January 1, 2013 7:52 pm

Xi should be bold in pushing change

China should not hide reform behind tougher foreign policy

From his first words as general secretary of the Communist party, Xi Jinping’s tone was different. He apologised for being late and went through a list of problems facing the country in general and his party in particular. He mentioned the aspirations of ordinary people several times, and used the word “socialism” only once.

Since then, Mr Xi has emphasised changed priorities. He instructed Communist party officials to end luxurious banquets and to quit using empty words – a tall order for bureaucrats in any country. Given the woodenness of Hu Jintao, whom Mr Xi will replace as president in March, the new leader’s call for a more down-to-earth style could be interpreted as a deliberate break with the past 10 years. That impression was reinforced with his December “southern tour”, a sweep through entrepreneurial Guangdong province that deliberately echoed the launch of economic reform by Deng Xiaoping.

These are promising signs. But we should be wary of reading too much into symbolism. Bold action is needed to foster the much-talked-about rebalancing of the economy towards domestic-led growth. That means empowering the consumer and the private sector at the expense of state-owned enterprises locked into a now-outmoded model of development. If policy were made with ordinary people in mind much would logically follow. Interest rates would be further liberalised, since the objective would shift from funnelling money to favoured monopolies to pricing risk and rewarding savers. More competition would be introduced, reducing prices and expanding choice. There would be less incentive to keep the exchange rate artificially weak since domestic spending firepower, not export competitiveness, would be the main policy consideration.

More should be done, too, to improve the social safety net, a start on which was made by Mr Hu’s administration. Empowering people would also mean scrapping the hukou system, which classifies citizens as either rural or urban. This is not only immoral. It is no longer useful. China’s labour force will begin to shrink from next year. Encouraging people to move from unproductive activities in the countryside to more productive ones in the cities will provide an important source of growth.

Political reforms are also necessary. No one expects China to move towards democracy overnight. But Mr Xi should experiment more boldly, perhaps starting with city elections. He should also reverse the clampdown on free speech that coloured the past decade. China’s internet is alive with debate. There is no reason this should not move into the officially-accepted sphere. Releasing Liu Xiaobo, the Nobel Prize winner whose only crime was to demand that China’s own constitution be enforced, would be a good start.

Mr Xi may be tempted to smuggle in domestic reform under the cover of a more robust, even aggressive foreign policy. That would be a mistake. After years of “smile diplomacy”, which persuaded neighbours that China’s peaceful rise was good for them, many Asian countries are now fearful of China. Japan has lurched to the right partly because of concern about territorial disputes with Beijing. The Philippines has indicated it might welcome a rearmed Japan to counter a more assertive China. The dangers of an arms race – or worse – are growing. As China grows economically stronger, it will want a larger regional and global role. That is natural. But Mr Xi should work hard at dialling down the rhetoric. Here a change of tone is truly important. Territorial disputes can be frozen in the name of closer regional co-operation. That would not only be a boon for regional peace and security. It would also allow Mr Xi to concentrate on his very real problems at home.

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