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Reform of China's bureaucracy is an uphill task

In a drive spearheaded by Premier Li Keqiang, the Chinese government is revamping the country's vast state bureaucracy.

     The goal, described as "redefining the relationship between the government and the market," is to move the country still further from its centrally controlled past toward a more market-oriented economy. These much needed reforms are a vital component of efforts to restructure the economy and avoid the so-called middle-income trap. However, reform is a word that has often been bandied about: Will it be followed by implementation this time?

     Since taking over the premiership in March 2013, Li has put "transformation of government functions" at the heart of his agenda. At his very first State Council meeting, government reform was named as the first priority, and in the two years since, almost every cabinet meeting has touched on some aspect of government reform.

     Li's vision is of a more efficient government that focuses on regulating markets, instead of managing them. To put this into practice, he has sought to limit government involvement in the economy by cutting administrative approvals for investments, simplifying business registration procedures and compelling government agencies to delineate the scope of their authority. Li's hope is that this will lead to greater investment by the private sector, increased employment and a healthier economy.

     From the outset, Li acknowledged that the going would be tough, calling reform an arduous task and even likening the process to slashing one's own wrist. Even so, the evidence suggests that he might still have underestimated just how difficult the transformation would be.

A daunting task

From the outside, the Chinese Communist Party often appears all-powerful, a monolithic body able to impose its will on the country and its people. In truth, despite its top-down Leninist structure, the party is a disparate and atomized body composed of thousands of distinct interest groups and patronage networks. Interests of local officials often clash with those of Beijing.

     As a result, imposing discipline upon local party officials is arguably the most important -- and most challenging -- task facing Beijing's leaders. Many of the key problems facing the country, from corruption to pollution, overcapacity to unsustainable debt levels, have been caused in large part by local leaders acting in contradiction to the wants of Beijing. China's future, and the party's legitimacy, rest on being able to impose discipline on wayward officials.

     There has been progress. At his first meeting in 2013, Li said that the State Council would abolish or devolve its authority to grant approval on over a third of 1,700 types of administrative decisions.

     Li has kept his word. By the end of 2014, 798 requirements for State Council approval had been abolished or devolved. Reforms to simplify the business registration process have also borne fruit, leading to a reported 48% increase in new business registrations last year.

     Yet problems persist. In late March, prominent entrepreneur Wu Hai wrote an open letter to the premier complaining that excessive bureaucracy and government interference made it difficult to run his business. The letter struck a chord, going viral online and making the businessman's name the most searched-for term on Baidu, China's top search engine. In a subsequent survey by Sina, one of China's top web portals, 83% of respondents said that government agencies hold too much power.

One more time

Li is showing increasing frustration with the incomplete success of his policies to streamline the bureaucracy. He has acknowledged that many of the reforms that appear to have been carried out have been done so in name only, saying at a recent State Council meeting, "Some companies told me during my inspection visits that the approval procedures may have looked streamlined on the surface, but to get down to real business there were endless agencies that you have to go through." A week earlier, he lambasted officials' efforts to carry out government policies, calling their lack of efficacy a "joke."

     To combat these problems, Li is doubling down on his efforts, putting "transformation of government functions" at the top of the government's agenda yet again this year. The plan remains much the same: further reduce administrative approvals, simplify business registrations, cut enterprise fees and compel provincial governments to publicly list their powers.

     New steps are to be taken as well. A new body, led by Executive Vice Premier Zhang Gaoli, has been created within the State Council to coordinate the transformation of government functions. The State Council has initiated a review of all documents issued since the founding of the People's Republic of China with the goal of abolishing unnecessary rules and regulations. New rules stipulate that policies and decisions approved by the State Council must be promulgated to lower levels of government within seven days.

     Given these initiatives, there is little doubt that Li has a clear view of the problems facing the government and a sincere commitment to tackling them. That has always been the case.

     The problem is that it feels like we have seen this script before and have little reason as a result to expect an alternative denouement. At a State Council meeting in May 2014, Li banged his fist on the table and castigated officials for failing to carry out reforms. He then sent out inspection teams to the provinces to ensure that policy was being implemented.

     Neither the yelling nor the inspection teams seemed to work. One year later, implementation is still halting and the premier is still screaming. Will this time be any different?

Trey McArver is the founder of consultancy Trivium Advisors and author of the China Politics Weekly newsletter.

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