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How to Give Effective Play to the Decisive Role of the Market in Resource Allocation

By Liu Shijin 2015-07-23

By Liu Shijin

Proposing to give play to the decisive role of the market in resource allocation is a new breakthrough made by the CPC in its understanding of the law of building socialism with Chinese characteristics, and a new achievement of the application of Marxism in China as well. It marks that the socialist market economy has entered a new development stage.

A new positioning of the market role is made in order to deepen the reform with the times, which also shows the resolution of the new central leadership to advance market-based reform and improve the socialist market economic system.

The proper handling of the "invisible hand" and the "visible hand" rests on thoroughly implementing to the letter the guideline proposed at the Third Plenary Session of the 18th CPC Central Committee and handling with ease the relations between the government and the market.

I. The Repositioning of the Market Role Is in Line with Deepening the Reform and Keeping up with the Times

The reform in China has been oriented by the market since the very beginning. In particular, after the CPC set the goal to build a socialist market economic system and proposed to give play to the fundamental role of the market in allocating resources at its 14th CPC National Congress, the market-oriented reform in China has witnessed great progress and the socialist market economy has been initially built. Nevertheless, the market system is yet to be improved. The problem of improper and excessive government intervention still prevails. For example, the market is not open wide enough, and improper restrictions on market access exist in some fields. As a result, the privately-run enterprises could hardly get equal market opportunities; state capital outside the industry can hardly enter the railway or oil sectors either; and some fields are open to foreign-invested enterprises, but closed to privately-run enterprises. The sluggish development of the factor market is another prominent problem. For example, the reform of rural land system is not yet in place; state-owned and collective-owned lands enjoy different rights; the government exclusively monopolizes the primary market for urban construction land. Consequently, they have led to land price distortions and inefficient allocation of land resources, which are prone to cause social conflicts.

The Chinese economy is undergoing a transitional period, which makes an urgent request to display the role of the market more effectively. In the past two years, the Chinese economy has started to slow down and begun to shift from a high-speed growth to a medium-high-speed growth. Against such a backdrop is economic restructuring and the conversion of the growth momentum. To be specific, the economic development would shift from the past investment and industry-based one with more overseas demands to the present consumption and service sector-based one with more domestic demands. In terms of growth momentum, it will shift from relying more on factor input and imitation of foreign technologies to relying more on the promotion of factor productivity and the innovation drive. Changes in the economic structure and the growth momentum will lead to corresponding adjustments of the supporting institutional conditions. For example, the government enjoys certain advantages in the construction of infrastructure, but its advantages may not be that strong when it comes to innovation and technical upgrading. Excessive government intervention would produce negative effects on many cases.

For another example, the development of industry is mainly related to the contacts between men and machines, but when it comes to developing the service sector, it is mainly related to people to people contacts and that needs to mobilize greater enthusiasm and creativity of the enterprises, especially small enterprises and the individuals, and bring into play the role of market mechanism. So the transitional period for economic growth has made it necessary for the deepening of reform and the formulation of a series of institutional mechanisms adapting to the new economic structure and growth momentum.

The promotion of market-oriented reforms is the demand in line with the new situation of opening up and building a high-level market economy. In China, reforms have been carried out along with opening up; and the two support and promote each other. Over the years, China has taken an active part in global competitions. Superficially, these competitions are related to products, technologies and industries, but in essence they are related to mechanisms and systems. With a sense of crisis awareness, China is eager for reforms, and so are the other countries. Therefore, China should not only care about its own reforms, but also observe how other countries make reforms so as to enhance its institutional advantage through global comparison as well as competitions. In recent years, the US-led Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP) programs have tried to develop new trade and investment rules to squeeze China and the other emerging economies in a strategic manner. Faced with such new situation and new challenges, China does not have to and cannot shy away from such challenges, but should willingly turn external pressure into the driving force for deepening domestic reforms. It should not only accelerate the improvement of its market economy, but also, in light of the external changes, seize a strategic leading position in the world in building a high-level market economy.

II. The Market and the Government Should Interdepend with and Complement Each Other Instead of Trading off and Taking Turns with Each Other

Proposing to give play to the decisive role of the market in resource allocation is a new breakthrough made by the CPC in its understanding of the law of building socialism with Chinese characteristics, and a new achievement of the application of Marxism in China as well. It marks that the socialist market economy has entered a new development stage. To develop the socialist market economy is to guarantee fair competitions with market rules; provide the right signals and incentives of resource allocation with market prices; and promote the survival of the fittest, economic transformation and upgrading through market competitions. The decisive role of the market in resource allocation cannot be replaced by other mechanisms.

In fact, highlighting the decisive role of the market is more importantly forced by existing problems. Although market forces have achieved a great development these years, the government still controls a lot of resources directly. Government force can be felt everywhere in economic activities, and always enjoys the final say. People would inevitably raise the question, i.e., who is superior, the government or the market?

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