The "Invisible Hand" and the "Visible Hand"

The "Invisible Hand" and the "Visible Hand"* 

May 26, 2014 

We should let the market play the decisive role in allocating resources, while allowing the government to better perform its functions. This is a theoretical and practical issue of great importance. A correct and precise understanding of this issue is very important to further the reform and promote the sound and orderly development of the socialist market economy. We should make good use of the roles of both the market, the "invisible" hand, and the government, the "visible" hand. The market and the government should complement and coordinate with each other to promote sustained and sound social and economic development. 

The Third Plenary Session of the 18th CPC Central Committee pointed out that economic structural reform is the focus of continuing the reform comprehensively. The underlying issue is how to strike a balance between the functions of the government and the role of the market, and let the market play the decisive role in allocating resources and the government better perform its functions. 

The proposal to let the market play the decisive role in allocating resources is a breakthrough in our Party's understanding of the laws governing the development of socialism with Chinese characteristics as well as a new achievement in the sinicization of Marxism. It symbolizes that the socialist market economy has entered a new stage. 

To let the market play the decisive role in allocating resources and the government better perform its functions we must have a good understanding of the relationship between the role of the market and that of the government, which represents a core issue in our economic structural reform. 

The Third Plenary Session of the 18th CPC Central Committee changed the market's role in allocating resources from "basic" to "decisive." Although only one word was altered, the market's role was redefined. "Decisive role" is a continuation and extension of "basic role." 

Letting the market play the decisive role in allocating resources and letting the government better perform its functions are not contradictory. It does not mean that the market can replace the government's functions, nor vice versa. 

Actually this is an effort to keep our economic reform targeted at existing problems. For more than two decades our socialist market economy has been developing, yet there are still quite a number of problems and drawbacks that inhibit the vitality of market entities and prevent the laws of the market and value from fully playing their roles. 

If these problems are not solved properly it will be difficult to establish a well-developed socialist market economy, further transform the development model and adjust the economic structure. 

We should remain committed to the reform to establish and improve the socialist market economy and bring the reform to a deeper and wider level. We should reduce the government's direct involvement in resource allocation and its direct interference in micro-economic activities. We should step up efforts to develop a uniform market system characterized by openness and orderly competition, and set fair, open and transparent market rules. The government should refrain from getting involved in the economic activities that the market can regulate effectively, and let the market do what the government is not supposed to do, so that the market can play its role of maximizing the effectiveness and efficiency of resource allocation, and enterprises and individuals can have more room to develop the economy and create wealth with vigor and vitality. 

Balanced macro control and effective governance are the intrinsic requirements for giving full play to the strength of the socialist market economy. To ensure that the government better performs its functions, we should transform government functions, further the reform of the administrative system, use new administrative methods, improve the macro-control system and enhance the monitoring of market activities. We should strengthen and improve public services, and promote social fairness, justice and stability, as well as common prosperity. 

Governments at all levels should exercise administration strictly in accordance with the law, and conscientiously fulfill their responsibilities. The government should manage well all matters that fall within its purview, and appropriately delegate powers that should be delegated. The government should make resolute efforts to avoid overstepping its bounds or failing to play its due role. 

We should uphold the Party's leadership and let the Party play its role as the leadership core in exercising overall leadership and coordinating all efforts. This is an important feature of our socialist market economy. Over the last three decades since the introduction of the reform and opening-up policy, we have made marked achievements in our social and economic development, and the people's living standards have improved noticeably. These successes are attributable to the fact that we have firmly upheld the Party's leadership, and given full play to the roles of Party organizations at all levels and of all Party members. In China, the Party's strong leadership is the basic guarantee for the government to play its due role. 

While comprehensively continuing the reform, we should uphold and develop our political advantages, and use them to guide and push forward the reform. We should motivate all the people to make constant efforts for a better socialist market economy. 

Today, officials at all levels, especially leading officials, should continue to learn through practice, and put what they have learned into practice, study new problems and draw on new experiences. They should learn to correctly use both the "invisible hand" and the "visible hand," and become experts in balancing the relationship between the government and the market. 

* Main points of the speech at the 15th group study session of the Political Bureau of the 18th CPC Central Committee which Xi presided over. 

(Not to be republished for any commercial or other purposes.)