China pushes market-based reform despite epidemic

You might think that setting up the basic institutions of business and market governance－the rules of the road, the software－would be easy compared to building physical infrastructure, developing technology or raising a nation's education level.

But it turns out that building efficient institutions and commercial governance is the hard part of development.

Many nations have failed to develop and some currently developed nations are in danger of regressing because they have been unable to reform.

In his famous book, The Rise and Decline of Nations, late University of Maryland economist Mancur Olson argued that progress is stopped by entrenched groups of people or companies with concentrated interests who use their power to block efficient reforms that would be good for the whole of society but bad for them.

On the other hand, the unique strength of China's reform and opening-up process has been that China's government has, for over 40 years now, steadily pushed the gradual institution-building that allows markets to work well. In recent weeks, China's leaders have repeatedly emphasized that the economic problems caused by COVID-19 will not derail the continuation of this market-based reform process that made the nation's spectacular economic growth possible.

In a discussion with national political advisers at the third session of the 13th National Committee of the Chinese People's Political Consultative Conference, President Xi Jinping emphasized that the country is committed to seeing that the market plays the decisive role in resource allocation and that the government plays its role better, as reported by Xinhua News Agency.

"The practices in reform have made us realize that we must under no circumstances turn our back on addressing blindness of the market, and we must not return to the old path of a planned economy," Xi said.

China's leaders have been stepping up the push for fundamental market-based economic reform since Xi's first year in office. The Third Plenary Session of the 18th CPC Central Committee in 2013 set out a strong agenda to restructure the role of the market, giving market forces a "decisive" role in allocating resources, instead of the "basic" role stated in earlier documents.

As in all countries, the government retains the core functions of macroeconomic management, market regulation, provision of public services and environmental protection.

The business environment and the health of the private sector are critical to China's economy. The World Economic Forum uses the numbers 60/70/80/90 to describe the importance of the private sector to China's economy: "(Private companies) contribute 60 percent of China's GDP, and are responsible for 70 percent of innovation, 80 percent of urban employment and provide 90 percent of new jobs. Private wealth is also responsible for 70 percent of investment and 90 percent of exports."

At the two sessions this year, Premier Li Keqiang stressed that the government is taking strong steps to aid private businesses, especially small and medium-sized enterprises that have been hard hit by the coronavirus. Li also called for greater steps forward in reform and opening-up to overcome obstacles, promote fair competition. He also called for rolling out more concrete steps to help businesses and create a market-oriented, law-based and internationalized business environment.

A recent guideline released by the CPC Central Committee and the State Council, China's Cabinet, stressed that the country will focus on improving the system of property rights and pursuing market-oriented allocation of production factors.