By Liu Shijin, Lu Zhongyuan, Long Guoqiang, Wang Xu, and Liu Shouying

I. It Is More Important to Nurture An Effective Market Environment than Industrial Policies.

After painstaking and unremitting efforts for a long period, China's entry into the World Trade Organization has entered into the final stage. WTO entry, fundamentally speaking, is an issue of countering opportunities and challenges brought about by economic globalization. In terms of the challenges, the most direct and outstanding is the challenge to the management system and behavior modes of the government. In terms of the form, the challenges facing the government after the WTO entry are mainly reflected in the management system involving foreign interests. But further analysis will find that the problem mainly lies with the economic system. In other words, the management system involving foreign interests is merely a special reflection of problems with the entire economic system. Therefore, under the background of China's accession into the WTO, it is necessary to adjust the system and policies involving foreign interests not in compliance with the WTO rules, and on the other hand, it is also most important that great efforts should be made in deepening the market-oriented reforms in the economic system and improving the socialist market economic system.

In this process, the positioning of the government role is crucial, and one of the fundamental issues is the relationship between the government and the market. There are two different policy orientations concerning this issue. One orientation stresses government intervention, that is, the government, under the market economic system, may continue to play its important role in resources allocation by resorting to tools as direct and forceful intervention and industrial policies so as to improve the international competitiveness of domestic industry. Advocates of this policy orientation often quote Japan, South Korea and other East Asian countries and regions as their example, indicating that the government could at least substitute some of the role of the market. Another policy orientation stresses, mainly or to the maximum, the role of the market. The government continues to be important, but its role shall be mainly reflected in nurturing, improving and safeguarding the effective market environment.

Because the current Chinese economic system still bears the extensive influence of traditional planned economy, the stressing the policy orientation of government intervention could easily be accepted. Different from countries such as Japan and South Korea, our state-owned economic sector still takes a lion's share in the economy, the market role is still restricted by many factors, overstress on the government’s forceful intervention and industrial policies could easily evolve into protection for backward enterprises (mainly state-owned enterprises) and industries, and affect the normal nurturing of the market and fair competition, thus, weakening the competitiveness of the entire economy. Under the new opening pattern, particularly after the Asian financial crisis, the practice of supporting the development of some enterprises and industries through forceful government intervention and industrial policies shall draw a lesson from the experiences of some East Asian countries and regions, and it is necessary to have a somber understanding about this issue.

In comparison, it is more important and fundamentally meaningful to create an effective market environment. China's participation in the process of economic globalization shall focus on bringing its comparative edges into full play. To transform the potential comparative advantages into actual competitive advantages, the most important means is to cultivate an effective market environment. The competition of all countries in the global system of division of labor, in essence, is the effective market competition of the countries. When we stress the market role, this does not mean that we deny the role of the government, but we call for a fundamental change of the focus and method of the government role. The government shall be "market friendly," and the government shall place its attention and the starting point of playing its role clearly on creating an effective market environment. From this point of view, the effectiveness of the market reflects the effectiveness of the government, and whether or not a government is efficient, to a large extent, through the efficiency of the market.

In different countries, market economy and open economy could be substantially different due to different national conditions. Different from countries with matured market economies, the government in China at the current stage not only needs to safeguard the market, but also needs to participate in "cultivating" the market, because there exist several important factors constituting China's special national conditions. First, China is still a developing country and in the process of industrialization, and more than half of its population and laborers make a living in the agricultural sector. At the same time, it also faces with the opportunities and competition pressure brought about by the information age. Under such a situation, the development of market could not be freed from limitations of industrialization level, and the responsibility assumed by the government is apparently different from those of the developed industrial countries. Second, China, as a vast and most populous country, still has an outstanding problem of imbalanced social and economic development. After the reform and opening up policy was adopted, all regions have developed rapidly, but regional gap, particularly the gap between the southeast coastal areas and the central and western regions, was not narrowed but widened. Correspondingly, there also exist differences in market development, social organizational structure, population quality and cultural traditions among the regions. Therefore, the government assumes an arduous responsibility in safeguarding social justice and promoting coordinated development of the regions, and this is very unique among all countries in the world. Third, although China's economic transformation has made significant progress, this process has not been completed yet. The economic system transformation, on the one hand, calls for a transformation of the government functions and a great reduction of administrative intervention, on the other hand, it still has to rely on the government to play some special role, such as promoting the strategic reorganization of the state-owned economy and establishing the social security system.

