Implementation vital for second transition(2)

Although Third Plenum documents call for fair competition and the elimination of preferential policies underlying the monopoly power of some SOEs, they don't speak much about significant SOE reform, which is essential if other Third Plenum objectives are to be achieved.

The leadership decided that China's unique system of "consultative democracy" performs well and that strict control by the CPC remains essential for national development. If implemented as planned, the decisions should facilitate continued rapid economic growth, while promoting social fairness and thus, hopefully also, stability.

But the key to a successful second transition is obviously implementation. In the economic arena, some of the more difficult challenges are:

How to reform the fiscal system, including local government borrowing powers, so as to reduce the dependence of many local governments on extra-budgetary revenues from land leases and improve the balance between local expenditure mandates and local revenues? This is critical for a number of reasons, including providing equal access to social services for the more than 230 million migrants working and living in urban areas without an urban hukou and promoting capital market development.

How and when to establish rural land markets to better protect the interests of farmers and migrants, promote productivity growth and social fairness, while reducing the scope for corruption in using agricultural land for non-agricultural purposes?

How and when to establish a formal deposit insurance system to facilitate the licensing of private banks and to relax controls on deposit interest rates?

How to reduce the monopoly power and other privileges of some SOEs so as to promote fair competition and ensure that markets will indeed become a decisive factor in the allocation and use of financial resources, as mandated by the Third Plenum?

How to better protect the environment and labor rights without reducing China's international competitiveness and its attractiveness to foreign investors?

How to reform monetary and financial policies so as to increase the efficiency of financial intermediation, deepen capital markets and increase reliance on indirect controls on bank liquidity and credit expansion?

How to further improve access by new and small enterprises to financial resources?

How to further open the capital account, promote internationalization of the renminbi and increase the flexibility of China's exchange rate?

The challenges facing China today are different from the ones the country faced in 1978 or 1993, but they are no less daunting. The main question now is not where to go, but how to get there.

The author is professor at the School of Advanced International Studies (SAIS) of Johns Hopkins University. He served as chief of the World Bank's resident mission in China from 1993-97.