Starting a New Phase of Economic Reform in China

By: CPC Leadership Group of the National Development and Reform CommissionFrom:English Edition of Qiushi Journal January-March 2019|Vol.11,No.1,Issue No.38 | Updated: 2019-Jul-9 16:17

China’s reform and opening up has already been surg­ing forward for four decades since its launch at the Third Plenary Session of the 11th CPC Central Com­mittee in late 1978. In these four decades, economic reform has grown in breadth, depth, and intensity as it has gradually spread from rural to urban areas, from establish­ing special economic zones to steadily opening up the interior, from vigorously promoting reform of state-owned enterprises (SOEs) to consistently furthering administrative reform, and from successfully acceding to the World Trade Organization (WTO) to actively participating in global economic governance. Since the 18th National Congress of the CPC in 2012, China has made economic reform the focus of comprehensively deepen­ing reform, and thus reform has made progress on all fronts, achieved numerous breakthroughs, and driven deeper.

I. Major breakthroughs have market economy as the clear objective been made over four decades of of reform.

For 40 years, China has centered its efforts on emancipating and developing productive forces and on unleashing and enhancing the vigor of society, setting the establishment of a socialist market economy as the clear objective of reform. GDP grew from 367.9 billion yuan in 1978 to 82.7 trillion yuan in 2017, and more than 700 million people have been lifted out of poverty. Meanwhile, China’s overall national strength has grown significantly, and the country has contributed to more than 30% of global economic growth.China has walked a completely new path on which a developing country of more than a billion people has risen out of poverty and marched toward prosperity, and thus Chinese socialism has entered a new era.

1. the structure of ownership has been optimized, and the basic socialist economic system has been consolidated and improved.

For 40 years, China has made con­stant inquiries into effective forms for its basic economic system to take. At first public ownership was im­plemented exclusively, then the self-employed sector was allowed to serve as a supplement to the public sector, and finally the non-public sector be­came an important component of the socialist market economy. As a result, the non-public sector has been granted an increasingly greater share and role in the national economy, leading to significant transforma­tions in China’s ownership structure. Since the 18th National Congress, the Central Committee has proposed ac­tively developing mixed ownership, underlining its importance as a major manifestation of China’s basic eco­nomic system. Over the last four dec­ades, a pattern of joint development has gradually taken shape in which different forms of ownership have complemented and reinforced each other, while the non-public sector has grown from scratch to become large and strong. According to statistics, non-public enterprises are responsible for over 50% of national tax revenue, over 60% of GDP, fixed asset invest­ment, and outward direct investment, over 70% of technological innovation and new products, and over 80% of urban employment, with a number of Chinese private enterprises listed on the Fortune 500.

2. We have gradually improved our modern market system, mak­ing the market play the decisive role in resource allocation while allowing the government to better play its proper role.

Over the past 40 years, we have continuously expanded and deepened our understanding of the relation­ship between the government and the market, first using market forces to supplement the planned economy, then fostering intrinsic unity between the planned economy and the mar­ket, and later giving the market the fundamental role. In particular, at the Third Plenary Session of the 18th CPC Central Committee, it was unequivo­cally stated that we should make the market play the decisive role in re­source allocation while allowing the government to better play its proper role. China has vigorously promoted reforms on pricing and reforms for the market-based allocation of im­portant factors of production such as land, capital, labor, and science and technology, gradually developing and constantly improving its modern market system. The catalog of prices controlled by the central and local governments has been cut significant­ly, nationwide reform of electricity transmission and distribution pric­ing on provincial-level grids has been completed, price reform for medical services provided by public hospitals has been launched across the board, and the prices of more than 97% of commodities and services are now regulated by the market.

China’s level of scientific and tech­nological innovation is rising more rapidly toward the world’s top brack­et, with the contribution rate of scientific and technological advancement to economic growth reaching 57.5% in 2017. We have put the system for pay­ment-based use of state-owned land resources into effect across the board, and made inquiries into establishing a unified urban-rural market for de­velopment land. The Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect have been opened, the Bond Connect between the mainland and Hong Kong has officially come online, and China’s A-shares have been included in the MSCI Emerging Markets Index.

