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Reform means a bigger role for market
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The role of the market in China has officially switched from “basic” to “decisive,” and is crucial in understanding the reform agenda.
Tuesday’s communique after the Third Plenary Session of the 18th Communist Party of China (CPC) Central Committee stressed profound economic reform, with the market to play the decisive role in allocating resources.
The previous socialist market economy — official policy since 1992 — attributed only a “basic” role to the market.
The signal applies to a range of sectors including energy, finance, land and services, and is intended to invigorate businesses.
Zhang Liqun, an analyst with the Development Research Center of the State Council, said the previous “basic” role of the market didn’t exclude anything that might have been involved in the flow of production or allocation of resources.
Open market
“Tuesday’s communique suggests the role of the market in the Chinese economy will be enhanced,” he said.
A prerequisite to allowing supply and demand to allocate resources is an open, unified market with orderly competition, according to the communique. Market barriers must be removed, and regional protectionism and local government intervention will be curtailed. Pricing in areas such as capital, energy and foreign exchange will also be decided by the market.
Qu Hongbin, HSBC’s chief China economist, believes that mechanisms for energy prices, exchange rates, interest rates, land prices and the price of services may all be about to change.
Specific details have not been provided, but a unified market for both urban and rural land and an improved financial system are definitely in the pipeline. The central work team announced on Tuesday it will steer reform in a coordinated way and tackle headwinds, Qu said.
State-owned enterprises will likely face tougher times as they compete with private businesses, analysts said.
The communique, which sees both public and private sectors as important components of a socialist market economy, promised that private enterprise will be “encouraged, supported, and guided.”
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