China’s ex-premier leaves an unfinished reform legacy

By Kevin Yao

BEIJING (Reuters) – When China’s Communist Party released the names of its 205-person Central Committee a year ago, there was a glaring omission: Li Keqiang, the premier.

The exclusion of Li, who died of a heart attack on Friday at the age of 68, seemed to confirm what many long assumed – that his brand of economic reform had been officially scrapped in favor of President Xi Jinping’s state-led approach to the economy.

Reform is once again on the minds of China’s policy makers and analysts as it struggles to revive flagging consumer demand and fend off Japan-style economic stagnation.

But rather than push changes advocated by many economists, such as renewed urbanisation and more space for private enterprise, China under Xi has put more power in the hands of the state.

“It’s not an exaggeration to say that an era is over – an era when reforms could be steadily pushed forward,” said a government policy adviser who declined to be identified.

Li retired in March after a decade as China’s second most senior leader and an advocate for private business but his power had been limited after Xi made himself China’s most powerful leader in decades and tightened control over the economy and society.

The English-speaking premier, who held a PhD in economics from the elite Peking University, focused on improving conditions for entrepreneurs, wooing foreign investors, cutting red tape and boosting incomes for the poor.

But ambitious market-based reforms Beijing unveiled in 2013 quickly ran into trouble, including a 2015 stock market crash following a botched currency reform. Under Xi’s leadership, the world’s second-largest economy gradually turned back to old policies that have added to China’s debt pile and industrial overcapacity.

“The scope for Li’s policymaking and implementation had became more subordinated under President Xi Jinping, who had unabashedly dominated in politics and policy making, relegating Li to playing second fiddle,” said Dali Yang, a politics professor at University of Chicago.


China’s economic miracle started in 1978 when Deng Xiaoping launched historic reforms, allowing more private enterprises and opening the economy to foreign investment.

Li was not the only pro-reform leader who ended up out of the picture. Former economic tsar Liu He, former banking regulator Guo Shuqing, and former central bank chief Yi Gang, have all left government.

Xi has instead packed the government with his allies, mostly officials with limited international or financial experience.

Beijing is unleashing a round of stimulus in a bid to shore up the economic recovery but economists warn China could be headed for a long-period of deflation and stagnant growth that fails to lift living standards for its 1.4 billion people.

Some government advisers have been beating the drum for reforms, focusing on spurring urbanisation and household spending power, reducing reliance on investment and leveling the playing field between state-owned enterprises and private firms.

A Communist Party plenum, expected in November and which has traditionally focused on reforms, could disappoint those awaiting big changes.

“I don’t expect any breakthroughs on reforms,” said the government policy adviser.

(Reporting by Kevin Yao, additional reporting by Laurie Chen and Yew Lun Tian; editing by Don Durfee, Robert Birsel)