This month marks the twentieth anniversary of Deng Xiaoping’s “southern tour”, in which the architect of China’s reform and opening policy (retired at the time, but still powerful behind the scenes) re-invigorated economic reforms against staunch opposition. And there is a strong sense in China today that the country again stands at a reform crossroads.

Key figures within the Communist Party, including Premier Wen Jiabao (温家宝), and such notable academics as Sun Liping (孙立平) — the former doctoral adviser to now vice-president and successor apparent Xi Jinping (习近平) —have warned that China’s development is threatened by resistance to further reforms.

Others argue that China’s reform project is already a proven success, and that China’s government-led economic model is an example for others to follow. There is no need, in other words, for further reform.

Then there are those who believe reforms are to blame for the problems China faces today, and who say China should turn back.

Behind these competing views, which I have just vastly oversimplified, is a general sense of unease over exactly what China’s upcoming leadership transition this year will bring. This is more than a vague uncertainty. President Hu Jintao’s July 1 speech to commemorate the Party’s 90th anniversary, a carefully scripted text emerging no doubt from much internal wrangling, was a virtual blank slate, giving no indication of what anyone can expect beyond an emphasis on “stability.”

Adding to our dossier on the reform debate inside China, the following piece is from Qin Xiao (秦晓), a former Red Guard who has held a series of important positions at various state-run enterprises and is now chairman of the Boyuan Foundation, a Hong Kong-based economic think-tank.

This article, which first appeared on FT Chinese on January 20, has been re-posted on a number of China’s major internet portal sites, including QQ.com and Hexun. QQ.com attributes the article to Nanfang Online, the official website of the official Party newspaper in Guangdong province, Nanfang Daily.

A few comments on the article at QQ.com follow below:

“Reform in China Must Not Stop in its Tracks”
By Qin Xiao (秦晓)

People in China generally believed in the 1950s that socialism was the liberator of the people. Free markets, on the other hand, were detrimental to society. In the 1960s, when I was packed off to the countryside in Inner Mongolia for re-education (再教育) I recognized that the ideological fervor [over socialism] masked inherent defects in our planned economy. That is where I would like to begin telling China’s story.

As a corporate leader, I have personally experienced the past 30 years of reform. I have a greater understanding of the problems China must face. China is now in the midst of a latter phase of transition from a planned economy to a market economy — and our discussion of the relationship between the government and the market is vastly different from that seen in countries with mature market economies.

While China’s rate of economic growth has stood around 10 percent annually for three decades now, our debate still orbits around the following question: Has this success resulted from government control, or from free market [economics]? The answer [we give] to this question will decide China’s future. Will China continue to promote free market reforms that have yet to be completed, or will it bring three decades of transition to an end? Do the problems now facing China’s economy, and social tensions in our country, originate with market reforms themselves, or are they the result of bottlenecks and setbacks in the reform process? Is China’s [present] state-led economic model an end in itself, or should it be changed through deeper reforms?

In the process of tackling economic problems, democratic governments are restrained by the preferences of the electorate and by struggles among political parties. This can mean that efficiencies are sacrificed, or that responses are excessive. Modern democratic systems are not always ideal partners with market systems. Nevertheless, there are no utopias in our world, and there is no such thing as the ideal system. The question of whether these systems can be sustained and whether they can be accepted by society rests on whether or not they can avoid gross mistakes, whether they have mechanisms for correction and can make relevant and necessary adjustments.

Economists and statesmen have historically sought a model that might replace the modern market [economic] model. Two of the principal experiments put forward were the “Leninist-Stalinist Model” (列宁-斯大林模式) of the Soviet Union and the so-called “Asian Model” (东亚模式). The former provided the basis for China’s planned economy of the Mao Zedong era. Most representative of the latter model was Japan, and the model made economic stars of Japan and several other Asian nations.

In the 1930s, as the economies of the West slid into the “Great Depression”, the role of the Leninist-Stalinist Model in driving rapid economic growth in the Soviet Union was hotly discussed among economists. Thirty to forty years later the Japanese model became another hot point of debate. Nevertheless, history has already proclaimed the failure of these two models. The first model suffered sclerosis, sacrificing basic human rights to divert all energy to development of the economy and the military. The second model created price distortions (价格扭曲), misallocation of resources (资源错配) and corruption (官商勾结).

The modern democratic and market system still needs to be improved, but it remains viable — and no better choice has yet been found.

Well then, what does this teach China? In the 1970s, China’s government launched off on a process of reform and opening, setting aside the planned economic model and converting to a socialist market economy. In this way China’s economy was spared collapse and developed rapidly. In the early stages of this transition it was necessary for the government to play a leading role as the market was not yet developed, and this [necessity] resulted in the emergence of a government-driven model not unlike that of the [previous] Asian or Japanese models.

The mission of this government-driven model has now been achieved. But now we must cast aside the impediments [to further development] kept in place by powerful vested interests (特殊利益团体), transforming the function of the government and further promoting market reforms.

At present there are two tasks we must work to achieve. First, the government must shift the focus away from developing the economy (发展经济) over to improving rule of law and providing public services (公共服务). Second, our economic system must be transitioned from a government-led [model] to a market-led [model], with the government serving only a regulatory function.

In order to achieve the above-mentioned goals, the government must dispense with approval procedures for all sorts of economic and market activities (aside from industries that must necessarily be regulated). [It must] cease interfering with market pricing and transactions, progressively removing controls on land, labor, energy, mining and capital pricing (interest and exchange rates). The government must reform monopoly [state-run] enterprises. [It must] carry out a fair and efficient process of privatization of state-owned assets. [It must] reform tax institutions (税收制度) with the goal of improving social welfare. Aside from these, [the government] must increase spending on social security, healthcare, education, housing, the environment and other public services.

The spread of the economic crisis throughout [developed] capitalist countries has prompted skepticism about the future fate of free markets. Nevertheless, China’s story cannot become the justification for opposing free markets. Quite the contrary, market reforms are the reason China has achieved success over the past 30 years.

To move forward, China now must transform the role of the government in economic life, promoting further reform in the direction of a free market system. Our mission is still not accomplished.

The following are a number of comments appearing after this article at QQ.com:

(1) In fact reforms have already stopped. We’re even seeing a turning back!
实际上已经停止,而且出现倒退!

(2) Private ownership is the root of ten-thousand evils.
私有制是万恶之源。

(3) Aren’t reforms done? What need is there for further reform?
改革不是已改完了?怎么还要改?

(4) In order to protect vested interests, [reforms] have basically already stopped, or even gone backward! For example, state monopolies and such.
为了维护既得利益,已经基本止步,甚至倒退!比如国企的垄断等等。

(5) The impression people have now is: economic reforms have been stalled for a long time, and the progress on rule of law has gone backwards with major strides.
现在给人的印象是:经济改革长期停滞,法治化进程在大踏步后退。

(6) Prices are going up every year, and little people like me see no increase in wages so its really negative growth. How can I support reform achievements like that?
物价年年涨,我等小民收入没增就等于负增长,这样的改革成就我等如何赞成

(7) Constant reform is the only way of ensuring the country keeps in stride with the times.
不断改革乃是保证国家与时俱进的根本方式!

(8) The planned economy is just a power economy, an economy for officials. That’s where the obstacle to reform is, everyone knows that.
什么计划经济,就是权力经济,就是官经济。改革的阻力在哪里,国人都明白的。