The Humbling of the NDRC: China’s National Development and Reform Commission Searches for a New Role Amid Restructuring

It’s been a tough year for the National Development and Reform Commission (NDRC). The Chinese government’s central economic planning ministry dominated economic policy-making in the Hu-Wen era, and came to epitomize the model of state capitalism associated with their decade in office. The organization’s approach to economic management, however, is in direct conflict with the vision laid out by Xi Jinping’s administration which has promised to give a “decisive” role to market forces. Much uncertainty remains over NDRC’s future although the organization shows signs of positioning itself for a new role as a macro-economic coordinator that is relevant to a more market-driven Chinese economy.

The Making of a Super-Ministry

The NDRC has been through several incarnations. It began life in 1952 as the State Planning Commission, a Soviet-style central planning authority. It lost influence over the reform and opening era as markets assumed a greater role in the economy, before being renamed the State Development Planning Commission in 1998. In 2003, it took on extra responsibilities when it merged with the State Council Office for Restructuring the Economic System (SCORES) and part of the State Economic and Trade Commission (SETC). At that time, it was renamed again, emerging as the National Development and Reform Commission, reflecting the combination of market-led economic reform and state-led developmentalism which had characterized China’s approach to reform until that point.

Under the stewardship of directors Ma Kai (2003–8) and Zhang Ping (2008–13), the NDRC gradually expanded its powers over the next decade through both the administrative reorganization of the State Council in 2008, and through a series of top-down delegations of responsibility from the State Council and the centralization of some powers previously held by local governments (China Newsweek, May 14, 2013). As one Chinese magazine described the process, “the more it was reformed, the greater its power became” (Shidai Zhoukan, May 30, 2013). The organization’s power unquestionably peaked, however, following the Chinese government’s 2009 RMB 4 trillion ($654 billion) stimulus package, which involved numerous investment projects across the country, the most important of which were approved and coordinated by the NDRC.

The NDRC that emerged from this process of power accumulation was a tremendously influential economic planning ministry involved in virtually every aspect of China’s economy. Dubbed China’s “mini State Council” and “number one ministry,” its roles included macro-economic planning (including coordinating China’s 5-year plan process), project and investment approvals, resource pricing and the allocation of investment funds. One Chinese media outlet summarized its role as “heavy on micro, light on macro; heavy on approvals, light on planning; heavy on development, light on reform” (Huaxia Shibao, December 28, 2013).

Fall from Grace

Things didn’t bode well for the organization, then, when the Xi administration began with strong symbolism about the role of the market and expressed a desire to promote wide-ranging economic reform. Speculation about the NDRC’s role began almost immediately, but significant change was slow at first. Many expected the organization to see its powers significantly curtailed in the 2013 National People’s Congress (NPC) (Duowei, March 4, 2013). This did not materialize, however, and the NDRC in fact marginally increased its powers, taking on additional responsibilities for the policy aspect of family planning and regulating electrical power use.

This was a source of some controversy at the time. Liberal economist Xu Xiaonian registered his frustration, writing on his Weibo account: “In order to ensure the independent development of the market economy, we should abolish the NDRC.” Even government sources acknowledged the frustration. Wang Feng, deputy head of the State Commission Office for Public Sector Reform, commented, “The NDRC has always been at the center of debate during reforms because it shoulders more responsibilities for project approvals, leading to claims of ‘power concentration’ ” (Global Times, March 12, 2013).

Government appointments at the NPC also sent mixed signals about the future of the organization. Firstly, Ma Kai—a former NDRC Director closely associated with the organization’s particular brand of technocratic planning—was made a vice premier with an economics and industry portfolio (Xinhua, March 21, 2013). Secondly, the NDRC’s new leadership included a total of four CPC Central Committee members (most government departments have just one), suggesting NDRC’s ongoing importance (China Economic Daily, March 20, 2013). However, of these four central committee members, two left the organization’s future role open to question. Xu Shaoshi—the new Director and previous Minister for Land and Resources—was an outsider to NDRC, never having held a post there, leading to speculation about his willingness to embrace reform (both Ma Kai and Zhang Ping had previously served as NDRC Deputy Directors) (Shidai Zhoukan, May 30, 2013). More intriguingly, Liu He was named a Deputy Director. As a prominent economic reformer closely associated with the World Bank’s China 2030 report and a close advisor to Xi through his role as director of the Office of the Central Leading Group for Financial and Economic Affairs, many rumored however that Liu was installed less to contribute to the organization than to keep an eye on it.

The government’s first substantive policy announcements immediately following the NPC left less room for ambiguity. Li Keqiang, in his first public appearance as China’s Premier in the NPC press conference, pledged to cut the existing 1,700 administrative approval items by at least one third within five years. The reforms announced by Li cut right to the heart of NDRC’s power and threatened a substantial reduction in its influence. Aware of the practical difficulties of restructuring bureaucratic power on this scale, Li described this as “a self-imposed revolution,” saying “it will require real sacrifice and will be painful” (Xinhua, March 17, 2013).

