China issued a guideline on May 18 to improve its socialist market economic system through market-oriented reforms and high-level opening up to drive high-quality development of its economy.

The measures focus on boosting market vitality and fair competition, improving social security and public health emergency management systems, widening the opening up and enhancing laws and regulations to address remaining problems such as an unsophisticated market system and inefficient resource allocation, the National Development and Reform Commission said.

The government will improve the basic economic system, focusing on public ownership, and allow development of multiple forms of ownership at the same time. It will minimize the direct allocation of market resources and intervention in microeconomic activities, and boost innovation and competitiveness of the economy.

The guideline also pledges to expand rule-based institutional opening up, draw on the experience of other full-fledged market economy systems and improve domestic systems and rules in accordance with international ones.

The measures will provide institutional support for economic transformation and coping with rising technological competition and uncertainties in the global economy, Wang Yiming, former Deputy Director of the Development Research Center of the State Council, wrote in an article published in The Economic Daily.

Boosting the market

Efforts will be made to drive the development of all types of enterprises. The government will boost the competitiveness of state-owned enterprises, advance mixed ownership reform of enterprises and separate government administration from enterprise management.

China will adopt flexible and efficient management mechanisms and regulation systems for enterprises with mixed ownership and develop medium-to-long-term incentive mechanisms in such enterprises.

The income distribution in enterprises with mixed ownership will be based more on contribution, which can improve the morale of technicians and advance technological innovation, Zhou Lisha, a researcher at the research institute of the State-Owned Assets Supervision and Administration Commission of the State Council, told Yicai.com, a financial media outlet.

The government will improve the market, policies, rule of law and social environment to support the development of private businesses and foreign-invested enterprises, and provide equal treatment to firms of various types of ownership in access to factors of production, operation, government procurement and bidding.

The government will create an institutional environment conducive to high-quality development of the non-public economy and improve the implementation of rules and specific measures to support private enterprises to enter the electricity, oil and gas fields. It will also ease market access for private enterprises to enter the services sector, create more development space for social capital and improve financial services for small and medium-sized enterprises.

Financial institutions need to provide more targeted services for private enterprises on direct financing. Due to the lack of funds from the market, the government is expected to back private enterprises as its capacity allows, Li Qilin, chief analyst at Yuekai Securities, wrote in an article on the company's website.

To address institutional barriers and boost market vitality, the guideline focuses on fleshing out key areas including property rights and fair competition systems as well as the production factors to develop a high-level socialist market economy. As Wang wrote in his article, it is necessary to improve the protection of property rights in the private sector to boost investment and accelerate the development of a system of punishment for intellectual property right infringement.

In April, a guideline on improving the market-based mechanism for allocation of production factors was released to facilitate free and orderly flow of major factors including land, labor, technological knowledge, capital and data, and stimulate market vitality. As a follow-up, the May 18 guideline aims to further stimulate market vitality through measures including improving regulations on identifying data ownership and reforming the household registration system through removing household registration barriers in urban clusters and easing restrictions on settling in cities except for certain mega cities.

"The reform of the household registration system will allow local residents to enjoy high-quality public services in neighboring major cities and promote personnel flow, which will drive the development of urban clusters," Hu Gang, a professor with Jinan University in Guangdong Province in south China, told Shanghai-based news website Jiemian.com.

The guideline says the government will deepen reform of the capital market by improving transparency and ensuring information disclosure. In April, China announced it would pilot a reform to fast-track initial public offerings on the startup board ChiNext.

Efforts will also be made to improve the commodity and service markets by strengthening the mechanism whereby prices are mainly determined by the market, reducing undue government intervention in price formation, building a more open mechanism for international talent exchange and cooperation, and developing a long-term mechanism to crack down on fake and inferior goods.

The measures can bring the role of the market in resource allocation into full play and improve the efficiency of allocation, Wang said.

Wider opening

Despite the global spread of the novel coronavirus pandemic and uncertainties, China will continue its efforts to widen the opening up. According to the guideline, the government will boost pilot free trade zones and ports, establish the new port area of China (Shanghai) Pilot Free Trade Zone and promote the development in Hainan Free Trade Port. Trade and investment liberalization and facilitation will be enhanced.

It will increase the import of goods and services, reduce overall tariffs, eliminate non-tariff trade barriers, cut institutional costs of the import and export process, and promote balanced development of trade. Efforts will also be made to promote the opening up of manufacturing, services, and agriculture, allow foreign investment to hold shares or ownership in more areas, and scrap restrictions outside the negative list for foreign investment.

Over the past seven years, China has revised the negative list for market access for foreign investors five times, reducing the number of items from 190 in 2013 to 40 in 2019 and widening the opening up of multiple sectors including agriculture, manufacturing and service industries.

According to Wang, the measures can promote a level playing field for China-funded and foreign-invested enterprises and drive domestic reforms through institutional opening up.

China will also uphold the multilateral trade system by participating in reforms of the World Trade Organization, and promote regional economic and trade cooperation by developing free trade zones with Japan and the Republic of Korea and advancing negotiations on the investment treaty with the European Union, Wang said.

Improving services

Besides measures for market-oriented reforms, policies related to people's wellbeing have also been introduced. According to the guideline, the government will innovate management and service modes and improve the macroeconomic governance system by boosting key sectors including investment, consumption and employment, and strengthen supervision on financial risks. It will accelerate building a modern fiscal and taxation system, especially through legislation on real estate taxation and improvements in local taxation systems.

The reform of the fiscal and taxation system can make resource allocation more reasonable and stabilize people's income, Fan Yong, a professor with the Central University of Finance and Economics, told People's Daily.

As Liu Jianwen, President of the China Association for Fiscal and Tax Law, told National Business Daily, the government needs to consider social consensus, the domestic economic environment and taxpayers' ability before introducing real estate taxation.

In addition to that, the government needs to regulate the market while reducing intervention in market activities. As Peng Jian, a researcher with the China Development Institute based in Shenzhen, Guangdong Province in south China, told Beijing Review, the government played a key role in allocating resources and overcoming market failure, especially cracking down on product hoarding and sales of fake goods during the epidemic. However, problems such as inconvenience for residents in communities under lockdown and suspension of transportation of medical supplies in the initial period show that the potential of market resources was not fully unleashed.

To improve the market economy, the government needs to better mobilize and coordinate market resources through mechanisms such as government procurement. Technologies such as the Internet of Things can be adopted to improve information disclosure, he added.

(Print Edition: Systematic Advancement)

Copyedited by Madhusudan Chaubey

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