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Plenty of red flags for investors in China’s new nod to free markets

When the Third Plenary Session of China's 18th Central Committee took place under heavy security at Beijing's Jingxi Hotel last weekend, more than 500 participants discussed and set policy priorities for the Chinese Communist leadership for the next 10 years.

The main topic was China's foundering growth rate, which came in last year at 7.7 per cent. That was its lowest increase in 13 years, and prospects appear remote for any rebound in 2014. Many Chinese economists accept the rule of thumb that 8 per cent growth is necessary to maintain economic stability, so there is a lot of pressure on President Xi Jinping to be seen as taking steps to arrest the economic slowdown

Reading between the lines of the Chinese Marxist jargon-ridden communiqué, the Party wants to bring more market forces into the economy, to challenge the stranglehold of state-owned firms on key markets. A major drag on economic growth are market inefficiencies created by the rent-seeking behaviour that offers corrupt benefits to Party officials, and has also led to problems of ill-regulated substandard and even dangerous products such as poisonous baby formula, "beancurd" concrete, fake medicines and so on.

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There are promises of opening Chinese markets to non-state players, including foreign investors, to challenge the state sector through more open competition. But Canadian and other investors will want more information about these changes before putting any money into China's "wild west" business climate. Information like assurances that contracts will be upheld without local authorities imposing deal breaking arbitrary taxes and regulations, and assurances that intellectual property and proprietary production processes won't be simply expropriated at the will of Chinese partners. These are the sine qua non of business confidence for Canadians who otherwise want to expand into China's huge potential.

It remains to be seen how Xi Jinping can take on powerful state monopolies which impinge so directly on the elite privilege of Party officials and the military at all levels. It is a dangerous game that could conceivably lead to a backlash that ends his career (which, in China, usually means jail time on trumped-up charges).

But there is no mention in the communiqué of bringing in democracy and law as stabilizing political measures. This is not surprising, as the regime has recently made clear that there will be no "westernization" of China's political and legal institutions. Those who call for this are again being condemned as agents of the West who seeks to destroy China's established political authority.

The document calls instead for "improving systems and strategies to ensure national security." This is bad news for human rights lawyers, activists supporting ethnic minorities such as the Uyghurs and Tibetans, and for foreign government programs designed to support progressive agents of political change in China (including those championed by Ottawa under the rubric "good governance, democratic development and human rights.") It appears that China is about to enhance repression of political protest, and tighten censorship of social media as a politically stabilizing measure.

More detailed documents on all this should be forthcoming in the weeks ahead, but in general one cannot be optimistic that the Xi Jinping era will be a time of progress and development. It seems to be more simply a case of keeping the Communist Party boat afloat in turbulent seas ahead.

Charles Burton is an associate professor of political science at Brock University in St. Catharines, and is a former counsellor at the Canadian embassy in Beijing

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