China's top leaders continue to struggle to get local and provincial governments to implement economic reforms. China's government appears to be struggling to get local governments to implement its economic reform policies.

Following a meeting of the State Council, China's cabinet, on Friday, Xinhua News Agency reported over the weekend that the State Council will dispatch eight inspection teams to visit local governments nationwide to investigate whether economic reforms are being properly implemented.

"Responsibility for poor implementation of policy measures will be investigated, accountability will be serious, and there will be verbal admonishments, criticism or even administrative sanctions according to laws and regulations," the State Council said, according to Reuters.

The inspection teams will travel to various localities from June 25 to July 5. They have been asked to review implementation of 19 different policies the State Council has announced since July of last year. The State Council has ordered local governments to conduct their own internal reviews of implementation before the inspection teams begin arriving later this month.

According to Reuters, at the top of the State Council's list is streamlining the administrative approval process to reduce the amount of red tape, an issue that Premier Li Keqiang has been particularly forceful in promoting. The report said the list also includes ecological and environmental improvements, "construction of major water projects, investment policies for non-state companies, employment of college graduates, construction of affordable housing, and efforts to ensure that the financial services industry supports the real economy."

The State Council's announcement came after its own meeting on Friday as well as the third meeting of the new Leading Group for Overall Reform. At the latter meeting, the Leading Group announced "a framework for pilot programs of judicial reform, a work program on judicial reform in Shanghai, and a plan to set up special courts on intellectual property rights (IPR)." Judicial reforms in part are aimed at weakening the grip of power of local leaders.

The Leading Group also debated plans for reforming the fiscal and household registration systems, both of which will be particularly important for local governments in China. At the meeting, President Xi Jinping - who presides over the Leading Group for Overall Reform - said, according to China Daily, that the main objectives of the fiscal reforms are "ensuring a clear division of power [between levels of government], reform of the tax system and stabilizing the tax burden, transparent budgeting, and improved efficiency." Xi was also summarized as saying that he expects "a fiscal system to serve the initiatives of both central and local governments while clarifying the responsibilities of the two."

On China's household reforms, Xi was quoted as saying, "Accelerating reform of the household registration system is an important part of urbanization and involves hundreds of millions of rural migrants."

He also stressed that implementation would be the key to success in all areas of reform. "The success of our blue print [for reform] will be its implementation," Xi said. He also said that leading departments should be assigned for every area of reform. "Every single issue should have specific personnel to manage, supervise, urge and implement."

Primer Li, who is a deputy of the Leading Group on Overall Reform and heads the State Council, also emphasized the importance of reform during an economic conference last week. "To achieve the development goals for 2014, we should better mobilize efforts from both the central and local authorities" to implement reform, Li said, according to local media. At the State Council meeting, Li also reportedly said, "My only concern is that our existing policies are really implemented."

China's top leaders are seeking to rebalance the economy from the current model which relies heavily on state-led investment to one more dependent on domestic consumption. This has slowed growth considerably, especially in certain provinces in western and central China that are heavily dependent on government investment and certain kinds of manufacturing.

As The Diplomat expected, local officials - who benefit disproportionally from the current model - appear to be the largest barrier to implementing the necessary reforms. The South China Morning Post reports that at a State Council meeting on May 30, Li "pounded the table as he blasted local officials for inertia in carrying out central government directives." The new inspection teams for implementation are the latest way the central government has tried to force local governments to get in line.

The Diplomat

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In April, the government has said that companies engaged in defence manufacturing will not be allowed to further increase foreign portfolio investment beyond August last year level.

Industry body Assocham today asked the government to review foreign investment policy, particularly related with FIIs, in the defence sector.

In April, the government has said that companies engaged in defence manufacturing will not be allowed to further increase foreign portfolio investment beyond August last year level.

This condition "goes against the principle of a stable policy framework which is needed to attract large investments in this sector", it said.

It also said that the April decision has brought the entire process of issuance of industrial licenses to domestic private sector companies to a standstill and, "therefore, be amended,", it said in a statement.

Several domestic companies have applied to the DIPP for industrial licenses to manufacture a wide range of defence products and shares of most of these companies are listed.

FIIs inflows should be encouraged in order to boost country's foreign exchange reserves, it said.

"FIIs are in no position to exercise any control over management of the affairs of Indian companies. Further there are adequate checks and balances within the existing policy framework to protect our strategic interests," it added.

The chamber said that "there is urgent need to review the existing foreign investment policy applicable to the defence sector" on the issue of FIIs investment so that the matter of industrial licenses to several Indian companies which has come to a grinding halt can be restarted and clearances can be expedited.

Speedy implementation of projects in this critical sector of the national economy will contribute in reducing country's dependence on imports, it added.

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