The substantially-delayed and much-awaited Third Plenum, where the Party’s Central Committee typically unveils its ‘reform agenda’ for the next five years, is now around the corner in July. Understanding the meaning of the word ‘reform’ under Xi Jinping is critical in order to decipher China’s future development path.

Contrary to simplistic Western interpretation, ‘reform’ cannot be analysed within a binary framework of liberalisation-centralisation. Neither is Xi’s vision a linear continuation of the ‘Reform and Opening’ initiated by Deng Xiaoping at the 11th Central Committee’s Third Plenum in 1978.

Xi has made it clear that China will forge its own path, standing “tall in the East”, and that the Communist Party is the only institution which can lead the country to withstand the unprecedented foreign pressure aimed at containing its rise. The Middle Kingdom is not seeking to converge to the existing US-led ‘rules-based’ world order, but instead will remould the global political and economic system to suit China’s interests.

While the West does not see Xi as a reformer, he is undoubtedly leading a major transformation of China’s economy.

And contrary to widespread perceptions, Xi’s ‘reform’ involves strengthening the role of market forces in the economy within the bounds of the Party-led system whose absolute hold on power was always the overriding priority of all CCP leaders.

Xi the Reformer

In March 2024, Xinhua published an article under the title ‘Xi the Reformer’ which stated that his sounding of “the clarion call for reform” had dispelled “concerns about whether China’s reform is “stagnating.” It further posited that “reform is the hallmark” of China’s ‘new era’ of increased economic strength and international influence.

Readers of the English-language press would have been surprised by such definitive defence of Xi’s reform credentials.

In December 2023, the Financial Times reported that China had “bet on security versus reform in 2024.” In January of that year, an article regarding the downfall of former close Xi advisor Wang Qishan in The Wire China described him as “the last of the reformers”, due to his longer-term association with liberal figures. And last March, the Wall Street Journal declared that Xi had brought “China’s Reform Era to an End” by centralising power over the finance and technology sectors under the Party.

Much of this confusion would be avoided if we stopped using the politically-charged word ‘reform’. The Western and Chinese perceptions of what this word entails clearly differ, and have gone beyond its intrinsic definition as a deliberate and systematic effort to bring about positive change rather than a complete overhaul or revolution.

While both Western and Chinese reforms aim to improve existing conditions, the approach, scope, and underlying principles differ significantly, reflecting the distinct political, economic and cultural contexts of each.

We have always preferred to use the word transformation when referring to the process of change in order to improve it.

Xi the Ideologue

By the time Xi Jinping came to power as the compromise candidate of the Shanghai and Youth League factions, the top Party leadership viewed corruption as an existential threat. Tasked with rooting it out, he surprised everyone with his relentless and successful campaign which goes on to this day.

Xi saw that the Party had grown weak – ideologically unfocused, corrupt, detached from the people it serves – and in need of strengthening so it can continue to guide China on the road to prosperity and strength.

Many Westerners do not see Xi as a reformer, as they see ‘reform’ solely as moving away from the Party-dominated decision making of the Mao era. To move back towards centralised control, or ideological intensification, is therefore the opposite of reform.

But this binary framework of liberalisation vs centralisation as crypto-Maoism is unhelpful for understanding the top leadership’s policymaking.

Xi has centralised control of decision-making, placed the Party visibly in charge and intensified ideological education throughout society. But the economic structure he inherited is irrevocably different from the Mao era, and his focus on stability for the achievement of his goals could not be further from the chaos that Mao wilfully initiated.

The Chinese concept of ‘reform’ under Xi Jinping has also evolved. His ‘reforms’ are those that advance his mission, and no longer represent a concession to the legacy – and to internal party advocates – of ‘reform and opening.’

And when Party members now talk about liberalising their thought, as the Hunan provincial party committee did in April, they are talking not about transcending ideology – but rather transcending reservations about how that ideology can be applied in practice to serve the needs of the Chinese people.

Xi the Free Marketeer

Xi Jinping emphasized the importance of the market playing a decisive role in resource allocation during the Third Plenum of the 18th Central Committee in 2013. At the time Nicholas Kristof famously declared him ‘a reformer’ that would “spearhead a resurgence of economic reform, and probably some political easing as well”. 11 years on from Kristof, the consensus is clear – Xi has abandoned any pretension of economic liberalisation and is solely focused on centralisation.

But this view is simplistic. Beijing has been deploying a more complex dynamic of both centralisation and liberalisation according to the needs of each individual issue.

Take housing policy. The recent piecemeal removal of local housing market restrictions is often interpreted as a desperate attempt to forestall further declines in the sector, lest this creates economic disaster. Within this interpretation, the decision to implement severe funding restrictions on property developers in 2020 which kickstarted the major adjustment in the real estate sector is seen as a classic example of the abandonment of ‘reform’ gone wrong – centralised control for dubious gain.

But Beijing’s actions could also be seen as a decisive effort to forestall a bigger real estate bubble from forming. And since November, Enodo has argued that the top leadership has now laid out clear plans of how it sees the development of its housing market to better serve people’s needs. A dual housing market will slowly be introduced, with ‘commodity houses’ at the high-end of the market where ‘speculation’ will be allowed, while government-owned affordable housing ensures that low-income urban classes are not priced out.

The policy will take time to bear fruit, and may not ultimately be successful. But within a long-view of property market reform, it demonstrates how Beijing’s ‘reform’ can combine both initial centralisation with a longer-term view for liberalisation once development has been steered back in a stable and more equitable direction.

The controversial anti-monopoly campaign, under which the government cracked down on a wide range of activities undertaken by China’s internet giants, is also pertinent. After several years of scrutiny and enforced internal change, the companies have returned to the government’s good graces and are expected to play a crucial role in technological development and digitalisation. The authorities are actively fostering a more dynamic market environment while directing substantial public funding into this critical area.

None of this is to say that the government is getting it right.

In both examples above, the initial interventions threatened to undermine their industries so seriously that the longer-term plan was put at risk. This is still the case in the housing market. Nor is it to say that Xi Jinping will make a belated return to the previous understanding, both internal and external, of ‘reform and opening’. Xi’s vision of the world is clear – China will remake the international order, not integrate into the existing one.

But it is to say that ‘reform’ is very much alive, and not operating within a binary framework of liberalisation-centralisation. The Party may continue to consolidate its power over industry, the financial sector and localities, and centralisation is here to stay while Xi remains in power. A case in point is the focus on 'new quality productive forces', meaning a concerted effort to move up the technology value chain. The Party is setting the direction but incentivising private sector companies to innovate and then commercialise their innovations.

But we posit that Xi will also continue to liberalise and attempt to introduce new market dynamics in areas where this has not been the case previously in order to achieve China’s long-term development objectives.

Conclusion

The Third Plenum will unveil a series of ‘reforms’, or as we prefer to say, transformations. All will be significant indicators of what the government sees as the key challenges it faces, and how it will resolve them.

Interpreting the impact of these changes correctly will be dependent on understanding that the government’s vision of ‘reform’ is no longer fully aligned with the pre-Xi era or with Western democratic and liberal ideas.

This does not mean ‘reform’ is dead – to look at it as a now-empty slogan is to ignore how policymaking has actually changed under Xi and to underestimate the boldness of his actions. Beijing must be understood on its own terms and through its own vision of what is necessary and what it wants to achieve for us to be able to judge how its future is likely to unfold.