded, and therefore the officials in these sectors will be affected negatively by this reform. I think that makes them really very resistant.

LANGFITT: Xu says economic reform doesn't just threaten the profits of government companies. It also threatens a culture of corruption in the state sector.

BIN: Power generates a lot of money, you know, for the officials, for the families of the officials. So I think the money part is really the main part.

LANGFITT: After years of delay, Xu says it's now up to China's new rulers to make the tough political decisions to keep the world's second-largest economy on track so that it can continue to create jobs for millions of students who graduate from college each year and try to address the nation's rising expectations.

BIN: Frankly, many people in China now are still very skeptical as to whether this new government is able to implement deep reforms.

LANGFITT: By most accounts, their future and that of their country depend on it. Frank Langfitt, NPR News, Shanghai.

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