On July 21, 2020, Xi Jinping, general secretary of the Communist Party of China Central Committee,presided over a symposium designed to encourage entrepreneurs,and listened to advice and suggestions from the audience. During his address, Xi mentioned market entities 16 times in recognition for their crucial role in achieving high-quality socioeconomic development.
Protecting market entities for economic development
Market entities constitute the microeconomic basis of a market economy. They have key characteristics, such as autonomous decision-making, equal status to other market players,profit orientation, and acting with agility. These characteristics determine how efficiently the market entities allocateresources, and provide the basic guarantee for achieving high-quality development. That is why Xi recognizes the crucial role of market entities in national development: as the primary players in economic activities, the major providers of job posts, and the key drivers of technological progress.
Superficially, economic system reform seeks to transform the existing methods of resource allocation. In essence, reform changes the subject of resource allocation. This relates to an important issue in economic transitions: Do government or market entities play the dominate role? Market entities, with their intrinsic independent and autonomous decision-making characteristics, are able to maximize resource allocation efficiency,resulting in their dominant role in market economies.
Powerful market entities can provide greater economic and national strengths. For this reason, amid the anti-globalization movement and the COVID-19 pandemic, general secretary Xi Jinping made it clear that market entities are strong carriers for the economy. Protecting market entities protects the productive forces of the society. The relevant authorities should try every means possible to protect market entities and mobilize this fundamental driving force of economic development. It is fair to say that the successful growth of the Chinese economy comes down to market entities. Protecting and revitalizing market entities is a great undertaking that will lead to the great rejuvenation of the Chinese nation.
What the government should do to protect and re- vitalize market entities
Emphasizing market entities does not mean weakening government functions. Instead, it requires the government to play its role more effectively. On the one hand, government intervention in the marketplace should be aligned with the government’s functions and capabilities, in order to minimize unnecessary interventions. On the other hand, the proper level of government intervention must be carried out within the framework of the rule of law, which creates the external environment that enables the development of market entities. General secretary Xi said that the government stipulates market rules, protects market fairness, and provides good public services. To stay faithful to the reform of socialist market economy, the core issue is to handle the relationship between the government and the market properly, so that the market plays a decisive role in resource allocation and the role of the government is improved.
Based on economic situation on the status-quo and the future,improving the role of the government means prudently evaluating the impact of the COVID-19 pandemic on both the Chinese and world economies, and comprehensively assessing the unprecedented influence of the anti-globalization movement on China’s market entities. It also includes making efforts to stabilize employment, the financial sector, foreign trade, foreign investment, domestic investment, and expectations,while maintaining confidence in job security, basic living needs, operations of market entities, food and energy security,stable industrial and supply chains, and the normal functioning of primary-level governments. At the end of 2019,there were 123 million market entities in China, consisting of 38.58 million enterprises and 82.61 million self-employed individuals. Currently, the top priority with these market entitiesis to help them survive the difficult situation, followed by stimulus efforts for further development.
In accordance with the key principles of general secretary Xi Jinping’s address at the symposium with entrepreneurs,and in view of the current backdrop, the government should protect and spur the vitality of market entities though the following measures. First, implementing policies such as tax and fee cuts, as well as the reduction of rents and interest rates, to ensure relief policies are implemented at the grassroots level and benefit market entities. Second, creating a market-oriented,law-based and internationalized business environment that protects property rights and the autonomy of enterprises with various ownership structures in accordance with the law,and improves the legal environment to spur fair competition among market entities. Third, establishing acordial and clean relationship between government officials and entrepreneurs.Government officials at all levels should supportentrepreneurs through unwavering dedication and long-term planning, and help them take root in China and cultivate the Chinese market. Fourth, great attention should be paid to the development of self-employed individuals, urging more direct and effective policy support to help them overcome difficulties concerning rent, fees and taxes, social insurance and financing.
Opening up market entities to form the new de- velopment paradigm
In the face of an external environment characterized by rampant protectionism, a global economic downturn, and shrinking international markets, China needs to give full play to the advantage of possessing a huge domestic market. In this way,its prosperous domestic economy and improved domestic circulation will provide new momentum for China’s economic development and facilitate the world economy’s recovery.
For the past 40 years, China has oriented itself towards foreign markets by adopting an export-oriented globalization strategy. An important feature of this strategy was that it developed and utilized international markets. The underlying logic was that China’s domestic market was underdeveloped and not open enough to accommodate its ever-increasing supply capacity, and thus it was unable to allocate its resources effectively. As the national strategy of China, a prominent problem with it was that it relied too much on international markets. The dire consequences of that strategy are China’s failure to tap the competitive advantage of its growing domestic market or to cultivate its independent brands and technologies within a competitive environment. As a result,China’s development became increasingly dependent on external factors.
As the prices of domestic production factors rise and GDP per capita increases, China’s competitive advantage has shifted from its low-cost production factors to its colossal domestic market. This shift signals the need for China to align its economic and opening up strategies and structures to make full use of its domestic market. In particular, the focus of China’s development strategy should shift from using external markets to its internal market, thus navigating economic globalization with a domestic demand-driven strategy instead of an export-oriented strategy.
The new “dual circulation” development paradigm does not imply abandoning foreign markets or forming a closedcircle economy. Instead, it means letting China’s domestic market play a decisive role in resource allocation and economic growth while maintaining an active presence in international competitive markets. It also means replacing the previous model of one-way circulation (an export-oriented pattern in which raw materials are imported and sales take place in foreign markets) with systemic recirculation in the domestic market. More importantly, the domestic market should be connected to the international market so that, as it gains scale, it gives domestic enterprises access to the circulation in international markets.
Among these major adjustments required to implement the new development paradigm, the underlying market serves as the fundamental tool, or means, or most critical resource, for achieving this strategic transition. Building a unified, competitive, orderly, and open market system is the prerequisite and foundation of this new “dual circulation” development paradigm. To that end, China’s market entities should be opened up prior to the large-scale opening up of the domestic market, which will be conducive to shaping the new paradigm. Opening up internally should have no less emphasis than opening up externally; the opening-up process should take place in both directions so that the internal and external markets reinforce each other and achieve mutual development. In other words, opening up externally should stimulate opening up internally which, in turn, should drive external openings to even higher levels.
Under these new circumstances, the urgency and significance of opening up internally should be at least on par
with that of opening up externally. A higher level of internal openness has become the basis of, and prerequisite for, external openness.
First, it should be made clear that opening up internally focuses on Chinese citizens. The right of choice in economic affairs that the government exercised should be delegated to individuals and households so that they are free to choose and develop themselves fully. From the perspective of these beneficiaries, opening up internally primarily targets the private economy. More specifically, all administrative barriers and discriminatory policies against private enterprises should be eliminated, and conditions should be created for private enterprises to compete with their foreign and state-owned counterparts on an equal footing. Moreover, various forms of administrative monopoly should be eliminated to facilitate free entry and exit. The first priority is to encourage development driven by innovation, mergers and acquisitions, so that Chinese enterprises can not only go global and scale up, but also become stronger and more competitive in the international arena.
The second priority is to lay a solid foundation for a unified national market with regional high-quality and integrated development. It is especially important to break down administrative barriers through national strategies deployed in the Guangdong-Hong Kong-Macao Greater Bay Area, the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Chengdu-Chongqing region. These regions will conduct experiments in high-quality and integrated development, and their experience will be gradually applied to other regions.When these developed regions in China are integrated and opened up to each other, a unified, open, competitive, and orderly market structure will be shaped.
(This article is revised and translated based on the original version published in Beijing Daily 北京日报, August 3, 2020)