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Building a High-Standard Socialist Market Economy

By Mu Hong Source: English Edition of Qiushi Journal Updated: 2023-03-02

China’s socialist market economy is a magnificent outcome of our country’s policy of reform and opening up, and it has become an integral part of the basic socialist economic systems. Focusing on the historic task of building a modern socialist country, the report to the 20th National Congress of the Communist Party of China (CPC) outlined a strategy for “building a high-standard socialist market economy” and proposed relevant new measures and requirements.

I. Improving basic socialist economic systems and accelerating economic modernization

During the past four decades of implementing the policy of reform and opening up, the CPC has worked hard to emancipate people’s minds, seek truth from facts, innovate, and break new ground. It has successfully forged a path of socialism with Chinese characteristics and established a socialist market economy. It has enriched and developed the basic socialist economic systems, greatly liberated and developed social productive forces, and accomplished the First Centenary Goal on schedule. In the new era, the CPC has continuously improved its understanding of the principles governing the socialist market economy and its ability to develop it. Thanks to these advances, China’s market system and macro-control have continuously improved, and its composite national strength has reached a new level.

(1) We shall continue reforms to develop the socialist market economy.

Since the policy of reform and opening up was introduced in 1978, a key factor that has enabled China to achieve the rare combination of rapid economic development and long-term social stability is the establishment of a socialist market economy based on a series of theoretical, practical, and institutional innovations. It is also down to a combination of the strengths of the socialist system and the general rules of the market economy. To build a high-standard socialist market economy, we must continue reforms and work harder to energize market entities and unleash and develop productive forces.

We must uphold and improve the basic socialist economic systems, consolidate and develop the public sector, deepen reform of state-owned assets and enterprises, and accelerate the optimization of and structural adjustments to the state sector. We need to make state-owned capital and enterprises stronger, better, and bigger, and increase the core competitiveness of enterprises. We must unwaveringly encourage, support, and guide the development of the non-public sector, optimize conditions for the development of private enterprises, protect the property rights of private enterprises and the rights and interests of entrepreneurs in accordance with the law, and promote growth of the private sector. 

We need to optimize the market system to create a business environment in which enterprises under various forms of ownership have equal access to resources and production factors enshrined in law, so that they compete openly, fairly, and equitably, and receive equal protection from the law.

We need to balance the relationship between the government and the market, leverage the market’s decisive role in allocating resources, and minimize direct allocations of resources and microeconomic interventions by the government. This will allow us to fully utilize market mechanisms and maximize the benefits of resource allocation. We must refine the role of government to improve macroeconomic governance, remedy market failures, achieve both efficiency and fairness, and advance common prosperity in the course of high-quality development. A better mix between an efficient market and an effective government will demonstrate the strengths of the socialist system and advance the rejuvenation of the Chinese nation via a Chinese path to modernization.

(2) We shall focus on achieving high-quality development.

In the new stage of development, the primary challenge in Chinese society has become that between imbalanced and inadequate development and the people’s growing needs for a better life, China’s economy has entered a period defined by three overlapping factors, and profound changes are occurring in the international arena, causing a spike in security risks and uncertainties. Given the need to adapt to China’s new stage of development, momentous decisions have been made to create a new development dynamic that focuses on the domestic economy and features positive interplay between domestic and international economic flows as well as to firmly pursue high-quality development. To build a high-standard socialist market economy, we must focus on achieving high-quality development, faithfully implement the new development philosophy, and apply reform-oriented ways of thinking and methods. We must also accelerate reforms that improve resource allocation efficiency, boost the quality and efficacy of development, and unleash the enthusiasm of all parties, and quickly form an institutional framework and policy system for the new development dynamic. We must strive to raise total factor productivity, make our industrial and supply chains more resilient and secure, and promote integrated urban-rural development and coordinated regional development, so as to effectively upgrade and appropriately expand China’s economic output.

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Construction of the Chenjiazhuang Bridge over the Yongding River in Mentougou District, Beijing, gathers pace as part of a new expressway on National Highway 109.The photo was taken on October 12, 2022. Infrastructure connectivity serves as a vital support in the development of a unified national market. PEOPLE’S DAILY / PHOTO BY SHI JIAMIN

(3) We shall concentrate our efforts on building a modernized economy. 

