Pulling it all together

For a vast and populous economy such as China, an effective market must be a unified one

The relationship between government and the market has always been a central theme of economic development. Since the launch of reform and opening-up in 1978, China has transitioned from a traditional planned economy to a socialist market economy.

Throughout its rapid economic development, China has consistently emphasized the need to balance an effective market and a proactive government.

Whether from the perspective of smoothing economic cycles or leveraging the advantages of a large-scale market, China needs to accelerate the construction of a unified national market.

Since the launch of reform and opening-up, local governments in China have actively engaged in attracting investment and nurturing industries, significantly contributing to the country’s sustained economic growth. However, in this process, some localities, in pursuit of their own economic development, have carried out local protectionist practices, which to a certain extent have led to market segmentation. Building a unified national market aims to dismantle these barriers, deepen inter-regional cooperation, and enhance the flow of goods and resources across regions, thereby improving resource allocation efficiency.

Accelerating the construction of a unified national market is a comprehensive strategy that encompasses economic, institutional, social and international competitive dimensions. It integrates domestic and international markets, aligns with overall economic and social development and balances short-term progress with long-term needs.

To accelerate the building of a unified national market, China has adopted an all-round strategy and proposed a systematic layout covering multiple dimensions, including the economic and institutional ones, people’s livelihoods and international competition. It integrates the domestic and international markets, permeates the entire spectrum of economic and social development, and balances current development with long-term needs.

The unified national market represents the intrinsic unity of national strategy and public welfare. Strategically, it aims to streamline domestic economic cycles, promote mutual reinforcement between domestic and international cycles, and facilitate China’s transformation from a large market economy to a strong one. It is equally crucial for public welfare, impacting the lives of every citizen. As progress toward a unified national market continues, businesses can expand into new markets without fearing local protectionism or unfair treatment. It will ensure smoother flows of people, goods, capital and information, underpinning both micro-level vitality and China’s global economic competitiveness.

A unified national market embodies the intrinsic unity of an effective market and a proactive government. From a market perspective, unified foundational systems can ensure more  equitable  property rights protection, instilling confidence in entrepreneurs. Fairer market competition allows State-owned, private, domestic and foreign enterprises of all sizes to compete on a level playing field. From a governmental perspective, there is a need for standardized investment promotion, and clear rules on what is permissible to curb excessive internal competition. Through the synergy of the “invisible hand” of the market and the “visible hand” of government, a unified national market can enhance the quality and efficiency of China’s economic development.

Building a unified national market is by no means an easy task. China has a vast territory, and there are significant differences in resource endowments and development foundations among regions. This imbalance did not emerge overnight, but is the result of the super-imposition of multiple factors such as natural conditions and development processes. It directly leads to significant differences in demand structures and industrial levels across regions, and the degree of market development is difficult to synchronize, posing inherent challenges to the construction of a unified large market. For instance, the per capita GDP of the eastern region exceeds that of the central and western regions by 1.5 times. National Economic Research Institute Report on Marketization Index of China’s Provinces (2024) shows that among the top 10 provinces in terms of marketization index, eight are located in the eastern region.

Disorderly low-price competition among enterprises is a significant issue that the unified national market must address. In recent years, some regions have engaged in involutional competition in investment attraction for short-term growth, using illegal tax rebates and subsidies. Such practices distort market pricing and resource allocation, exacerbate industrial homogeneity and redundant construction, and deteriorate industry ecosystems. Excessive market entry combined with difficult exits leads to a cycle of low-level competition and local protectionism.

Under the current fiscal system, local finances depend heavily on tax contributions from local enterprises, reinforcing motives for local protectionism. Performance evaluation focuses on local GDP, fiscal revenue and project implementation, with insufficient weight given to long-term outcomes such as unified market construction, fair competition and cross-regional collaboration. To optimize short-term performance, localities, lacking a “national chessboard” mindset, tend to establish entry restrictions, procurement protections and differentiated enforcement. This skewed performance perspective leads to insufficient reform momentum and obstacles in implementing unified rules.

Building a unified national market is therefore both an uphill battle and a long-term endeavor, with the key being to harness market forces and adhere to unification requirements.

In practical terms, it is essential to grasp the “five unifications and one opening-up” principle.

First, unify foundational systems such as property rights protection, market access, fair competition and quality standards, ensuring all business entities adhere to the same market rules nationwide. Second, unify market infrastructure such as transportation, logistics and commodity trading, facilitating smooth networks for the flow of goods and factors. Third, unify government behavior standards, focusing on eliminating inter-regional flow barriers and breaking local protectionism. Fourth, unify market regulation and enforcement, clarifying the administrative penalty benchmarks for market regulation, achieving unified regulatory rules and enforcement standards, and creating a fair and transparent business environment. Fifth, unify factor and resource markets, promoting the free and smooth flow and efficient allocation of labor, capital, technology and resources, reducing resource misallocation and idle waste. Additionally, expand opening-up, deeply integrating into the global economy and building an open market closely connected with international markets.

From the perspective of key tasks, efforts should be accelerated to introduce regulations on the construction of a unified national market to better leverage the regulatory role of the rule of law. It is necessary to improve the fiscal and taxation system, statistical accounting system and assessment system that are conducive to market unification, further improve the credit system, and give full play to the leading role of reform. It is necessary to establish and practice a correct view on governance performance, introduce a list of encouraged and prohibited matters for local governments to attract investment, standardize tax incentives and fiscal subsidies, regulate government procurement bidding and tendering, and promote local authorities to proactively serve and integrate into the unified national market. We should comprehensively apply measures such as capacity regulation, standard guidance, price enforcement and quality supervision to deeply rectify the excessive internal competition and effectively solve the problem of low-price and disorderly competition in some industries.

As the construction of the unified national market progresses, government departments will continuously enhance policy coherence, rule consistency and implementation coordination. Enterprises should focus on the needs of the people, providing more high-quality products and services, and thereby ensuring that the advantages of China’s large-scale market will become more evident. On this basis, the potential and vitality of the market will be fully unleashed, bolstering the confidence and stability of China’s economic development.

The author is a researcher at the Chinese Academy of Macroeconomic Research.

The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.