Liu Shijin, Lu Zhongyuan, Long Guoqiang, Wang Xu, Liu Shouying

I. It Is More Important to Nurture An Effective Market Environment than Industrial Policies.

After painstaking and unremitting efforts for a long period, China’s entry into the World Trade Organization has entered into the final stage. WTO entry, fundamentally speaking, is an issue of countering opportunities and challenges brought about by economic globalization. In terms of the challenges, the most direct and outstanding is the challenge to the management system and behavior modes of the government. In terms of the form, the challenges facing the government after the WTO entry are mainly reflected in the management system involving foreign interests. But further analysis will find that the problem mainly lies with the economic system. In other words, the management system involving foreign interests is merely a special reflection of problems with the entire economic system. Therefore, under the background of China’s accession into the WTO, it is necessary to adjust the system and policies involving foreign interests not in compliance with the WTO rules, and on the other hand, it is also most important that great efforts should be made in deepening the market-oriented reforms in the economic system and improving the socialist market economic system.

In this process, the positioning of the government role is crucial, and one of the fundamental issues is the relationship between the government and the market. There are two different policy orientations concerning this issue. One orientation stresses government intervention, that is, the government, under the market economic system, may continue to play its important role in resources allocation by resorting to tools as direct and forceful intervention and industrial policies so as to improve the international competitiveness of domestic industry. Advocates of this policy orientation often quote Japan, South Korea and other East Asian countries and regions as their example, indicating that the government could at least substitute some of the role of the market. Another policy orientation stresses, mainly or to the maximum, the role of the market. The government continues to be important, but its role shall be mainly reflected in nurturing, improving and safeguarding the effective market environment.

Because the current Chinese economic system still bears the extensive influence of traditional planned economy, the stressing the policy orientation of government intervention could easily be accepted. Different from countries such as Japan and South Korea, our state-owned economic sector still takes a lion’s share in the economy, the market role is still restricted by many factors, overstress on the government’s forceful intervention and industrial policies could easily evolve into protection for backward enterprises (mainly state-owned enterprises) and industries, and affect the normal nurturing of the market and fair competition, thus, weakening the competitiveness of the entire economy. Under the new opening pattern, particularly after the Asian financial crisis, the practice of supporting the development of some enterprises and industries through forceful government intervention and industrial policies shall draw a lesson from the experiences of some East Asian countries and regions, and it is necessary to have a somber understanding about this issue.

In comparison, it is more important and fundamentally meaningful to create an effective market environment. China’s participation in the process of economic globalization shall focus on bringing its comparative edges into full play. To transform the potential comparative advantages into actual competitive advantages, the most important means is to cultivate an effective market environment. The competition of all countries in the global system of division of labor, in essence, is the effective market competition of the countries. When we stress the market role, this does not mean that we deny the role of the government, but we call for a fundamental change of the focus and method of the government role. The government shall be "market friendly," and the government shall place its attention and the starting point of playing its role clearly on creating an effective market environment. From this point of view, the effectiveness of the market reflects the effectiveness of the government, and whether or not a government is efficient, to a large extent, through the efficiency of the market.

In different countries, market economy and open economy could be substantially different due to different national conditions. Different from countries with matured market economies, the government in China at the current stage not only needs to safeguard the market, but also needs to participate in "cultivating" the market, because there exist several important factors constituting China’s special national conditions. First, China is still a developing country and in the process of industrialization, and more than half of its population and laborers make a living in the agricultural sector. At the same time, it also faces with the opportunities and competition pressure brought about by the information age. Under such a situation, the development of market could not be freed from limitations of industrialization level, and the responsibility assumed by the government is apparently different from those of the developed industrial countries. Second, China, as a vast and most populous country, still has an outstanding problem of imbalanced social and economic development. After the reform and opening up policy was adopted, all regions have developed rapidly, but regional gap, particularly the gap between the southeast coastal areas and the central and western regions, was not narrowed but widened. Correspondingly, there also exist differences in market development, social organizational structure, population quality and cultural traditions among the regions. Therefore, the government assumes an arduous responsibility in safeguarding social justice and promoting coordinated development of the regions, and this is very unique among all countries in the world. Third, although China’s economic transformation has made significant progress, this process has not been completed yet. The economic system transformation, on the one hand, calls for a transformation of the government functions and a great reduction of administrative intervention, on the other hand, it still has to rely on the government to play some special role, such as promoting the strategic reorganization of the state-owned economy and establishing the social security system.

It is obvious that comparing with countries with matured market economy, the aforementioned several factors call on the government to play a bigger role instead of restricted to the common understanding of making up the market defects. It is also obvious that there is a great uncertainty when the government plays its role, and it is likely to lead to the consequence that the role runs counter to what has been planned. In this process, the most important is not "how big" the government role is, but the rationality of its "positioning" and "scope."

...

If you need the full context, please leave a message on the website.