To quickly build a modernized economy is the objective of China’s development in the new era as well as a pressing requirement for us to transform our economic development model, optimize our economic structure, and change our drivers of economic growth. The keys to achieving this are innovation and reform. To build a high-standard socialist market economy, we must improve the property rights system and optimize the market-based allocation of production factors. We must also accelerate the construction of a unified market system that is open, competitive, and orderly; an innovation-led industrial system with coordinated development; an efficient income distribution system that promotes fairness; a coordinated system of urban and rural regional development with complementary advantages; a harmonious and efficient governance system with a sound legal system; and a secure system of opening up that balances internal and external flows. We need to continue to leverage the leading role of economic system reform to remove institutional barriers that restrict the vitality and momentum of development, develop effective market mechanisms, dynamic microeconomic entities, and suitable macro-regulation, and unleash forces conducive to increasing productive powers. Enterprises are the primary innovators and the principal force for bringing about a modernized economy. We must focus on improving our distinctly Chinese modern enterprise system and stimulate and safeguard our entrepreneurial spirit to quickly give rise to a group of world-class enterprises with excellent products and brands, world-leading innovation, and modern governance. We also need to support the development of micro, small, and medium-sized enterprises in order to continuously bolster the innovativeness and competitiveness of China’s economy.

II. Constructing a national unified market and a market system with high standards

To build a high-standard socialist market economy, we must accelerate the construction of a national unified market, deepen reforms regarding the market-based allocation of production factors, and put in place a market system with high standards. We need to refine the systems underpinning the market economy, such as those for the protection of property rights, market access, fair competition, and social credit, in order to establish unimpeded market access, openness and order, thriving competition, and standards of conduct. We also need to tap the enormous potential of the Chinese market and make best use of domestic and foreign resources and production factors to support the new development dynamic.

(1) We shall build a national unified market.

Building an efficient and well-regulated national unified market that is open and fosters fair competition is vital for us to expand domestic demand, create a new development dynamic, and build a high-standard socialist market economy. We need to strengthen basic systems that are fundamental to the national unified market, promote interconnectivity of market infrastructure, and establish an impartial, well-regulated, and efficient system of market supervision. We need to create markets with high standards for commodities, services, and production factors, put in place a modern logistics network, and vigorously develop the Internet of Things. We also need to reduce institutional transaction costs and the cost of logistics as much as possible while maximizing the scale and agglomeration effects of the unified market. We must vigorously implement the strategies of rural revitalization and new-type urbanization, facilitate flows of production factors between urban and rural areas, and unleash the huge potential of their integrated development. We will establish a mechanism for regional coordinated development that exploits comparative advantages and promote flows of production factors across a wider area and a wider range of fields. We also need to swiftly formulate sound regulations and standards for the unified market and abolish regulations and practices that hamper it and fair competition.

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Visitors view an exhibition entitled “China over the Past Decade: Achievements in Opening Up” at the Fifth China International Import Expo, Shanghai, November 6, 2022. China has scored important success in boosting reform and development through opening up. PHOTO BY XINHUA REPORTER ZHANG JIANSONG

(2) We shall deepen market-based reforms related to production factors.

Developing sound markets for factors of production is an integral part of building a national unified market and a key task of furthering market-based reforms. We need to conduct in-depth trials of reforms on the market-based allocation of production factors, improve production factor markets, and expand the scope of their allocations, so that production factors are priced by the market, flow in an autonomous and orderly manner, and are allocated efficiently and equitably. We need to promote coordinated reforms of rural land expropriations, market trading of rural collective land designated for commercial development, and rural residential land, as well as accelerate the development of a unified market for urban and rural land designated for construction. We should deepen reform of the system of household registration to allow both skilled and unskilled labor to move freely between urban and rural areas, different regions, and entities under different forms of ownership. We need to strengthen the systems underpinning capital markets and promote the healthy development of multi-tiered capital markets, as well as accelerate the development of the market for technological factors and improve the method of allocating resources for technological innovation. We need to quickly establish systems related to data to coordinate the promotion of data property rights, flows and exchanges of data, the distribution of associated earnings, and security governance, as well as encourage the in-depth integration of the digital and real economies and create internationally competitive digital industry clusters. We need to expedite reform of the market-based pricing of production factors to enhance the mechanism whereby their prices are primarily determined by the relationship between market supply and demand, so as to protect the interests of the public in accordance with the law and minimize inappropriate government intervention in their pricing.

