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Construction workers install scaffolding on the top of a building at sunset in Shanghai on Nov. 13, 2012. (ALY SONG/REUTERS)
Construction workers install scaffolding on the top of a building at sunset in Shanghai on Nov. 13, 2012. (ALY SONG/REUTERS)

Don't count on bold economic reform from China’s new leaders Add to ...

If Canadians doing business in China were hoping for new and dramatic changes from the new, all-powerful Standing Committee of the Politburo, they are likely to be disappointed, at least for now.

The new seven-member team unveiled in the Great Hall of the People on Thursday is a largely conservative force led by new Communist Party Secretary and president-in-waiting Xi Jinping, and premier-in-waiting Li Keqiang, for whom economic reform will be a cautious and careful process.

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“The unveiling of China’s new leadership in the Great Hall of the People today has dented hopes of economic policy reform. Of the three ‘reformist’ candidates thought to have had a chance of joining the Politburo Standing Committee, the Communist Party’s main decision-making body, only one was promoted,” wrote Mark Williams, chief Asia economist at Capital Economics in London.

Mr. Li and the best-known ‘reformer’, Wang Qishan, both vice-premiers in the previous administration, are among the most familiar names to Canadian politicians and business leaders, as the point of contact for high-level delegations. Mr. Li, who will formally assume the premiership at the National People’s Congress in March from outgoing Premier Wen Jiabao, is said to be less comfortable around foreign dignitaries, while Wang Qishan – now tapped to lead the party’s disciplinary body in a renewed fight against corruption – is personable, even charismatic.

However, Mr. Wang, who as the China lead in the U.S.-China Strategic Economic Dialogue was seen as one of the country’s strongest economic reformers, will have some of his influence on economic policy sidelined in this new role.

The rest are a more conservative lot. The third-most powerful man in the Committee is Zhang Dejiang, a North Korea-trained economist; there is also Liu Yunshan, who has presided over China’s draconian and ever-worsening censorship of the Internet, and Zhang Gaoli, who has overseen major economic development in Shenzhen and Tianjin but whose policies have been heavily investment driven, leading to heavy debt and ghostly, uninhabited developments.

Also significant are the two “reformers” left out of the inner circle, Wang Yang and Li Yuanchao. The former is the reformist Communist Party secretary of Guangdong province; the latter has been head of the Party’s organization department.

What it all means, economists and scholars say, is a continuing cautious approach to reform. The dominance of state-owned enterprises over the private sector, the need to move the economy away from investment-driven growth and toward more consumer spending, calls to liberalize the currency and open the country’s capital account will all remain on the agenda, but dramatic moves are unlikely.

“At this moment, what is most important is economic policy will remain the same,” said Yu Miaojie, an associate professor of economics in Beijing University’s China Centre for Economic Research, who does not forecast any new initiatives before the middle of next year.

“The no. 1 priority is realizing stable economic growth. No. 2 is to reduce the income inequality because you know income inequality is a very serious problem now in China,” he said. “I think they will make structural reforms to accommodate these two priorities.”

Somewhat confusing the country’s direction is the pending retirement of People’s Bank of China governor Zhou Xiaochuan, a reformer associated with China’s moves to liberalize its currency and monetary policy. Mr. Zhou, who is 64, was dropped from the Communist Party Central Committee, a body of 205 politicians in which membership for such senior posts as his is a requirement, feeding speculation that he will retire early next year.

Willy Lam, a China scholar at the Chinese University of Hong Kong, believes economic reform will continue but that high-profile issues like full convertibility of the yuan and opening of the capital account may still be eight to 10 years away.

“I think this is a better team, a more proactive team who might move faster on economic reforms,” he said. “There may be some new initiatives, if only because in some areas there has been some backpedalling.”

Ultimately, though China’s economic path is not expected to take any dramatic turns, even minor changes – a stronger middle class with more spending power, for instance – will impact on the country’s trade partners, including Canada.

“I think it does matter. I think the whole issue of …reform really stalled out toward the end of this government,” said Sarah Kutulakos, executive director of the Canada-China Business Council. “They know the problems, they know what needs to be fixed. But fixing it is going to take a huge amount of courage.”

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