Rumors that the NDRC’s new leadership was not committed to maintaining its previous status also seemed validated. Xu Shaoshi made his position extremely clear in May when he told an all-staff meeting to fall into line with guidance from the Party leadership: “Don’t wait and see, don’t hesitate, and don’t delay in understanding what the center says” (NDRC website, May 13, 2013). Sources familiar with the NDRC in Beijing also reported that Liu He did not seem overly engaged in his NDRC role, commenting that “he’s never there.” Indeed, whereas the NDRC profiles of Xu Shaoshi and the organization’s other top leaders feature lengthy lists of public engagements on behalf of the ministry as well as their working responsibilities, Liu He’s public engagements page featured only two engagements at the time of writing and his responsibilities page had been left blank (NDRC website, March 5).

Rumors about the future

The ongoing mismatch between the Xi administration’s agenda and NDRC’s role led to widespread speculation about the future of the super ministry. Speculation was fueled further after the dismissal of one of the organization’s Deputy Directors, Liu Tienan, on corruption charges (Xinhua, May 14, 2013). A headline in one magazine asked readers “How much power does Liu Tienan’s fall suggest that the ‘mini State Council’ NDRC has?” (China Newsweek, May 14, 2013).

Chinese media outlets also began reporting on a drastic reduction in the number of project approvals issued by the NDRC. An article in Beijing Business Today reported that between January 1 and May 21 2013, the NDRC had approved just 37 projects; in contrast, it had approved a total of 40 projects in a single day (April 19) the previous year (Beijing Business Today, May 21, 2013). Journalists also reported significantly reduced numbers of cars with non-Beijing license plates parked outside the NDRC’s offices, as provincial officials stopped making their regular visits. As one official from Anhui explained, “we don’t need to visit the NDRC so much anymore; we can spend the extra time visiting the Ministry of Finance and the Ministry of Land and Resources” (Huaxia Shibao, December 28, 2013).

Rumors reached their crescendo, however, in response to a Reuters story that claimed that Li Keqiang had rejected the NDRC’s urbanization plan, an accusation vigorously rejected by Li Tie of the NDRC’s City and Town Development Center, who described the story as “completely rootless” (Caijing, May 24, 2013).

The Third Plenum

Then came the Third Plenum. In terms of Party ideology, the Plenum document announced what was, in the arcane world of CPC terminology, a watershed moment in economic policy by spelling out the need for market forces to play a “decisive” role in the allocation of resources. As such, the Plenum signalled the leadership’s resolve to move away from the economic model that had underpinned the NDRC’s influence over the last decade. It also spelled out the need for reforms in specific areas of NDRC power, including the prices of key resources and services, as well as further reductions in central government powers over investment and project approvals (Xinhua, November 15, 2013).

Institutionally, the meeting was also a major blow to the NDRC. It outlined a series of institutional changes designed to centralize decision-making powers around the top Party leadership. Most important in terms of economic policy was the creation of the new “leading small group” responsible for the “general planning” and implementation of reform (Xinhua, November 15, 2013). This move was widely interpreted as a means of circumventing “vested interests” in the government. Top of the list, naturally, was the NDRC (Duowei, December 31, 2013). Xi Jinping himself was later named leader of the group, which instructed provincial and local governments to establish equivalent organizations reporting back directly to the central group (Zhongguo Xinwen Wang, January 22). This development not only circumvented the power of the NDRC in Beijing, but also undermined the authority of the organization’s wide network of local Development Reform Commissions.

In case there was any doubt about the organization’s compliance with the Party leadership’s guidance, Xu Shaoshi convened a meeting of all officials above deputy division chief level, in which he instructed every department to “urgently plan a series of vital and important reforms” (Economic Observer, November 16, 2013). In public, the organization’s leadership put a more positive spin on things. In response to a direct question about whether the Third Plenum would result in a reduction of the NDRC’s powers, Deputy Director Lian Weilian told a press briefing at the State Council Information Office that “saying that the market should play a decisive role in allocating resources doesn’t mean only the market has a role.” Lian was clear, however, that changes were coming, clearly stating that the NDRC would upgrade its functions and “give powers to the market” (Xinhua, November 25, 2013).

Searching for a New Role

These setbacks significantly affected the mood inside the NDRC. One individual in regular contact with the organization described morale as “very bad” in November, reporting that many members of staff were looking to transfer to other agencies or leaving for the private sector.

