The Monitor's View

China's need for golden-rule economic reforms

When China's Communist Party leaders meet Nov. 9-12, they are expected to adopt major economic reforms. One reason for hope: China is more dependent on the world. Economic nationalism must fade.

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    A Chinese national flag flutters at a construction site for a new residence complex in Beijing Nov. 4. China's soaring house prices reveal an uncomfortable truth: government is one of the biggest obstacles to the success of taming the market.
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This weekend, Beijing’s top leaders will gather for what could be a turning point for the Chinese economy. As expected, the rest of the world won’t have a seat at the table. But in a way it already does.

After three decades of hitching its wagon to global markets and becoming a giant export machine, China finds itself more dependent than ever on other countries. Its old-fashioned economic nationalism, which helped lift hundreds of millions from poverty, now does not work as well. Chinese media point to “a complicated global landscape.” China is being forced to take the interests of other countries into account.

In addition, its economic model badly needs reform, especially as its population ages, young people avoid factory jobs, and the world buys fewer Chinese goods. But vested interests, such as state-run enterprises, stand in the way. To overcome these barriers, reformers find they must cite outside pressure as justification for change, especially pressure from foreign investors.

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Foreign loans to China, for example, have tripled over the past five years, but investors are demanding change. And in a major report last year, the World Bank laid out specific reforms for China – as a way to avoid a crisis for the country’s fading export-driven model.

Japan, which often faces a need for internal reform, has a word for this: gaiatsu, or the expedient use of foreign threats to persuade the domestic opponents of the need for change. Prime Minister Shinzo Abe, for example, is pushing reform on Japan’s long-protected rice farmers. To win, he cites a need for Japan to avoid embarrassment by going along with other countries in an American-led free-trade initiative called the Trans-Pacific Partnership. That pact would eliminate most if not all tariffs on imports.

European leaders, too, are using the start of talks with the United States to create a transatlantic free-trade zone as a reason to push reforms within the European Union. Many protected industries in Europe need reform to compete globally.

After China entered the World Trade Organization in 2001, its ability to follow China-centric policies has steadily ebbed. Now when the party’s Central Committee meets Nov. 9-12 for what is called the Third Plenary session of the current party congress, leaders are expected to endorse major reforms.

Twice before, in the 1993 and 2003 Third Plenary sessions, Chinese leaders failed to achieve major reforms on an economic model adopted in 1978 by then-leader Deng Xiaoping. This time, they have strong reasons, both at home and abroad, to adopt reforms and adjust to a slowing and changing globalized economy. China must act in ways that it expects other countries to act toward it. Golden-rule economics have long lifted all nations.

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