Let the Market Play a Decisive Role

By staff reporter LU RUCAI

DEVELOPMENT is the key to solving China’s problems... economic restructuring will be the central task, and reform of the economic system will provide a firm footing for making relations of production adaptable to productive forces, and the superstructure congruous with the economic base, promoting healthy, sustainable development of the society and economy.” Such statements made at the Third Plenary Session of the 18th CPC Central Committee signify the paramount importance the ruling party places on China’s economic development.

In reiterating that development is China’s number-one priority and reform its impetus, the tone of such statements is reassuring to all levels of Chinese society, according to Wang Jun, a deputy department chief of China Center for International Economic Exchanges (CCIEE).

The economic system has hitherto been the focus of China’s reforms, which is decided in accordance with the nation’s current stage of development. Having risen to become the world’s second largest economy 35 years after bringing into effect the reform and opening-up policy, China must still overcome through its future reforms the problems of an imperfect market system, flabby domestically-generated growth, and a waning potential growth rate.

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Visible vs Invisible Hand

The Chinese leadership acknowledges that continued economic restructuring is critical to comprehensive deepening of all other reforms in the nation. The key issue in this regard is appropriate handling of the government-market relationship and allowing the market to play a decisive role in resource allocation, meanwhile allowing the government to better perform its duty. Premier Li Keqiang was quoted as saying, “The market is the invisible hand and the government, a visible hand. We should not let the visible hand constantly meddle.”

From 1978, the planned economy was predominant over the market economy. It was in 1992 that China first announced that the market, under state macroeconomic control, should be the basic means of allocating resources. “But as the market was only given a basic role in resource allocation, the government was justified in intervening in prices whenever it felt this was necessary, in the name of macroeconomic control,” said Shi Hongxiu, professor of economics at the Chinese Academy of Governance.

According to Wang Jun, the decision by the Third Plenum of the 18th CPC Central Committee to upgrade the role of the market in national economy reveals the central authorities’ resolve to continue with the marketization process, so giving good reason to anticipate breakthroughs in China’s economic reform in the coming years.

In 2003 alone, the central government scrapped or relegated to local authorities 300 or more items requiring administrative approval as part of its effort to give the market a freer rein in allocating resources. “The next step is pricing reform of electricity, mineral resources – including coal, water supply, sewage treatment and other public utilities. Gradually, their prices will be decided by the market,” Prof. Shi predicted.

Reforms on resource pricing have escalated since 1993, changes to coal pricing taking the lead. So far, controls on crude oil prices have been lifted and, in light of changes in the global market, retail prices for gasoline and diesel floated under government guidance. Pilot programs of tiered pricing for electricity and of allowing big consumers to negotiate with power plants are extending to more parts of the country. Tiered pricing has also been adopted by the natural gas and water sectors.

While stressing the decisive role of the market, it is equally important to ensure that the government does a better job. In the view of Pan Jiahua, director of the Institute for Urban and Environmental Studies, Chinese Academy of Social Sciences (CASS), the reforms are intended to reduce and eventually eliminate the government’s authorization to take arbitrary decisions and actions. The government should instead conduct thorough supervision and law enforcement, fulfilling its obligations but not overstepping them, so guaranteeing orderly operation of the market economy.

Public vs Non-public Sectors

The communiqué released after the Third Plenary Session of the 18th CPC Central Committee states that an economic system where the public sector is the major force and other ownerships co-exist and grow together is a key pillar of socialism with