After years of stagnation on the economic policy reform front, there was a rush of Chinese economic-reform proposals in early 2012. The pro-state government led by Hu Jintao and Wen Jiabao is on its way out, to be replaced by unknown quantities like Xi Jinping. The reform camp, led typically by the People’s Bank of China (PBOC), correctly sees the transition as an opportunity.

The person doing the most talking is Wen himself, who has been calling for an end to state monopolisation of key sectors such as banking. But Wen lacks credibility. After his predecessor Zhu Rongji tried to shrink the state sector, the state giants that Wen now criticises re-emerged and prospered under his own leadership.

Elsewhere, the PBOC has been inching forward with external financial changes, including widening the yuan’s formal trading band against the dollar and broadening the uses of the yuan in two-way investment. The central bank is selling the nationalist line that a global power must have a global currency while minimising the fact that a truly global currency requires money to move freely in and out of the country — that is, China must have an open capital account. This would be a dramatic shift as it would diminish the government’s control of interest rates.

Perhaps most importantly, Wen’s likely successor as premier, Li Keqiang, linked himself to a report — co-authored by the World Bank and the Development Research Center, an arm of China’s cabinet — that calls for resurrecting reforms that have fallen by the wayside. The report’s objectives would be far too ambitious if the current government were staying in power, but it may not be so if the incoming government is less statist.

via Chinese economic reform: how the US should prepare | East Asia Forum.