3. soe reform has delved deeper, and major progress has been made in strategic restructuring of the state-owned sector.

Over the past 40 years, we have continuously expanded the depth and breadth of SOE reform, from al­lowing enterprises to operate more autonomously, to establishing a mod­ern corporate system, and then to promoting reform of the state asset management system. In recent years, we have comprehensively boosted reform of state assets and SOEs and steadily advanced strategic restructur­ing. We have reduced the number of enterprises owned by the central gov­ernment from 117 to 96, and brought restructuring of these enterprises as joint-stock companies to full comple­tion at the parent company level and 97.8% completion at all subsidiary levels. We have also advanced reforms introducing mixed ownership in SOEs, with pilot reforms in 50 enterprises beginning to take effect. Mean­while, tangible progress has been made in reform of the rail, electric power, petroleum, natural gas, and salt industries. Lastly, we have taken new steps to strengthen supervision over state assets with a focus on capi­tal management and secured great success in SOE development, thereby making historic contributions for pro­moting socioeconomic development.

4. We have furthered rural and agricultural reform in every re­spect, and continued to improve systems and mechanisms for inte­grated urban-rural development.

Thanks to the great wave of rural reform, rural and agricultural eco­nomic systems that conform to na­tional and rural conditions and meet the requirements of the socialist mar­ket economy have gradually been es­tablished and constantly grown more sophisticated. In recent years, we have further enhanced the scope and inten­sity of rural reform, accelerated intro­duction of key rural and agricultural systems, and advanced rural and agri­cultural modernization more quickly. We have stabilized and improved the basic rural operation system, ensured that relations in rural land contract­ing are stable and remain constant for the long term, refined the system for separating ownership rights, con­tract rights, and management rights for contracted rural land, and devoted great energy to training a new breed of professional farmers. We have steadily promoted reform of the rural collective property rights system, im­proved purchase and storage systems and price-setting mechanisms for ma­jor agricultural products, and refined systems and mechanisms for integrat­ed urban-rural development in an ac­celerated effort to advance a new, peo­ple-centered pattern of urbanization. Four decades of rural and agricultural reform have unleashed and developed productive forces in rural areas, made the rural economy flourish, improved the lives of rural residents, and sus­tained rapid and persistent develop­ment of the national economy.

5. We have consistently deep­ened administrative reform, and accelerated the transformation of government functions.

Centering on striking the right balance between an “active govern­ment” and an “effective market,” we have constantly stepped up efforts to transform government functions and promoted modernization of China’s governance system and capacity. We have also upheld our commitment to delegate, scale down, control, restrict, and oversee administrative powers and make information on these pow­ers known to the public, and deter­minedly advanced reforms for stream­lining administration and delegating powers, improving regulation, and optimizing services. As a result, the number of items subject to approval by departments of the State Council has been slashed by 44%, the practice of non-administrative approval has been halted completely, and reform of the commercial system has been vigorously advanced. The number of items subject to review and approval by the central government has been cut by 90% in all, further confirming the dominant role of enterprises in investment. We have eliminated the 66-year-old business tax and promot­ed the establishment of a fiscal rela­tionship between the central and lo­cal governments with clearly defined powers and responsibilities, effective coordination of financial resources, and greater balance between regions. We have also improved our regula­tory framework built upon the dual pillars of monetary policy and macro-prudential policy. Historic break­throughs have been made in reform to liberalize interest rates, solid steps have been taken in reform of financial regulation, and the RMB has been included in the IMF’s Special Draw­ing Rights (SDR) currency basket. We have allowed strategic plans to play their guiding role more effectively, created new and improved methods of regulation, focused on manag­ing expectations better, and made the macroeconomic regulation more forward-looking, targeted and coordi­nated.

6. We have continued to become more open to the outside world, and expedited the establishment of new systems for the open economy.

In keeping with the fundamental national policy of opening up, we have taken China’s entry into the WTO as an opportunity to gradu­ally create an all-encompassing and multi-leveled pattern of opening up, primarily shown through the open­ing up of regions along coastlines, rivers, and borders as well as inland provincial capitals. In recent years, top-level design and the policy frame­work for the Belt and Road Initiative have been continuously refined, lead­ing to notable results in international industrial capacity cooperation. We have approved the establishment of 11 pilot free trade zones, made the service and general manufacturing industries more open to foreign inves­tors, and furthered reform of foreign investment and outward investment management systems, thus becoming an important leader and proponent of economic globalization and efforts to improve global economic governance.

