Liu Shijin

I. The Overall Goal of Improving the System of Socialist Market Economy

After more than two decades of efforts, China has preliminarily established a framework of the socialist market economic system, with market starting to play a fundamental role in allocation of resources and economic operation. However, it needs to be realized that the current market economy is still a market economy that’s underdeveloped, incomplete and imperfect, with deep rooted contradictions still fundamentally unresolved left behind by the traditional planned economy, and is encountering many new problems in its transition from the planned economy to a market economy. Therefore this is a market economy that needs to adopt constant innovation suiting to the needs of economic development, scientific and technological progress and opening to the outside world. If we regard building the socialist market economy as a historical process, then the current stage is only the intermediate stage of the process.

At such a starting point, China’s main task for the future is to gradually improve the socialist market economic system that’s just been initially established. By 2010, China strives to build a complete and sound socialist market economic system. This means that the deep seated problems left behind by the traditional planned economy will be completely resolved, a basic framework for the new economic system and a related mechanism will be solidly established, major relationships in the economic life will be basically smoothed out, market’s fundamental role in resource allocation and economic operation will be systemized and stabilized with sustainability.

A relatively sound socialist market economy has the following main features:

-- Composition and strategic restructuring of the state-owned economy is basically complete. A new state asset management and operating system effectively operates. The national economy has public ownership enterprises in multiple forms as the mainstay. The property rights of various types of ownerships are clearly separated, complementary and coordinated in their development.

-- A modern enterprise system mainly in the form of corporations is universally established. Companies have set up standardized corporate governing structures and managerial systems.

-- The element market develops relatively fast and in line with the development of the product market. Legitimate rights and interests of consumers, producers and other stakeholders are protected. A fair, open and standardized market system and market order based on credit has basically taken shape.

-- A multi-tier social security system is basically established and improves along with the development of the economy and the society. There is an income distribution and redistribution system that upholds both efficiency and fairness.

-- The government has made substantial progress in transformation of its functions and gives effective play to its fundamental role in economic regulation, market supervision, social management and public service. The government institutions and personnel deployment are competent with their functions. A scientific and democratic decision making system is protected.

-- Intermediary organizations and mechanisms have gained substantial advancement. There are a variety of ways for social members to participate in economic and social management. A multi-tier and coordinated economic and social governing structure has preliminary taken shape.

-- A legal system and a set of ethical standards adaptive to the socialist market economy have basically taken shape and are playing an ever-growing important role.

The forming of a relatively sound socialist market economic system will propel the construction of the socialist market economy into a new phase. With another decade’s effort, or by 2020, China strives to build a relatively complete, sound and mature socialist market economy. It shall have the following characteristics.

-- The quality and efficiency of all components of the socialist market economy will be further improved. More importantly, for the system a mechanism of self-adjustment and self-improvement is taking shape.

-- The socialist market economic system should adapt to changes and challenges posed from both domestically and internationally and duly make system innovations.

-- Rule of law and social ethics will play a significantly more important role in the socialist market economy, and a legal system and ethics suiting to the needs of socialist market economy is widely accepted and followed by all social members.

-- Progress should be made in striving for common prosperity and social fairness so that fruits of economic and social development can reasonably benefit all social members.

-- In learning from other modes of market economic systems in the world and in the course of competing with other economies, China should build up its unique advantages and give them full play in terms of its socialist market economic system.

II. Major Tasks of Improving the Socialist Market Economy and the Focus of Reform for the Near Future

The long-term task of improving the socialist market economy is arduous. In the present stage and a relatively long period in the future, propelling the construction of socialist market economy faces the following three major tasks.

1. The country needs to solve the deep-seated system contradictions that are left behind by the planned economy and so far have remained fundamentally untouched. China has adopted a gradual mode for transformation from the planned economy to a market economy. One of the important features of this mode is that in view of the fact that while the part "within the system" of the traditional planned economy remained fundamentally untransformed, the government attempts to resort to fast development of various economic formats "outside the system" that are conducive to the market economy, including collective ownership, new types of state-owned economy, private economy, foreign capital economy and corporation type economy, to increase the proportion of market economy in the overall economy and allow the proportion of market economy to take dominant positions in the national economy. The Chinese economy’s gigantic growth potential has made possible this mode of transformation -- "faster growth for the market economy outside the system". The core of the "within the system" part is mainly those old and large-size state owned enterprises, state-owned banks and the government functions passed down from the planned economy. These three make up the inter-reliant "iron triangle" relationship, and is concentrated with deep-tier contradictions of the old system. Since the 1990s, important progress has been achieved in taxation, currency and foreign exchange systems in the macro management system, coupled with fast transformation of small state-owned enterprises, and some limited progress in the reform of some large-size state owned enterprises, but reform of the core part of the old system cannot be said as having achieved any comprehensive and significant progress. The low efficiency of this part of the economy has added operating costs and risks to the national economy, restricted readjustment of the economic structures and improvement of efficiency. The placement of their staff, social security responsibilities and bad debts, all have direct impact on the stability and development of the national economy and society. On the other hand, establishment of a socialist market economic system and rapid sustained growth of the Chinese economy are creating relatively mature conditions for tackling the deep seated system contradictions left behind by the old system.

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