(3) We shall construct a market system with high standards.

A market system with high standards is a vital foundation for constructing a high-standard socialist market economy and ensuring the market operates effectively. We must therefore guarantee equal access, impartial regulation, openness, order, credibility, and legal compliance; encourage smooth flows within the market and remove policy obstructions; and ensure the standardization and facilitation of market supervisory services. We need to improve all aspects of the property rights system by creating a modern system with clearly defined ownership, clarified rights and responsibilities, strict protections, and smooth transfers, as well as making fairness the core principle, and we must strengthen the protection of intellectual property rights. We must implement the negative list for market access nationwide and strictly apply the single national list-based administration model. We will implement all aspects of the fair competition review system, treat all market entities equally, improve supervision and implementation mechanisms related to the fair competition system, and strengthen its binding force. We need to promote the construction of the social credit system, improve relevant laws, regulations, and standards, strengthen the credit commitment system for market entities, and develop a new regulatory mechanism based on credit.

III. Building new institutions for a more open economy and promoting higher-standard opening up

China’s reform and opening up stands as testament to the fact that openness is an important driver of socioeconomic development, and promoting reform and development through opening up is the key to China’s continued success. Faced with changes on a scale unseen in a century in the international situation, it is vital that we better utilize both domestic and international markets and resources, place greater emphasis on opening up at the institutional level, attract global resources and production factors with a strong domestic economy, and promote mutually reinforcing domestic and international economic flows. This will allow us to encourage the creation of a new dynamic of higher-standard opening up and develop new advantages in international economic cooperation and competition.

(1) We shall expand the scope of opening up.

We must optimize the spatial layout and expand the breadth of our opening up. We must promote the high-quality joint development of the Belt and Road Initiative and strengthen the construction of various mechanisms for mutually beneficial cooperation. We must guide coastal, inland, and border areas in their efforts to open up, so that they can display complementary advantages and coordinate their development, open up western and border areas further, and accelerate the establishment of links running eastward and westward and across land and over sea. We need to consolidate and expand international cooperation in the fields of capital, natural and human resources, and technology, improve international market-based allocations of goods, services, and production factors, and facilitate the opening up of various fields to produce synergistic effects. We must gradually open up our financial and service sectors, deepen interconnections between domestic and foreign capital markets, and systematically internationalize the renminbi. We must also expand multilateral and bilateral economic and trade cooperation and liberate and facilitate trade and investment.

(2) We shall improve platforms of opening up.

Platforms of opening up are frontiers for continuously expanding China’s openness to the outside world and testing grounds for system and mechanism innovations. We must create new hubs of opening up that have higher levels of openness, better business environments, and stronger radial effects. We need to deepen the reform of pilot free trade zones to grant them greater autonomy, and timely summarize, replicate, and promote institutional innovations. We need to accelerate the construction of the Hainan Free Trade Port and establish a system of policies and institutions with unique Chinese qualities for free trade ports. We must push forward the innovative development of national-level new areas and development zones and support the development of inland pilot zones for fostering an open economy.

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A staff member in the legal person section at the government services center in Nanming District, Guiyang, Guizhou Province, explains preferential tax and fee reduction policies to a business person, June 15, 2022. The business environment is the soil that enables enterprises to survive and flourish. PHOTO BY ZHAO SONG

(3) We shall steadily expand institutional openness.

The establishment of new institutions for a higher-standard open economy requires greater institutional openness. We must ensure that we match the high standards of international market rules, improve the implementation of the management system based on pre-establishment national treatment and a negative list for foreign investment, and protect the rights and interests of foreign investors in accordance with the law. We need to improve legal guarantees for higher-standard opening up, strengthen the development of rules, regulations, administration, and standards, and improve the national security review system for foreign investment, the anti-monopoly review system, the list-based management system for national technological security, and the unreliable entity list system. We will participate in the reform of systems that govern the global economy and promote the establishment of equitable new international economic, trade, and investment rules that foster mutually beneficial cooperation. 