It is obvious that comparing with countries with matured market economy, the aforementioned several factors call on the government to play a bigger role instead of restricted to the common understanding of making up the market defects. It is also obvious that there is a great uncertainty when the government plays its role, and it is likely to lead to the consequence that the role runs counter to what has been planned. In this process, the most important is not "how big" the government role is, but the rationality of its “positioning” and "scope."

II. Possible Priorities for Reform in the short term

In order to maintain the initiative after the transitional period of the entry into the WTO, the following important and relatively mature fields shall be chosen for reforms in the near future under the pretext of a clear fundamental orientation for government to play its role.

First, according to the commitments made for the WTO entry, completely sort out existing laws, regulations and policies to improve the unity and openness of the laws and regulations. All laws and regulations that run counter to the WTO rules or are not in conformity with the commitments shall be revised and improved. To be specific, to gradually eliminate non-tariff trade barriers according to the commitments of open market, lift restrictions on access to some fields on foreign investors, remove the compulsory requirements on enterprises with foreign investment concerning localization rate, export ratio, foreign exchange balance and technology transfer, apply national treatment for foreign funded enterprises and foreign products and strengthen the protection of intellectual property rights. The government shall exercise its function in economic administration according to the unified laws and regulation open to the public instead of internal documents, and constantly improve the investment environment. In fact, foreign investors and traders would like to see China develop a standardized, transparent and foreseeable investment and trade environment, and do not rely excessively on the non-standard, non-transparent and unforeseeable preferential policies. If China had to rely on preferential policies to attract foreign investment at the initial stage of reform and opening up, it’s now the time for the government to establish an investment and trade environment in compliance with international norms to heighten the level of the opening-up policy.

Second, to create a fair competition environment for various legitimate market players focusing on an unrestrained environment or lifting access restrictions. One of the most fundamental principles of the WTO is the non-discriminatory principle, and "national treatment" shall apply to all enterprises within the country. This principle is usually targeted at the fact that enterprises with foreign investment enjoy an inferior treatment compared with domestic enterprises. Among domestic enterprises, however, particularly between the state-owned and non-state-owned enterprises, there is also a clear difference in their treatment, therefore, it is urgent to treat all domestic enterprises as equals and apply the "national treatment" first. The market access restriction on non-state enterprises is an outstanding problem. According to surveys, of more than 80 fields to which the state-owned enterprises have access, enterprises with foreign investment could have access to more than 60 and the non-state domestic enterprises could have access only to about 40. The market access difference is not only reflected among enterprises of different ownership, but also among regions and administrative departments, thus seriously affecting fair competition. Logically speaking, to apply the national treatment to all domestic enterprises is the precondition to apply national treatment to all enterprises with foreign investment after the WTO entry. "Whenever enterprises with foreign investment are to be granted access to an industry, domestic enterprises shall be granted such access first," and this is the most basic requirement. Therefore, loosening or lifting restrictions on market access shall be the point to start with and the priority, this will be a great step forward for creating a fair domestic competition environment. Excluding strict access restrictions on a few industries that have a bearing on the state security and special requirements, other industries, particularly the competitive industries, shall in principle be open to all, and various ownership, regional, department, announced or non-announced restrictions shall be removed. Even if those industries that are naturally monopolized shall also be open to all with competitive capability through the method of auctioning "special operation license". For some industries that have special requirements, accession conditions such as capital, technology and creditworthiness may be proposed, but such conditions shall be applicable to all potential parties.

