Discover more from Pekingnology
What does the "national unified market" entail
More planning/intervention or less protection/fragmentation?
A Western diplomat asked a group of policy nerds in late April:
can you offer views on the unified market? what is this? (a) A step towards more state planning and intervention in the economy? (b) a continued crackdown on corporate titans to bring their expansionary ambitions (real or perceived) to heel? Or (c) a sincere attempt to address criticism of fragmented regional markets in China and uneven regulatory implementation?
Their question originates in the 中共中央国务院关于加快建设全国统一大市场的意见 (CHN) Opinions of the CPC Central Committee and the State Council on Accelerating the Construction of a Unified National Market (ENG) dated March 25 and published on April 10.
In the June 12 Big Read, the Financial Times also devoted a part to the national unified market
China’s provinces have long served as testing grounds for policies to foster business, commerce and innovation. But analysts worry that Xi’s government is sabotaging the policies of previous leaders who allowed that freedom.
China’s powerful State Council, or cabinet, codified this top-down vision for the country’s development in late March with a sweeping policy statement titled “Accelerating the Construction of a Large and Unified National Market”.
Guided by the lodestar of Xi Jinping Thought — the president’s political philosophy — the document promises “staunch support for the creation of a high-quality market system and high-level socialist market economy” and vows to ensure it is a “sustainable historical process”.
Bruce Pang, head of research at investment bank China Renaissance, said this dense thicket of party jargon pointed to a growing desire for Chinese provinces to march in lockstep with Beijing.
Much of this drive, he said, was built around an expectation China could soon be forced to become far more self-reliant if hawkish sentiment already prominent in Washington took hold in London and Brussels.
“Beijing is urging all levels of officials to focus on internal and domestic markets,” Pang said. “They’re not saying we’re closing the door [to global investors]. They’re saying if anyone else closes the door for us, we have to be well equipped and prepared.”
Now, with all due respect and without prejudice to other parts of the report, a few brief points before entering the main discussion on the unified national market:
The document was published jointly by the CPC Central Committee and the State Council and CPC Central Committee (as always) comes first and is certainly more “powerful”. The text above missed that.
That “dense thicket of party jargon” is now standard and routine in every Chinese policy and official speech. Singling it out without mentioning that background creates a perception for some readers that this is a unique case, which it isn’t.
For other perspectives of the policy, read on:
On May 20, 40 days after the publication of the policy of the national unified market, Xinhua interviewed unnamed officials at the level of (deputy) Director-General and several experts:
The relevant person in charge of the 体制改革司 Department of System Reform of the National Development and Reform Commission said that the major deployment of accelerating the construction of a unified national market demonstrated the firm determination to uphold and improve the socialist market economic system.
"Accelerating the construction of a unified national market can give full play to the advantages of the market in promoting competition and deepening the division of labor, optimizing the allocation of resources in a larger scope, and improving efficiency. At the same time, it helps to better clarify the boundary between the government and the market, speeds up the transformation of government functions, and constantly improves the unity of policies, the consistency of rules, and the synergy of implementation. " The person in charge said.
The relevant person in charge of the comprehensive planning department of the State Administration of Market Supervision said that accelerating the establishment of unified market system rules is conducive to stabilizing market expectations and enhancing market confidence; It is conducive to promoting business facilitation and improving market operation efficiency; It is conducive to maintaining and playing the role of market mechanism and improving the quality of economic development.
The relevant person in charge of the Department of System Reform of the National Development and Reform Commission said that the opinions clearly defined the important reform direction of building a unified factor market, and further deployed the major measures of market-oriented allocation reform of factors.
Building a unified national market and breaking local protection and market segmentation are the most important, difficult, and key points.
"To break the local protection and market segmentation, the key is to correctly understand the relationship between the local and the overall situation, so as to achieve a national big picture, unify the big market and smooth the domestic circulation." The relevant person in charge of the Department of System Reform of the National Development and Reform Commission said.
Clean up and abolish policies in various regions that hinder unified market and fair competition, such as local protection, market segmentation and 指定交易designated transactions; Comprehensively clean up all kinds of preferential policies that discriminate against foreign-funded enterprises and foreign enterprises and implement local protection; Abolish the prescribed practices that hinder equal access and exit according to law; Continue to clean up the bidding and purchasing field in violation of the regulations and practices of unified market construction ...
