Cutting back on red tape

Fishing boats stop at Sanya, Hainan province. The naming of fishing vessles now falls in the hands of lower-level governments

Arouse policy dividend

Cutting back on red tape will stimulate the creativity of various market players and facilitate stable economic growth, which is undoubtedly a "good recipe," said Yi Peng, a researcher with the China Center for Urban Development.

According to figures from the National Bureau of Statistics (NBS), the purchasing managers' index dropped to 50.6 percent in April. In the meantime, the producer price index declined by 2.6 percent from a year ago and went down by 0.6 percent against the previous month, a decline for the third straight month. In March, corporate profits only grew by 5.3 percent, while in the fourth quarter last year, corporate profits increased by an average 20 percent each month.

Furthermore, college students find it difficult to get a job. Figures from the Ministry of Education show that in 2013 there will be 6.99 million college graduates, the highest since 1949. However, the Ministry of Human Resources and Social Security says job opportunities for college students will fall by 15 percent this year.

Yi says when the 4-trillion-yuan ($647.25 billion) stimulus package had been carried out years ago and the current amount of M2 (broad money) reached 100 trillion yuan ($16.18 trillion), merely depending on investment will do little to stimulate economic growth. Reducing red tape and relying on the market to stimulate the Chinese economy will help accelerate the country's economic transformation.

Two sectors best illustrate the impact of slashing away red tape to spur economic activity, according to Yi. The first is in the service sector. Currently, the proportion of the service sector to the overall economy is below 50 percent, but in Western countries, the number is above 70 percent. An important reason for the big gap is that too many items in the service sector are subject to government approval. The other is in the e-commerce sector. Since there are few items subject to government approval, the e-commerce industry has grown rapidly. In 2012, the number of online users in China reached 560 million, and the sales volume of the e-commerce industry surpassed 8 trillion yuan ($1.24 trillion). In the first quarter, its sales volume totaled 2.4 trillion yuan ($390 billion), surging 45 percent, much faster than the growth of the retail sector during the same period.

The cutting and easing of government approvals effectively address corporate concerns and are in respect of market rules, said Gao. The recent government action to reduce red tape will produce positive changes in two respects: In the investment sector, decision-makers will be better able to make decisions by themselves only if the projects do not involve national and public security; on the production and business side, items will be exempted from government approval only if they can be effectively regulated by the market. Reducing red tape overall will make corporate operations more flexible.

"China is now in a decisive stage of accelerated industrialization and urbanization with a broad space for economic development. Reducing red tape will better integrate enterprises with the potential for economic growth, which will be a powerful impetus for sound and sustained development," said Gao.

Problems

After reducing red tape, the government must still fulfill its oversight role or else face market chaos, such as redundant and blind investment, said Song. An important aim for the government in delegating as many powers as possible to lower-level governments is to create an environment conducive to fair competition. Only when a fair environment is established, can true competition be realized. At present, China's market economy has a long way to go in this regard, with rampant fake products and a widespread infringement on intellectual property rights in the country. This is unfair to those businesses that operate honestly and will discourage foreign companies from investing in China.

Reducing red tape will actually make the Central Government's work a lot tougher and require that it be a lot more attuned to what's happening on the ground, said Song Shiming, an associate professor with the Chinese Academy of Governance. There are a few things the government must pay attention to, he said.

First, oversight and macro-controls should be strengthened. The Central Government delegating more powers to lower levels means local governments will have more decision-making powers regarding investment projects. Since economic growth is the most important indicator in evaluating an official's performance, we could see more redundant projects and disorderly competition.

Second, because the changes put more power in the hands of provincial and municipal governments, corruption—already a major problem in the country—could surge. The government will no doubt have to toughen its current crackdown on corruption.

For Song Shiming, the latest reforms offer no guarantee. "If these problems are not prevented or properly resolved, the much desired changes from reducing red tape will be hard to come by."