Forty-five years ago today, Deng Xiaoping held a watershed meeting that fired the starting pistol on China’s embrace of the market economy and ushered in four decades of economic rise. Known as the third plenary session of the 11th CPC (Communist Party of China) Central Committee, it made the usually-once-in-five-year “third plenary sessions” a much-anticipated event for those on the lookout for the latest clues of the country’s future reform. Ten years ago, Xi Jinping held the first such meeting since he became China’s top leader, and that session inaugurated Xi’s reform era referred to as “comprehensively deepening reform.”

However, a growing number of China-watchers have come to believe the country’s reform is now going astray or even coming to an end. Some went so far as to claim that the country is now turning its back on Deng's pursuit of market-oriented economic reform. Current government policies are subject to an array of accusations including asserting more state control, suppressing the private sector, rolling back the progress of marketization, prioritizing security over economy, etc. The slowing down of China’s economic growth has only emboldened some pessimists to aver “an end to the China the world had gotten to know in the past four decades.” Such a voice is finding its way into the mainstream.

So, is China’s era of reform really over? Is Xi still following the path of reform, or has he changed the trajectory of growth for the world’s second-biggest economy?

Marketing Market Economy

The hallmark of Deng’s reform was pivoting to a market-oriented economy. Xi seemed to have taken on that mantle from the outset. A bold move was made in the third plenary session of 2013 to acknowledge the market’s “decisive” role in allocating resources. Ever since 1992 when the Party formally recognized the wording of “market economy,” a feat powered through by Deng’s southern tour, market had been defined only as playing a “basic” role. These two groundbreaking moves are of parallel importance in a country governed by a communist party.

Some critics cling to the idea that Xi is merely paying lip service and masking his real goal of pivoting to the state. They are keen to refer to the saying “the state advances as the private sector retreats,” or guojin mintui, to characterize what is believed to be a wave of state encroachment on private business. Some say the China under Xi is growing “internal and state-focused.”

In fact, guojin mintui has never been Xi’s policy. If anything, it was a hot potato left to him when he took the helm. The predatory expansion of China’s state-owned enterprises (SOEs) culminated in the years following the 2008 global financial crisis, when China’s central government then started to launch a stimulus package of a staggering four trillion renminbi (about US$550 billion) to salvage the market. Much of this substantial sum flew to SOEs, which leveraged the capital and state policies to gobble up private companies and establish monopolies. By 2011, one year ahead of Xi’s ascent to top leadership, the total asset value of China’s central SOEs had inflated four times compared to that in 2002. It was at that time that guojin mintui became a popular phrase.

To address SOEs’ uninhibited invasion of the private sector was actually part of the reason why Xi kick-started his reform period by introducing the market’s “decisive” role. Xi was set to reverse this trend by slimming down the state sector and adapting it to “market-oriented and law-based rules.” From 2016 to 2021, the number of central SOEs with legal person status was reduced by nearly 40% and their staffing by 20%. They are also ripped of “social functions” like infrastructure building and cradle-to-grave social welfare in order to become market entities in their fullest sense.

And instead of “retreating,” the private business flourished tremendously in Xi’s era. According to a study by the Centre for Economic Policy Research, China’s private sector share only took up 8% of the largest listed companies’ market value in 2010, and it soared to 55.4% in mid-2021. Right before the Covid pandemic, Chinese business owners registered over 15,000 firms a day, three times the figure in 2010. This record could be better appreciated in the context that firms with more than eight employees, the threshold for “capitalist exploitation,” had not been legal in China until 1988. Also, a group of unicorn private companies with global impact emerged, taking the lead in lithium batteries, drone-making, and even social messaging apps. That was something inconceivable when Xi first took office. It was only made possible with improved intellectual property protection, more properly regulated financial system, and less administrative intervention over the past decade.

On multiple occasions, Xi reaffirmed the official Party line of “unwavering support” for the private economy and publicly called private entrepreneurs “our own people.” Generations of Chinese leadership since Deng have held on to their conviction that the private sector is the major source of vitality and innovation in the economic realm, and the only way to nurture it is to provide a more liberal and law-based market environment. Xi is no exception.

One of Xi’s key reform programs to achieve this goal is cutting red tape along with the role of the government in the market. As opposed to the myth of “tightening state control,” all levels of government authorities have been urged to become “service-oriented.” China’s central government has axed over 1,000 items of administrative approval for business, investment, production, construction, and other economic activities. It now takes only four days to walk through all the necessary procedures to open a company, down from a month in the past. Consequently, China’s annual ranking of business environment rose from 91st in 2012 to 31st in 2019, leapfrogging France, Switzerland, and the Netherlands.