Unless explicitly stipulated by laws and regulations, enterprises shall not be required to register in a certain place; Do not set up obstacles for enterprises to operate or migrate across regions; Unreasonable and discriminatory access and exit conditions that restrict the free flow of goods, services and factor resources must be banned.
Opinions put forward four "clean-up" hard tasks and some hard requirements on what must not be done. The opinions say there will be a updated list of problems of improper intervention in the construction of a unified national market, and there will be a system for public notice of problems and their rectification.
China has a population of 1.4 billion and its per capita income has exceeded US$ 10,000, which means that China has the prerequisites to build a vast domestic market. However, so far, China's domestic market has been severely fragmented, and the cross-regional flow of various factors is facing obvious obstacles. This not only restricts the free flow of domestic factors and market-oriented pricing, but also damages the optimal allocation of factors and the maximization of welfare…we must break the restriction of factor flow and the pattern of domestic market segmentation, and promote the free flow of factors and the construction of a unified domestic market.
The author believes the deepest obstacle to the flow of factors and the construction of a unified big market lies in the fact that the local government performance evaluation system places too much emphasis on indicators such as GDP growth and public budget revenue. Under this assessment system, the local government is naturally willing to gather all kinds of elements within its own territory, while restricting the flow of local elements to other regions.
A typical example is what kind of resistance a big company will face if it wants to move its headquarters across regions. In addition, if a financial institution invests most of its financial resources outside its territory, it may also face great resistance from the local government.
Therefore, in order to promote the free flow of factors and build a unified domestic market, it is necessary to change the incentive mechanism faced by local governments; In order to change the incentive mechanism of local governments, it is necessary to change their performance evaluation system, appropriately dilute indicators such as GDP growth and public budget revenue, and include indicators such as market-based pricing of factors and cross-regional flows.
Just imagine, IF all kinds of elements can REALLY break through the shackles of various systems and mechanisms and become free-flowing in the coming period of time, the elements will definitely not be evenly distributed across the country, but may flow into specific regions at an accelerated rate. The re-concentration of elements is expected to promote a new round of regional integration in China.
The author believes that in the next 10 to 20 years, Guangdong-Hong Kong-Macao Greater Bay Area, Yangtze River Delta, Beijing-Tianjin-Hebei, Middle Triangle (Zhengzhou, Hefei, Wuhan) and West Triangle (Chengdu, Chongqing, Xi 'an) will become the five fastest-growing regions in China.
Jia Kang 贾康, former Director of Research Institute for Fiscal Science (RIFS) under the Ministry of Finance and member of the 11th and 12th National Committee of the CPPCC, said in a speech at a June 17 forum which is similar to his published article on 中国金融 China Finance, a publication under the central bank
I would like to emphasize the basic thinking and the spiritual essence of the document from the following five aspects.
First of all, to unify the protection of all legal property rights without discrimination. Only when they are equal before the law can they be unified…It is not possible to evade the relevant issues because, in real life, the property rights of some enterprises and some people have actually been violated.
Second, this unification should be achieved in such a way that all factors of production flow without barriers, or at least flow based on sufficiently low barriers, to join the market competition…We also don't have to deny that in China's realities, we must overcome significant difficulties: to make elements flow as freely as possible without barriers, we must overcome the 过度垄断 excessive monopoly, 不当垄断improper monopoly, 条块分割 compartmentalization originated from administrative power, and 市场壁垒 market barriers, which have been deeply hated by people but are difficult to completely eliminate.
We also have to admit that the market, in reality, is not the perfect competition theoretically assumed - not only in China but also in developed economies and the United States, the world's largest power. Therefore, there will be some restrictions - some necessary "access" restrictions. For example, environmental protection requires a technical standard…
We have to admit this necessity, but we cannot blindly raise the threshold. In particular, when there is a threshold, the actual exercise of administrative power should not be based on the closeness of the relationship with the government…
We should eliminate the excessive administrative monopoly under the old system… We must continue to deepen the reform in order to eliminate market fragmentation…
There are still some cases where enterprises are controlled by administrative subordination, which is not conducive to promoting the market-oriented flow of factors in accordance with market principles. To eliminate such administrative subordination control, the implication is to eliminate some excessive government intervention in some enterprises and excessive government care for some enterprises that originated from administrative subordination control.