IV. Modernizing the macroeconomic governance system and capacity

Rational and effective macroeconomic governance is an objective requirement for the modernization of our national governance system and capacity as well as an indispensable part of building a high-standard socialist market economy. We must adhere to the general principle of pursuing new achievements while maintaining economic stability, uphold the strategy of expanding domestic demand, focus on both domestic and international markets, and balance development with security. We need to strengthen our systematic approach, be mindful of worst-case scenarios, and focus on improving the macroeconomic governance system through consistent objectives, rational division of labor, and effective cooperation, in order to promote high-quality development that is more efficient, equitable, sustainable, and secure.

(1) We shall improve the macroeconomic governance system.

Macro-control is a vital part of how the CPC and the government manage the economy, and it is a strong feature of China’s socialist system. We must quickly establish macro-control objectives, plans, policies, coordination, security, monitoring, and evaluation, all adapted to the new development philosophy and the requirements of high-quality development. We must fully leverage the strategic guiding role of national development plans and ensure that general and partial objectives, medium- and long-term plans, and annual plans are consistent and continuously progress. We need to strengthen macro-policy coordination on fiscal and monetary issues and know when to use macro-control. We must improve systems and mechanisms for promoting consumption to strengthen its fundamental role in our economic development, deepen reform of investment and finance to leverage the vital role that investment plays in optimizing the supply structure, and improve mechanisms for formulating and implementing macroeconomic policies, with an emphasis on managing public expectations. We need to improve the coordination mechanisms for macroeconomic policies, strengthen evaluations of the consistency of macro-policy objectives, and improve processes that enable market entities to participate in the formulation of macroeconomic policies, thereby making governance a more collective effort. We must clearly understand the impact that changes in the international situation and technological progress will have on socioeconomic development and fully utilize the Internet, big data, and artificial intelligence to modernize macroeconomic governance.

(2) We shall construct modern systems of public and private finance.

Public and private finance are foundations that support national governance. We need to improve the modern budget system and implement performance-based budget management to ensure that we use public funds more efficiently. We need to optimize the division of authority and financial powers among governments at all levels, establish a financial relationship between the central and local governments that is characterized by clearly defined powers and responsibilities, coordinated fiscal support, and balanced regional distribution, and improve the system of transfer payments. We must deepen reform of the tax system, optimize the tax structure, improve the local tax system, and avert and allay risks associated with government debt. We must also continue the reform of the financial system, strengthen modern financial oversight, introduce a modern central bank system, and improve the mechanisms for monetary policy decision-making. We need to develop inclusive finance as well as green finance and improve the modern financial services system, with the focus on supporting the real economy. We must reinforce the systems that safeguard financial stability, lawfully place all types of financial activities under regulation, improve prevention and early warning capabilities, swiftly ameliorate financial risks, and firmly prevent systemic risks from arising. We need to improve the functions of capital markets, increase the proportion of direct financing, and implement the registration-based IPO system across the board. We must deeply comprehend the features and behavioral principles of capital under the socialist market economy and fully leverage its positive role as a factor of production. We also need to methodically formulate plans for utilizing capital, improve whole-process supervision, with connected ex-ante guidance, interim vigilance against risks, and ex-post monitoring, and regulate and guide the healthy development of capital in accordance with the law to prevent its disorderly expansion.

(3) We shall create a more market-oriented, law-based, and international business environment.

A country’s business environment shapes the conditions for the survival and development of enterprises. We must swiftly transform the functions of government and advance reforms to streamline administration, delegate power, improve regulation, and upgrade services to let the market manage what the government should not while ensuring that the government performs its appropriate duties effectively and thoroughly. To adapt to new forms and models of business as well as systems management across domains and regions, we must use a combination of economic, legal, administrative, and technological means to create new, more-efficient market oversight and service methods. We need to encourage and safeguard fair competition, protect the rights and interests of producers and consumers in accordance with the law, take stronger action against monopolies and unfair competition, and resolutely crack down on local protectionism and administrative monopolies. We will make laws and regulations and technical management standards more compatible with our modernized economy and improve the market environment and credit rating system. We will foster a stable, fair, transparent and predictable business environment, and continuously make it more market-oriented, law-based, and international.

(Originally appeared in Qiushi Journal, Chinese edition, No. 22, 2022)