The Central Committee of the Communist Party of China and the State Council, China’s Cabinet, recently issued a guideline document on improving the socialist market economic system by deepening the reform of the economic system and promoting the development of a higher-level socialist market economic system.
Since launching its reform and opening-up, China has undergone transition from a highly centralized planned economy to a vibrant socialist market economy. In the process, it has registered spectacular economic growth.
But the relationship between the government and the market has not been completely ironed out. There is still a lack of market incentives, smooth flow of production factors, high efficiency of resources and strong microeconomic vitality.
As such, China is planning specific reform measures that will help it achieve effective property rights incentives, free flow of factors of production, a flexible price response, fair and orderly competition and improved institutional supply, to promote higher-quality, more efficient, fairer and more sustainable development.
The guideline document calls for building a market-based allocation of factors, accelerating the construction of a unified and open market system with orderly competition, and promoting the construction of the factor market system in which prices are decided by the market, and factors can flow in an orderly manner.
Market-based allocation of factors and fair competition essentially require the establishment of a correct relationship between the government and market. That is, the government should respect general rules of the market economy, minimize government-dominated allocation of market resources and its direct intervention in microeconomic activities, give full play to the decisive role of the market in resource allocation and improve governance by correcting market faults.
Given that the market economy is built and operates on the rule of law, the guideline document says the country will work to improve the rule of law system of the socialist market economy to ensure that laws are adhered to and lawbreakers are punished.
It also commits to establish a comprehensive mechanism for restricting and supervising administrative power, and improving and developing a market economy supervision system to put government power in the “cage” of regulations.
The country needs to give impetus to and make space for its development through reform instead of following the old path. It must free itself from old ideological shackles, break the barriers of vested interests and deepen the reform of the economic system to turn the current economic crisis into an opportunity and lay a solid foundation for the establishment of a modern economic system.