Opening up services sector key for reform

During the 13th Five-Year Plan period (2016-20), China's development will be powered by transformation and reforms.

While they can release the country's huge potential, China's economic transformation and upgrading will also face risks and challenges. Under these circumstances, China needs not only macroeconomic policy adjustments, but also key breakthroughs in its structural reform and supply-side reform.

During the 13th Five-Year Plan period, therefore, promoting adjustment to a services-dominated industrial structure is a key task, and the government will push forward marketized reforms and the opening-up of the service sector.

If the service sector increases from about half currently to 60 percent of China's gross domestic product by 2020, that would not only create favorable conditions for reducing overcapacity, and destocking and deleveraging, it would also facilitate the sector's transformation and upgrading and release huge demand potential.

Despite the adoption of some policies to encourage the flow of private capital to the service sector, most of them lack operable details and workable methods, and administrative or market monopolistic practices still dominate. This calls for the making of a new market access system for the service sector.

The country should break the existing restrictions and open up the service sector inside its free trade areas to create some replicable experiences. This would be a good way to adapt to a new round of globalization and its own domestic economic transformation and upgrading. At the same time, it should apply policies to the service sector just as it does to the industrial sector, such as narrowing the price gap between land for services and land for industrial use, and increasing tax cuts for small and medium-sized enterprises in the service sector.

The country should also optimize its distribution of state capital to lubricate its efforts to reduce the overcapacity in some industries.

To successfully promote structural adjustments during the 13th Five-Year Plan period, the key is to achieve a major breakthrough in the elimination of overcapacity among state-owned enterprises, and make these enterprises play an important role in adjusting the country's industrial structure. To this end, a clear reform program for the distribution of state capital should be worked out to promote the elimination, transformation, upgrading or merger of state capital in fields with overcapacity.

The government should also accelerate reform of its decades-old hukou (household registration) system, and use a more equitable system to replace the existing dual urban-rural divide.

Urbanization will release new demand and create huge potential for new supplies. It still poses the "biggest dividend" for China's transformation-based development. But reform of the household registration system should not be based on simply changing a name, such as exchanging the "temporary" residential permit for a residential permit. Instead, substantial steps must be made toward canceling the dual hukou system. That demands the country make several changes in its household registration system, including shifting from population control between urban and rural areas to population services and management.

At the same time, the government should increase its efforts to simplify administrative procedures. The greatest potential for China's economic transformation and development lies in good handling of the relationship between the government and the market. The country has achieved tangible progress in releasing market potential and activating the vitality of enterprises though reforms in this area, but the delayed regulatory transformation presents the biggest bottleneck to delegating power from the government to the market.

Essential breakthroughs must be achieved in reform of the country's regulatory regime to remove such obstacles. These include pushing for separation of administrative approval and market regulation, and setting up independent and authoritative specialized market regulatory bodies.

Industrial associations and the public should be given bigger supervisory roles as part of the efforts to promote the shift from traditional regulation to the market's self-governance.

The author is president of the Haikou-based China Institute for Reform and Development. The views do not necessarily reflect those of China Daily.