[Note: Not all state-owned enterprises in China directly answer to the central government. Many of them answer to provincial, municipal, and even county governments, making them province/city/county-owned enterprises. If you want to dig it further, many of them answer not directly to their respective governments per se, but to the State-owned Assets Supervision and Administration Commissions (SASAC, which is just a government department) or other Departments in their respective governments. This may seem trivial but in practice that makes a big difference in who truly - and importantly, directly - wields influence over them.]
Third, "unification" must facilitate a global industrial chain that aligns with an international market in globalization, so as to better align with the international market with a high level of overall openness. For example, we have clearly accepted the internationally accepted concept of "competitive neutrality" in previous years. This expression, in fact, is based on the recognition that we have repeatedly stressed the need for fair competition and has completely opened up the use of concepts in the international common language.
The competitive neutrality obviously implies that we must be more proactive in docking with the commercial standards system formed in the course of hundreds of years of development of the global market economy. Moreover, I also have a point of view that "competitive neutrality" must logically be closely linked to "ownership neutrality".
The fourth point: this unification should be unified in the face of China's national conditions and some special problems in the formation of our Chinese traditions and characteristics. We should reform the institutional arrangement of urban-rural separation…
On the real urbanization level in China now, we cannot look at the 65% urbanization rate of the resident population. The first thing to see is that the urbanization rate of the registered population is only 45%. In other words, the majority of the 1.4 billion Chinese people have not yet obtained registered residence/household registration in a city.
We will have to make up for the shortcoming in the future, so that the nearly 300 million or so members of the society known as "migrant workers and their families" who have been in cities for decades (many of them have worked and lived in cities for more than a decade or two) can obtain urban residence/household registration and enjoy equal and non-discriminatory access to basic public services faster and more smoothly.
In the next few decades, China will continue to accept nearly 400 million members of the rural community transit to urban residents, and make it easier for them to obtain urban household registration. Finally, all the household registration boundaries should be broken down. All the citizens of the People's Republic of China shall no longer be divided into urban or rural, based on which basic public services differ.
We must admit that there are still hundreds of millions of people in the cities who can't get their household registration and can't enjoy the fruits of equal access to basic public services since the reform and opening up. It's not intentional, but our development is not enough, and our supply capacity (of the basic public services) hasn't reached that level.
Finally, I would like to briefly emphasize a basic understanding, that is, the "unification" of such a unified large market and the orderly competition, as mentioned in the policy document, focus on the construction of the market environment, and are by no means on the government's command of the behavior of the market entities.
陆鸣 Lu Ming, Distinguished Professor of Economics at Shanghai Jiao Tong University and director of its Shanghai Institute for National Economy, told 中国金融40人论坛 China Finance 40 Forum (CF40), a think tank in the field of finance and macroeconomics.
He believed that among all factors, the free and unhindered flow of labor across regions is the most critical. In addition, Lu said that some people completely misinterpreted the opinions as China’s return to planned economy. As the free flow of goods and factors is the universal characteristics of a market economy, measures proposed in the opinions are market-oriented to promote the development of China’s domestic market.
As China now faces the problems of an aging population and low birth rates, the total labor supply is slowly declining. Therefore, it is particularly important to better utilize labor resources.
Facilitating the free flow of labor across regions is one way to do so…
Drawn by the effect of economies of scale, if labor force can flow freely, it will naturally concentrate in areas with better economic development such as China’s coastal areas, thereby realizing higher productivity. For other areas that experience a population outflow, industries in these areas will gradually focus on agriculture, tourism, natural resources, etc., which will not need too much labor force.
The “Hollowing out” of areas with population outflow is an emotionally charged expression. Would we call it “hollowing out” when the per capita farmland in developed countries covers over a hundred or even hundreds of acres? If we look at the phenomenon objectively, population outflow means higher per capita possession of resources, which can help increase per capita income.
The circulation process of factors will even out resource distribution among regions in a per capita sense. So we don’t need to worry too much about the hollowing out issue.
Current data shows that China has seen a simultaneous concentration of economy and population in a few regions and a narrowing gap of per capita GDP among different regions.
