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October 29, 2013

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Home » Opinion » Chinese Views

Local push for GDP hurts unified national market

Source: Xinhua | October 29, 2013, Tuesday | Print Edition

IN September, China issued a directive to promote new energy automobiles, requiring that no less than 30 percent of cars purchased should come from non-local manufacturers.

There should be no discrimination in favor of domestic brands and no squeezing out of nonlocal companies, according to the directive.

The directive is the government’s latest effort to improve and integrate the regionally fragmented domestic auto market, in which local authorities’ obsession with regional prosperity has fueled a rise in protectionism. The aim is a unified market with free flow of capital, labor, and goods.

Local protectionism has increased since 2008, when the international financial crisis dealt a blow to overseas demand, prompting local authorities to encourage the purchase of domestic products to boost growth. Although protectionism may help lift local economies in the short term, the fragmented and distorted market has spawned problems such as higher operating costs and overcapacity in the wider economy, undermining economies of scale of China’s huge market, said Zhou Hongchun, a researcher at the Development Research Center of the State Council, a state think tank.

Overcapacity

China’s ongoing efforts to eliminate outdated capacity has been resisted by GDP-oriented local governments accustomed to chasing economic growth by investing in high-cost, low-tech capacities.

These actions limit the growth of the entire economy, which has already suffered from weak overseas demand.

As the central government reins in overcapacity in traditional manufacturing, emerging industries have become the new investment target for local governments.

Wang Xiangdong, general manager of Yingli Solar Co Ltd, said some local governments have encouraged production of solar panels, which consumes a lot of energy, regardless of current capacity and market conditions, just because it can contribute to local revenue.

With 7.7-percent growth reported in the first three quarters of the year, a slowdown from the double-digit growth over the past 30 years, China’s new leadership is more accepting of slower growth to allow for reforms, which including the promotion of a unified market mechanism, analysts said.

During a visit to central China’s Hubei Province in July, President Xi Jinping stressed that China will accelerate efforts to form a unified and open market mechanism, eliminating barriers and improving the efficiency of resource allocation.

Hopes for a more open and fair market have been pinned on the upcoming Third Plenary Session of the 18th Communist Party of China Central Committee in November. It is expected to roll out a comprehensive reform package.

Further reform is necessary to improve the economic and political system, which will facilitate a free flow of labor, components and production factors, experts said.

Local governments should ease their administrative power and restore the role of the market to integrate the national market as a whole, said Kuang Xianming, head of the economic research center at the Hainan-based China Institute for Reform and Development.

Free flow of labor

Meanwhile, performance assessment of local governments by the central government — traditionally based on boosting GDP — should be altered accordingly. “The role of GDP in the assessment should be reduced and more focus should be put on work that improves public services and social management,” Kuang said.

Moreover, various systems, including household registration, land allocation and fiscal systems, have contributed to regional fragmentation of the domestic market, said Ding Yuanzhu, vice director of the department of policymaking consultation at the Chinese Academy of Governance, a state think tank.

Ding said that the labor force has been unable to move freely between rural and urban areas, between government institutions and enterprises, and between provinces, due to a rigid household registration system, inconsistent personnel systems among industries, and uncoordinated medical and elder care mechanisms across the country.

At a March news conference held just after the new leadership was established, Chinese Premier Li Keqiang vowed to reduce a third of the over 1,700 items requiring central government approval. Around 20 items have been exempted so far.

Local government approval is required for around 17,000 administrative approval items; they have begun to follow suit in cutting red tape.

 

Chinese Views


 

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