II. The economic reform in the past 40 years has provided us with invaluable experience.

Over the past four decades, with fo­cus on key questions such as why we should reform, for whom we are re­forming, where reform is going, how to go about reforming, and how to ensure reforms are carried out effec­tively, we have laid foundations, built platforms, and developed frameworks for economic reform, creating and ac­cumulating invaluable experience in the process. We have maintained con­stant commitment in the following six areas:

1. upholding and strengthening the CPC’s all-round leadership over economic reform

Strengthening Party leadership over reform represents the fundamental guarantee for driving forward eco­nomic reform and the key to its suc­cess. By upholding and strengthening CPC leadership and fully exerting its role in charting our course, managing the big picture, formulating policies, and facilitating reform, we will be able to more effectively mobilize and organize the dedication of the public to reform, opening up, and moderni­zation, and ensure that the reform and opening up drive keeps moving forward on the right track.

2. Consistently freeing minds

Freeing minds represents the “mas­ter switch” for unleashing and devel­oping productive forces and releas­ing and enhancing the vigor of our society. Reform and opening up is a process of freeing minds. Every break­through in this regard has greatly pro­moted the advancement of economic reform as well as development of the economy and society. It is precisely by constantly breaking through the bar­riers put up by outdated thinking and ideas, antiquated rules and regula­tions, and vested interests that China has been able to make the historic determination to shift the focus of the Party and state to economic develop­ment and put reform and opening up into practice. It is also for these reasons that China has been able to promote theoretical and practical in­novation and identify the root causes of vested interests in order to find the right focus and direction for our efforts and effectively overcome all manner of risks and challenges that we face on the road ahead.

3. sticking to a people-centered concept of development

The fundamental reason why the reform and opening up drive has won the people’s wholehearted sup­port is that we have ensured reform is for the people, dependent on the people, and beneficial to the people. We have allowed the cause of reform and opening up to take root among the people, and aimed it at resolving their most pressing and immediate concerns.

4. Balancing the relationship between the government and the market

Over the past 40 years, China has kept its reforms oriented toward building a socialist market economy, and put great effort into integrating the market economy with its basic socialist system, ensuring that “ef­fective market” and “active govern­ment” are linked and work together. Focusing on stimulating the vigor of the market and bolstering endog­enous drivers of economic growth, we have constantly improved market mechanisms and dismantled indus­try monopolies, entry barriers, and local protectionism, making the mar­ket play the decisive role in resource allocation while allowing the government to better play its proper role. On this basis, we have continuously created new and better means of macroeconomic regulation, enhanced the application of national develop­ment plans in cooperation with fis­cal, monetary, industrial, and region­al policies, effectively guided market expectations, and regulated market behavior through legal means, thus adding formidable momentum for steady, healthy, and sustainable de­velopment of the economy.

5. striking the right balance be­tween reform, development, and stability

Reform is the force that drives us toward our objective of development in line with the prerequisite of main­taining stability. Regarding develop­ment as the key to solving every prob­lem that China faces and reform as a powerful engine for driving develop­ment, we have seized every opportu­nity to advance crucially important reforms. At the same time, however, we have kept the intensity of reform and pace of development from go­ing beyond the limits of what society can bear. We have made improving the lives of the people the common benchmark for properly balancing the relationship between reform, development, and stability, and not only maintained social stability while pushing forward reform and develop­ment but also used reform and devel­opment as tools to promote greater stability.

6. making reform and opening up mutually reinforcing

In a continued effort to boost re­form through opening up, we have pursued development with open doors, actively participated in eco­nomic globalization, made full use of foreign funds, markets, technology, and talent, and spurred our system of economic management to link up with world-class standards. With firm commitment to increasing the depth and breadth of opening up through reform, we have used reform to in­novatively renovate our systems and mechanisms, constantly create new competitive advantages, and make our opening up strategy and open economic system increasingly sophis­ticated.