At this point, central and provincial governments need to strengthen transfer payments to regions with population outflow so as to promote relative equalization of public services and quality of life among different regions.
For those who want to migrate to other regions, the measures proposed in the opinions are to reduce the institutional barriers and give them the choice to leave or not. For those who do not leave, the government should ensure that these people can also live a good life through measures like equalization of public services and institutional reforms. This is what we should do.
I think there are three important measures. First, eliminate some institutional barriers that hinder the cross-regional flow of factors. Most importantly, the restriction of the household registration system should be gradually lifted. Second, unify some policies across the country, such as tax policy. Apart from free trade zones and free trade ports, some places adopt different preferential tax policies like tax breaks, making it difficult to achieve maximum efficiency in the allocation of factors. Third, unify standards on market access.
For example, in a large country like China, if each province and city have its own regulations and market access rules, the country is not a market economy, because it is not a unified market. If the government introduces unified standards, the market can play a decisive role in resource allocation and the government can play its role better, as has been proposed since the 3rd plenary session of the 18th Central Committee of the Communist Party of China.
Planned economy refers to the system where prices that used to be decided by the market are intervened by the government and production factors that used to flow based on market demand are blocked by the government. The household registration system is the product of planned economy.
Now we are reforming it. I think the government should pay attention to these misinterpretations and make people feel that we are heading towards market-oriented reform in practice so as to dispel people’s concerns.
Finally, a Commentary from the East Asian Institute, National University of Singapore, by LI Yao, Sarah Y TONG and ZHOU Na
The concept of a unified market is not new. In the last two decades, China has introduced a series of efforts devoted to break down market barriers across regions and related policy documents have also been issued. China’s highly centralised political structure is also conducive for the execution of a unified market regulation, making such a guideline redundant.
However, despite the highly centralised political structure, economic decentralisation, the main force driving China’s growth since the late 1970s, has led to local protectionism. The new initiative indicates that past efforts to reduce/lower market barriers have not been effective.
The questions are why now and what is new. Developments in the last few years have made a unified national market a prerequisite for China’s current dual circulation strategy, in which “domestic circulation serves as the principal part while the internal and external circulations are reinforcing each other”. Evidently, a unified and effective domestic market has yet to be established and great efforts are required to accelerate its construction. The measures introduced and the progress made in building a unified market have added the much-needed momentum to boost China’s growth as the country faces strong headwinds and growing risks in 2022, as warned by Premier Li Keqiang in March.
As such, answers to “what is new” seem more significant. Indeed, the Chinese government has since the early 1990s issued numerous policy directives to eliminate market barriers and nurture the development of a robust domestic market throughout the country. What, if any, distinguishes the latest initiative from the previous ones? At the level of guiding ideas, the current Guidelines incorporates significantly different concepts and approaches for market development. More specifically, the Guidelines aims to cover market development of the entire production process, while past efforts focus heavily on entry barriers for products and monopolistic behaviours of local enterprises, especially state-owned entities. An imperfect portrayal of the shifting policy objectives is the move from a free trade arrangement across regions to a common market with unified rules and regulations.
To facilitate a comprehensive and systemic rebuilding of China’s domestic market, the Guidelines has gone far beyond product market integration and enhancing anti-monopoly regulations to cover more areas such as factor markets, modern circulation/logistics system, intellectual property rights, related institutions and facility building. Such an approach has advantages in addressing problems more systematically and consistently with the inclusion of a more complete market process and in adjusting the roles of central and local governments in the market place, especially in reducing local government interventions.
Efforts can be made in two aspects to build a unified national market: (i) further liberalise existing markets and integrate the currently fragmented markets; and (ii) establish unified institutional and physical infrastructure, particularly for emerging new markets. Indeed, the Guidelines has proposed promising and urgent action plans in these aspects throughout its full text of eight parts.
The book China’s Drive for the Technology Frontier: Indigenous Innovation in the High-Tech Industry examining China’s industrial policy in technology, officially came out yesterday July 7. The author is 李寅 Yin Li of Fudan University and it’s published by Routledge. Read an exclusive excerpt on Pekingnology and maybe get a copy.
A hand-written, Chinese-language thank-you note was left by then Prime Minister Abe Shinzo at a hotel in Hangzhou, China, in 2016.