In the face of these challenges, the NDRC sought ways to demonstrate its continued relevance. Most notably, over the course of 2013, the ministry significantly ramped up its enforcement of China’s anti-monopoly law (see “Hunting Season for Multinationals in China”, China Brief, November 7, 2013). While MOFCOM and SAIC, China’s other AML regulators, also heightened their enforcement, NDRC has done so with a degree of enthusiasm and even ferocity absent from these other organizations (Reuters, August 21, 2013). Many believe that the NDRC’s approach to AML enforcement is driven to a large extent by its desire to demonstrate its continued relevance in an era of economic reform as an impartial regulator of (rather than participant in) the market order. It also allows the organization to suggest that it is siding with Chinese consumers, as opposed to the producer interests with which it has so long been associated.

The NDRC has also taken measures to improve its public image. On January 22, it announced that the organization would begin monthly press conferences, a new development for the organization. Li Pumin, the ministry’s spokesperson told journalists that the NDRC’s Party Committee had made “new arrangements for news and propaganda work” in “accordance with the new situation, new responsibilities and new requirements” (Zhongguo Xinwen Wang, January 22). The first press conference, held on January 22, focused on the theme of “Macro-Economy and Policies.” The second, held on February 19, focused on the NDRC’s AML work (Xinhua, February 19).During the press conference, Xu Kunlin, the NDRC’s top anti-trust official and head of its Bureau of Price Supervision and Anti-Monopoly, detailed the progress made by the department over the last year, going out of his way to stress the compatibility of economic reform and the NDRC’s anti-monopoly efforts: “constructing a highly competitive market requires all parties’ efforts: part of this requires promoting reform, part of this requires strengthening anti-monopoly” (Economic Observer, February 21). Finally, the NDRC launched a redesigned and more user-friendly version of its website in early March (NDRC website, March 5).

Moving on

After an intense year, the mood now seems calmer at the NDRC. There is some evidence that officials have begun to embrace change. In the words of one official at a government think tank, “They will certainly see a very big reduction in their powers. I think they were worried at first, but now they’re supportive. It’s clear that the center has already made up its mind.” These sentiments align closely with recent comments by NDRC officials. One unnamed official, speaking to Caijing on February 19th, commented that—rather than losing power—the NDRC has “a new understanding of its definition and reform. Some unnecessary responsibilities have been shed, but [it has] gained responsibilities for deepening reform of the economic system. The future priority for NDRC work will be concentrating our power on guiding and comprehensively coordinating economic system reform.” In his press conference at the NPC, Xu Shaoshi announced the formalization of this new role, saying that the organization’s “Three sets Plan” (Sanding Fangan) had been approved and that it signaled a shift in the organization’s role away from approvals and towards supervision (Zhongguo Xinwenwang, March 5). 

As the organization settles into this new role, NDRC officials have also been assiduous in publicly demonstrating their commitment to the Xi government’s agenda. On January 1, Xinhua reported that the NDRC had “vowed on Tuesday to stick strictly with the State Council’s directory of investment projects that require government approval.” The same article quoted Luo Guosan, deputy director of the NDRC’s Department of Fixed Assets Investment extolling the new reformism: “We’re trying to shift the government’s role from pre-investment examiners to responsible supervisors… the government should provide service, not interference” (Xinhua, January 1). Li Pumin followed this up at the NDRC’s January 22 press conference with an assurance that the organization was walking the walk on price reforms. “According to the requirements of the Third Plenum, the NDRC has undertaken preliminary considerations on promoting resource and product price reform,” Li told reporters, announcing that the organization would move forward with reforms in key sectors during 2014 (Zhongguo Xinwen Wang, January 22).

Implications

What does all of this mean? Despite ongoing uncertainties about the organization’s future, it seems clear that we will be looking at a very different kind of NDRC moving forward. To paraphrase and invert the description of the ministry quoted at the start of this article, a reformed NDRC will be heavy on macro, light on micro; heavy on planning, light on approvals; heavy on reform, and lighter on developmentalism.

This is about more than just bureaucratic tinkering. It matters on two important levels. Firstly, it is symptomatic of the Chinese leadership’s broader desire to significantly upgrade its style of economic management. It has heeded calls from economic reformers, private enterprise, think tanks at home and abroad, as well as economists—bears and bulls alike—that China’s previous growth model had become unsustainable. Second, this new approach to economic management will involve a significantly altered power structure behind economic decision-making. At least at first, this will involve a significant centralization of power under the CPC’s top leadership, especially in the person of Xi Jinping. In the longer term, at least in theory, the reform process will see a major devolution of power away from the government and towards the market.

Yet, all of this needs to be kept in context. China hasn’t converted to neo-liberalism. These changes mattered so much to NDRC officials because they represented a real reduction their powers and status. This does not mean, however, that the state will cease to play an important role in the economy. Rather, these reforms are about reconfiguring China’s political economy in a way that ensures long-term growth and is therefore conducive to the Communist Party’s continued rule. Clipping the wings of the NDRC is just one part of this broader political project.