III. We must build on past achievements to improve our socialist market economy more quickly.

The overall goals of China’s eco­nomic reform are to improve and develop the system of socialism with Chinese characteristics and mod­ernize China’s national governance system and capacity. Bearing this in mind, we will expedite improvement of the socialist market economy, and make better use of economic reform as a driving force for comprehensively deepening reform, thus providing our efforts to build a modern economic system and promote high-quality development with inexhaustible mo­mentum. We should focus our energy on accelerating progress in the fol­lowing six areas:

1. improving the property rights system so that property rights act as effective incentives

Incorporating reform of the prop­erty rights system into all areas and aspects of economic reform, we will build a system that features clearly defined ownership, explicitly stipulat­ed rights and responsibilities, rigor­ous protection and unhindered trans­fer of relevant rights. We will also form a complete set of institutional arrangements that clearly defines the rights to own, possess, control, use, benefit from, and dispose of property. With a focus on augmenting property rights protection, we need to ensure that market entities under all forms of ownership enjoy equal access to factors of production in accordance with the law, that they engage in mar­ket competition on an open, fair, and impartial basis, and that they receive equal protection by the law.

2. promoting the market-based allocation of production factors so that they can flow freely

We must bolster reform of the mar­ket for production factors, promote healthy development of a multi-tiered capital market, establish a unified urban-rural market for development land and a unified national market for human resources, and eliminate deficiencies in our systems and mech­anisms that hinder the social mobility of labor and talent. We need to expe­dite reforms promoting the market-based pricing of production factors such as land, funding, and labor, giv­ing the market control over pricing wherever possible, while also break­ing up administrative monopolies and preventing cornering of the mar­ket. By doing so, we will ensure that the role of the market in determining prices is exerted to the greatest possi­ble extent.

3. reinforcing an environment of fair play so that the market is characterized by uniformity, open­ness, and orderly competition

We will continue to further reforms to streamline administration and delegate powers, improve regulation, and optimize services; comprehen­sively implement and constantly im­prove the unified, nationwide mar­ket access system based on negative lists; put in place a review system for ensuring fair competition; and sort out or abolish regulations and prac­tices that impede the operation of a unified market and fair competition. We must speed up development of the social credit system and improve market oversight systems in order to build a market environment charac­terized by honesty, good faith, and fair competition.

4. establishing all types of en­terprises as market entities so that competition determines whether or not they succeed

Using the shift toward mixed own­ership as a gateway, we will continue the reform of state assets and SOEs, and push enterprises to establish cor­porate governance structures with effective checks and balances as well as flexible and efficient market-based operating mechanisms. We will en­courage, support, and guide develop­ment of the non-public sector and private enterprises, and stimulate and protect entrepreneurial spirit.

5. putting emphasis on the Belt and road initiative so that we can advance the formation of a new and completely open developmen­tal framework

In line with the principles of consul­tation, collaboration, and mutual ben­efit, we will push the Belt and Road Initiative to go deeper and further, produce real results, and progress steadily over the long term, turning it into the broadest platform for in­ternational cooperation that follows the current of economic globalization. We will lay equal stress on “bringing in” and “going global,” adopt policies for liberalizing and facilitating trade and investment to high standards, and work to balance imports and ex­ports. We will enhance cooperation on two-way investment, and promote infrastructure connectivity. We will also boost open cooperation on inno­vation capacity, and create globally-oriented trade, investment, financing, production, and service networks. In addition, we will move faster to cul­tivate new strengths in international economic cooperation and competi­tion, and drive economic globaliza­tion in a more open, inclusive, and balanced direction so that its benefits are shared by all.

6. Creating new and better means of macroeconomic regula­tion so that the government can play its role more effectively

We will bring the role of national development plans to bear in provid­ing strategic guidance, improve the policy framework for macroeconom­ic regulation, and refine mechanisms for coordinating economic policies such as fiscal, monetary, industrial, and regional policies. We will also continue reforming finance and taxa­tion, better exert the positive role of fiscal policy in raising the quality of development, and make monetary policy more flexible and adaptable to better serve development of the real economy.

(Originally appeared in Qiushi Journal, Chinese edition, No. 17, 2018)