Market economy buttressed by rule of law

Since taking office a year ago, the new Chinese leadership has placed reforms at the top of its agenda, pledging to build a socialist country under the rule of law. This is a strategically important goal for China and requires accelerating the building of a market economy that is guided and governed by the rule of law.

For years, it has been difficult to define the relationship between the government and the market in China, and economic reform efforts have made no substantial breakthrough. The underlying cause is the missing role of rule of law in supervising the government's use of power and the government's undue intervention in the market. Accelerating the building of a rule-of-law market economy is conducive to standardizing and imposing restraints on the use of public power, so that the market can play a "decisive" role in the distribution of resources.

To this end, a reform action plan aimed at building a rule-of-law market economy should be formulated as soon as possible, and priority should be given to building a business environment based on the rule of law while re-examining and revising the regulations that undermine the "decisive" role of the market to encourage fair and orderly competition.

The reason why the forging of a rule-of-law business environment should be a primary objective is that in recent years, the domestic business climate has become less promising, and there has been a massive outflow of capital and the draining of wealth and skills thanks to the growing trend of investment emigration. These problems arise because a rule-of-law business context has not been established to protect private property rights and investment income. Under such circumstances, immediate efforts should be made to outline an integrated program aimed at improving the domestic business environment.

First and foremost, the country's Property Law should be revised to prohibit any administrative bodies from confiscating collective or private property without following judicial procedure. It is also necessary to extend the approach of a "negative list" of sectors that are off limits to foreign investors from the piloted areas to the whole country, in a bid to facilitate investment and trade.

Equally important are legislative efforts, which include, but are not limited to, formulating the Administrative Procedure Law to ensure the intervention in the market by the government conforms to legal procedures and is subject to legal supervision. Legislation on intellectual property protection should be accelerated as well, so that China's protection for intellectual property is in line with international standards.

Apart from building a rule-of-law business environment, China needs to let the legal regime play a major role in regulating the market. A series of food and drug safety scandals involving everything from contaminated infant formula to recycled "gutter" oil is testimony of administrative approval being ineffective in market regulation. To shift the focus from administrative regulation to legal regulation, it is imperative to draw a clear line between administrative approval and market regulation, to improve the legal regulatory framework for the consumer market while setting up an integrated and authoritative regulatory body to oversee the market.

As government entities abusing their powers to hinder market operations are a major obstacle to fair competition and market order, the national anti-monopoly law should be reviewed to clarify to what extent the provision on anti-administrative monopoly should be enforced.

A rule-of-law market economy must also entail economic justice. Obsessed with GDP growth, many local governments have taken risks with judicial intervention. It is thus necessary to free the judiciary from the influence of local policymakers.

For this purpose, a central-local dual court system can be set up, so that central-level courts can specialize in hearing cases concerning taxation, finance, bankruptcy, intellectual property and other key economic issues, while general civil and commercial cases can go to local courts.

Also, the resources and human capital of the judicial arm should be properly separated from the administrative divisions and subject to management at the central level.

Chinese people are now expecting the country's reform bill to be further elaborated at the ongoing annual sessions of the country's top legislature and the political consultative body. The aim of building a socialist country under the rule of law undoubtedly serves the request for economic reform, and the country is now set on course to pursue this goal starting with building a rule-of-law market economy.

The author is president of the China Institute for Reform and Development.