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Business / Opinion

Keep the reforms rolling

By Wang Xiaoguang (China Daily) Updated: 2014-02-13 07:36

Those producing immediate effects should be carried out first, with a progressive approach adopted for the more difficult

China's economy has entered a new development stage that requires the central government to make significant strategic policies to address the severe external and internal challenges the country faces. This means comprehensively deepening reform to re-energize the economy and avoid falling into the middle-income trap.

The Decisions on Major Issues Concerning Comprehensively Deepening Reforms released after the Third Plenum of the 18th Central Committee of the Communist Party of China shows there will be a new round of reforms, the most significant of which will be granting the market a "decisive" role in the distribution of resources and reform of the economic system.

When reform and opening-up were first launched, the authorities did not intend to radically change the dominant role the government played in the distribution of resources. In the 1980s it was understood that the government regulates the market while the market guides enterprises. Deng Xiaoping's speech during his Southern Inspection Tour was a great breakthrough in understanding that the market as well as central planning was indispensable for the distribution of resources.

Based on this understanding the Third Plenary Session of the 14th Central Committee in 1993 determined that under national macroeconomic control the market plays a "basic" role in resource distribution. Later the expression "under national macroeconomic control" was deleted. A basic role means commodity prices have been market-oriented while the elements of production have remained under strict government control.

However, as China's economy and market system developed, this dual economic structure has resulted in insufficient competition and unfair and distorted resources distribution. The new leadership has addressed this fundamental problem by appropriately identifying that the market plays a crucial role in the distribution of resources and pledging the government's role will focus on the elements of production and remove various market barriers.

The new leadership has established a high-level central leading group to steer reform, which clearly shows its determination to fully deepen reform. Besides the significant breakthrough in the role of market, the Decisions document clearly sets out the intent for economic system reform. From the 1980s to 1993, reform of the economic system mainly focused on the micro level, since 1994 there have been macro level reform efforts. This time the government has simultaneously launched micro and macro reforms.

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