Third, sorting out and greatly reducing the administrative examination and approval procedures by the government. The increase of administrative examination and approval procedures is a special phenomenon evolved after the reform of the traditional planned economic system, and is the important form of government intervention into the economy in the current stage. Although it is inevitable to install government examination and approval procedures, many of the existing examination and approval procedures bear the characteristics of the planned economy, in other words, they are the planned economy demonstrated in other forms. Furthermore, judging from the effect of such examination and approval procedures, the actual effect is far away from achieving the designated goals. For example, numerous administrative redundant construction projects were all examined and approved by the governments at various levels, and many failed projects were also "examined and approved" by the government. Therefore, it is a task that must be carried out in the reform of government to sort out and greatly reduce the administrative examination and approval procedures, and it is also an indication of the degree of the transformation of government functions. It is necessary, from the point of view of the transformation of government functions and in accordance with the rational, effective, open and responsible principles, to conduct a thorough sorting of the existing examination and approval procedures. It is a "must" to identify which are basically correct and may be kept, which are necessary but shall be improved, which have bigger negative effect and shall be eliminated, and which are necessary to remove but call for supporting measures. On this basis, it is imperative to remove and simplify the existing administrative and approval procedures. For those items subject to examination and approval that are to be kept, it is imperative to clearly state the procedures, time limit and responsibility, to increase the transparency, improve the supervision mechanism and to make the necessary examination and approval procedures conducive remarkably to improving the efficiency.

Fourth, to vigorously rectify the market order in accordance with the requirements of creating a unified, open and fair competition domestic market. To create a unified, open and fair domestic market is the precondition for bringing the big-country competition advantage into full play, and also the basic requirement of the socialist market economy. We shall, on the basis of the Constitution and the Legislation Law, further clarify and define the limit of powers for the central government and local governments in terms of legislation and administration, and under the precondition of bringing the initiative, voluntariness and creativity of local governments into full play, shall give the central government its due authority. It may be considered that special organizations be set up with the National People's Congress and the State Council to strengthen supervision by the central government over legislation and administration by local governments, and to timely discover and revoke local regulations, rules and policies that run counter to state laws and regulations, and to guarantee the consistence of state laws and the implementation of administrative orders. It is necessary to draft the Antimonopoly Law as soon as possible and to amend and perfect the Law Against Competition by Inappropriate Means to check the tendency of local protectionism by legal means and guarantee the unity and integrity of the domestic market. At the same time, it is necessary to incorporate abstract administrative acts of the administrative bodies into the scope of administrative litigation, so that the administrative regulations, rules and other standardized documents by the administrative departments of governments at all level are scrutinized for their legality. In respect of government regulations, rules and policies contradictory to the state laws and regulations, courts shall have the power to declare them invalid.

Fifth, to quicken the pace of strategic adjustment of the state-owned economic distribution by starting with the transformation of large state-owned enterprises. In recent years, the transformation of small and medium-sized state-owned enterprises has made important and substantial progress, and the most acute problem now rests with the large state-owned enterprises. Usually, the assets of large state-owned enterprises are valued at several hundreds millions yuan, billions or even dozens of billions yuan, therefore, the methods of shareholding system or acquisition by private capital applied to small and medium-sized enterprises are impossible to be applied to them, because non-state capital in China has not yet matured and big enough to acquire large enterprises. Therefore, it has become an important factor whether or not investors capable of taking the place vacant due to the withdrawal of state capital from large enterprises could be found. Another factor that should not be ignored is that many large state-owned enterprises are characterized by their detailed division of labor globally. Facing fierce international competition, the system transformation of enterprises shall, on the one hand, attract new and big investors, and on the other hand, shall also solve the problems as technology sources, market positioning and management upgrading. Therefore, it is most ideal that new investors have industrial backgrounds capable of competition. To be specific, the methods such as joint ventures, contractual ventures, listing and debt-equity swap with transnational corporations in the leading positions in such fields and joint venture with large non-state domestic enterprises may be chosen to promote the system transformation of large state-owned enterprises.

