By  on December 19, 2013

BEIJING — China needs to make tangible, bold economic moves very soon to ensure its citizens and trade partners the new government is serious about reform, leading scholars and analysts said at a conference in Beijing this week.

Well-known Chinese academics and executives from major companies and organizations gathered in the capital at the annual Caixin Summit, a forum on critical issues hosted by China’s leading independent business magazine. The two days of discussion focused on the potential for reform in the Communist Party of China’s newest leadership team, led by President Xi Jinping. Though the central government has signaled it will undertake several new policy directions, it has yet to establish any timetables or new legal framework nearly a year into its tenure.

Most critically, the speakers said, any new reforms must tamp down on China’s widespread systemic government corruption.

Outgoing U.S. Ambassador to China Gary Locke on Thursday spoke about the importance of building a rule of law and a functioning, independent judicial system to China’s credibility in the worlds of international business and trade.

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“People need to know the rules will be applied equally now matter who you are or how much power you have,” Locke told the gathering.

The ambassador, a former governor and prosecutor, is leaving the post soon to return to the United States. Reports on Wednesday from Democrat officials in the U.S. said President Obama would nominate Sen. Max Baucus, a Montana Democrat and longtime head of the Senate Finance Committee, as the new ambassador to China.

Locke laid out for listenershow American-style adherence to rule of law and an independent judiciary have helped build trust in the government system. In particular, Locke said, “what business people are not willing to accept is arbitrary rule of law.”

China’s court system does not operate independently from the rest of government, and it is long fraught with the taint of corruption. Both Chinese citizens and companies tend to be skeptical the court system will produce fair, non-biased outcomes.

“How does a society build confidence in the integrity of its legal system?” asked Locke. “The answer is, steadily. It takes years.”

The judiciary is just one aspect where China faces deep systemic problems related to corruption that could undermine the government’s very foundation, other speakers said in subsequent panel discussions. President Xi has pledged to crackdown on corruption and the promise of a heavy-handed campaign against official abuse had already produced some tangible results — namely in form of a sudden slowdown in the luxury market in China.

According to a report released this week by the consulting firm Bain & Co., luxury spending in China has slowed significantly. Bain estimates that luxury sales in Mainland China grew by just 2 percent in 2013, compared with 7 percent growth a year earlier. The consultancy said men's wear and watches were particularly hard hit this year, with sales of luxury timepieces falling 11 percent.

“The highly visible government campaign encouraging frugality and focusing on corruption had a large impact on gifting, which had been one of the major growth engines of the sector,” the firm said in a news release about its 2013 China Luxury Goods Market Study.

Bain expects the trend to continue through 2014, unsurprising given the ongoing high profile Xi’s regime has put on anti-corruption efforts. Thus far, however, the clampdown does not appear to include China’s top leadership and its own ties to family fortunes gained through political connections.

Summit speakers said the campaign must be serious, and China’s officials should open themselves to public scrutiny, and allow journalists to report about connections and corruption more openly.

Xu Chenggang, an economist at Hong Kong University, said boosting the independence of China’s judicial system and how it handles private-property ownership, among other issues, would help restore confidence in the system.

“This is not just abstract theoretical discussion, but (this is) what we are discussing in the capital markets when there are so many state-owned enterprises in the markets,” said Xu.

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