China's decisive boost for markets

China's decisive boost for markets
Yemeni President Abdrabuh Mansur Hadi (L) and China's President Xi Jinping attend a signing ceremony at the Great Hall of the People, in Beijing on November 13, 2013.

By upgrading the status of the market from "basic" to "decisive", the Communist Party of China (CPC) has signalled, not just a commitment to economic reform but also to widening and deepening it.

The market has played a basic role in allocating resources since China embarked on building what it calls a "socialist market economy" in 1992. Now, the market will play a decisive role, according to a communique issued after the Third Plenary Session of the 18th CPC Central Committee, which closed earlier this week.

The change is not semantic but will influence how and how far the government goes in intervening in the economy.

The direction China chooses will have major implications for other countries given the size of its gross domestic product, which, according to figures cited in Xinhua, catapulted from a mere 364.5 billion yuan in 1978 to 52 trillion yuan (S$10.6 trillion) in 2012. Its total trade volume rose too to US$3.8 trillion from only US$20.6 billion 35 years ago.

While the document still reserves a dominant role for public ownership, Chinese leaders recognise that enhancing the vitality and creativity of the private sector will be the key to the country's development.

This is because, as observers have noted, a high degree of government intervention in the economy has resulted in high administrative costs, low efficiency and corruption.

By allowing market forces greater play, Chinese leader Xi Jinping and his colleagues have decided that the problems of reform can be met only through more reform which creates a transparent and unified market characterised by orderly competition.

This clarity of intention is admirable and will serve as an essential indicator of the country's economic direction.

The planned setting up of a central team tasked with deepening reform strengthens Mr Xi's hand against vested interests in the party and the bureaucracy that are hostile to the greater opening up of the economy.

The fact that the acceleration of reform as a matter of policy has been accompanied by an institutional mechanism to facilitate it is a happy reminder of the Chinese leadership's ability to walk the economic talk.

Yet, even as Beijing commits itself to more vigorous pursuit of an economic system that has lifted large segments of the Chinese people out of poverty, it must remain mindful of the need to curb corruption and economic disparities in the population.

These are moral goals in themselves, but are needed also to preserve the social stability that the Chinese have cherished historically and continue to do. The establishment of a national security council will help in preserving stability, but it must be underpinned ultimately by an economic system that empowers society through both growth and equity.

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