Sixth, to speed up the reform, reorganization and transformation of those industries with the characteristics of natural monopoly and public utility. These industries include telecommunications, electric power, petrochemical, railway and civil aviation industries. Their features are high ratio of the state economy, traditional planned economy as well as necessary and possible inadequate competition, and most of them are big national companies applying the management method of the combination of enterprise management and government administration. The priorities of reform in these industries are: on the one hand, to introduce competition, and new market player if it is possible, to carry out corporate transformation in the state-owned enterprises, to withdraw state capital appropriately, and to realize the separation of enterprise management with government administration; on the other hand, to form, in accordance with the natural monopoly features of these industries, standard and efficient mechanism complying to the requirements of market economy. If the reforms of these industries could make significant progress, it will be of great significance to the overall drive of the reform of the national economy and the transformation of government functions.

Seventh, to strengthen the establishment of social security system. Along with further opening of the domestic market and the deepening of state-owned enterprises reform as well as the increasing adjustment of the economic structure, market competition will be increasingly fierce, and the pressure of laid-off workers and unemployment will grow. Considering the population structure and the anticipated increase of life expectancy in China, the trend of aging population, usually occurring in developed economies, has emerged in China, a big developing country. At the same time, the waste resulted from urban free medical system and the lack of doctors and medicines in the rural areas have formed a sharp contrast. This calls on the government to quicken the reform of the welfare system that covers mainly state-owned units in cities and to establish and improve a nationwide social security system, including pension, unemployment insurance and medical insurance, thus establishing a social security net for the operation and development of the socialist market economy. At present, we shall, in line with the framework of social security fund and personal account, actively implement various reform measures of the social security system. It is urgent to expand the coverage of pension and unemployment insurance, to increase the payment and contribution rate so that all the enterprises in China (including enterprises with foreign investment and private enterprises) perform their social security obligations according to law. It is imperative to ensure that pension fund and basic living allowance for laid-off workers are paid timely and in full amount, and the minimum living security system for urban residents is improved. The reemployment centers set up in the state-owned enterprises shall be abolished as soon as possible and they shall be transformed into the socialized unemployment insurance. It is also urgent to explore the pension and public medical service system for rural residents.

Eighth, to speed up the legislation of administrative procedures, standardize and regulate the administrative powers and implement the strategy of governing by the law. At present, legal framework on the procedures of government administration is far from perfect in China, its scope of application is limited, thus leading to few administrative procedure restrictions on government administrative actions, worsening the administrative corruption and affecting the improvement in the efficiency of government administration. Therefore, it is a "must" to enact unified national administrative legislation procedures, and by the means of setting up and improving the administrative hearing system, open system, explanation system, file-consulting system, time limit system, agency system, emergency handling system, proxy system, joint decision system and administrative consultancy system, to strengthen the procedure supervision over administrative behavior, improve the democracy and transparency in the process of government administration, reduce administrative corruption, eliminate bureaucracy and improve the working efficiency. To support the reform measures, the power for courts to accept and handle administrative cases shall be expanded, the principle of “violation of statutory procedures leads to invalidity of the administrative behavior” shall be established so as to strengthen the constraints and supervision over administrative powers by judicial powers.

Ninth, to speed up the legal system reform and increase judicial independence so as to provide timely and impartial legal services for the efficient operation of the market economy. At present, judicial activities in China have, to a certain extent, such phenomena as judicial injustice, judicial corruption and local protectionism. Reforms of the judicial system, particularly the court system, are urgent for executing the rule of law and constructing the rule by law in the society and the economy. It is necessary to strengthen the vertical management over courts and to minimize intervention into judicial activities by local Party committees and people's congresses. It is necessary to reform the grading system of judges and to guarantee judges to exercise their judicial power independently. The selection and appointment system of judges shall strictly follow the standards set in the Judges Law. Open examination and selection method may be adopted to attract more law professionals into the judicial force and improve the quality of judicial personnel. The judicial trial procedures of courts shall be further reformed so as to strengthen open trial system, eliminate non-standard operations and leave little chance for judicial corruption.

Tenth, to improve the efficiency of administration and the quality of staff, and build up competency, honesty and efficiency. Against the background of the transformation of government functions, improvement in administrative efficiency is crucial. In order to effectively improve the administrative efficiency,