Integrating the spirit of reform into Chinese modernization

Published: July 22,2024

CFP

With the courage and confidence to “carry the reform through to the end,” the third plenary session of the 20th Central Committee of the Communist Party of China (CPC), concluded on July 18, has charted the course for further development in the new era.

Strong sense of historical initiative and responsibility

The reform and opening-up policy represents the CPC’s success in reaching innovative practice from theoretical exploration. Chinese President Xi Jinping once said that history has its own laws, but it doesn’t mean that people are passive in the course of history, and that as long as we grasp the trend of historical development, seize the opportunities of historical change, and be enterprising and innovative, we will better contribute to the advancement of human society.

It is a general rule of the market economy that the market decides the allocation of resources. In 2014, while inspecting Chinese automaker SAIC’s motor tech center in Shanghai, Xi emphasized the significance of developing products that cater to diverse needs and the importance of new energy vehicles (NEVs) in strengthening China’s position in the automotive sector.

Over the past decade, China has introduced a series of policies and measures, from car purchase subsidies to the construction of NEV charging infrastructure, paving the way for the popularization of NEVs and the development of the industry. China’s annual output and sale of NEVs soared from 78,500 and 74,800 in 2014 to 9.59 million and 9.5 million by the end of 2023, increasing approximately 126 times, ranking first globally for nine consecutive years.

The production line of a subsidiary of Beijing Electric Vehicle Co., a new energy vehicle producer, in Huanghua, north China’s Hebei Province, July 6, 2019. /Xinhua

Having grown from scratch to a leader, China’s NEV industry is a successful case of optimizing the allocation of various development factors such as technology, expertise and capital. It also demonstrates the philosophy stated in the communique adopted at the third plenum that “a high-standard socialist market economy will provide an important guarantee for Chinese modernization. We must better leverage the role of the market, foster a fairer and more dynamic market environment, and make resource allocation as efficient and productive as possible.”

Keen awareness of problem identification and resolution

President Xi indicated that problem-solving is the starting point of and the driving force of innovation. The relationship between the government and the market lies at the core of China’s economic system reform. President Xi has reiterated that the government must manage well what it should manage, and delegate sufficiently and appropriately the powers that should be delegated. There should be no misplaced, absent or overreaching government function.

It is imperative to promote market-oriented reforms in scope and depth, reduce government-directed allocation of resources, and minimize direct government intervention in microeconomic activities.

The following example showcases the success of reforms.

In 2014, a lawmaker revealed that a single investment project required more than 30 government approvals and over a hundred stamps. The entire process – from acquiring land to completing all administrative approval procedures – took a minimum of 272 working days.

In 2019, construction started for Tesla’s Shanghai Gigafactory in January, and by December the automaker had started delivering the first batch of China-made Model 3 electric cars built at the factory, winning praise from Tesla CEO Elon Musk for such fast development. In May this year, the U.S. company’sfirst overseas Megapack factory broke ground in Shanghai, once again standing as a strong testament to the “China speed.”

The Tesla Gigafactory in the Lingang new area of the China (Shanghai) Pilot Free Trade Zone in east China’s Shanghai, September 26, 2023. /Xinhua

Since the 18th CPC National Congress, China’s State Council has canceled or delegated to lower-level authorities the power of administrative approval for over 1,000 items, and slashed the number of investment items subject to central government approval by over 90 percent.

Additionally, business system reforms like separating permits from licenses have reduced the average time to start a business to within four working days. As a result of these reforms, China was recognized by the World Bank as one of the top 10 economies with the most notable improvement in Doing Business 2020.

In January 2024, the State Council issued Guiding Opinions of the State Council on Further Optimizing Government Affairs Services, Improving Administrative Efficiency, and Promoting “Efficient Completion of One Matter” to further improve and safeguard China’s business environment.

The third plenary session pledged that “we will lift restrictions on the market while ensuring effective regulation,” which provides direction for removing institutional and mechanism obstacles.

Unwavering commitment to innovation

The public sector and the non-public sector, as two major components of the socialist market economy, form the foundation of economic and social development. President Xi clearly stated that our reform is to continue advancing on the path of socialism with Chinese characteristics. We neither follow the old path of isolation and rigidity, nor the evil path of changing the flag.

Amid discussions on ownership, President Xi has repeatedly emphasized the need to “unswervingly consolidate and develop the public sector and unswervingly encourage, support, and guide the development of the non-public sector.” The public and non-public sectors complement and enhance each other, deepening institutional innovation.

The third plenary session of the 20th Communist Party of China (CPC) Central Committee is presided over by the Political Bureau of the CPC Central Committee in Beijing, capital of China. The plenary session was held from July 15 to 18, 2024. /Xinhua

China established a private economy development bureau under National Development and Reform Commission, the country’s top economic planner, to assist private enterprises facing difficulties, and financial reforms have been implemented to facilitate financing for them. The negative list for market access system has been comprehensively implemented, allowing entry into areas not explicitly prohibited by the list.

By the end of 2023, the number of registered business entities nationwide had reached 184 million, more than three times that in 2012. Privately-owned banks were approved, a high-speed rail controlled by private capital began operation, private investment was permitted to enter the oil and gas exploration and production sector, and a private rocket company successfully launched a rocket from the sea. From 2012 to 2023, the number of private enterprises more than quadrupled, with their share in the total number of enterprises rising from about 79 percent to over 92 percent.

Driven by government initiatives, private economy has boomed and become increasingly important in the national economy. It is now a significant force in promoting economic growth, employment and technological innovation.

Against this backdrop, the communique said, “We will unswervingly consolidate and develop the public sector and unswervingly encourage, support, and guide the development of the non-public sector. We will ensure that economic entities under all forms of ownership have equal access to factors of production in accordance with the law, compete in the market on an equal footing, and are protected by the law as equals, thus enabling entities under different forms of ownership to complement each other and develop side by side.”

The workshop of Jack Sewing Machine Co., Ltd. in Taizhou, east China’s Zhejiang Province, March 23, 2023. /Xinhua

Systemic top-level design and strategic deployment

During his inspecting tour in Guangdong Province in 2012, President Xi said reform has reached a stage where we must propose a top-level design and overall planning for comprehensively deepening it. It should be based on in-depth investigation and research, putting forward strategic goals, strategic priorities, work mechanisms, and approaches of reform, as well as an overall reform plan, roadmap, and timetable. Systemic top-level design and strategic deployment are manifestations of the spirit of reform.

The third plenary session emphasized, “It is therefore vital that we improve our macro regulation systems. We must pursue coordinated reforms in the fiscal, tax, financial, and other major sectors and work to enhance the consistency of macro policy orientation. We will improve the national strategic planning system and policy coordination mechanisms, deepen reform of the fiscal and taxation systems, further reform the financial system, and improve mechanisms for implementing the coordinated regional development strategy.”

The communique also said, “We will steadily expand institutional opening up, deepen the foreign trade structural reform, further reform the management systems for inward and outward investment, improve planning for regional opening up, and refine the mechanisms for high-quality cooperation under the Belt and Road Initiative.”

These requirements highlight the importance of multi-department policy coordination, cross-level planning coordination, and multi-field system and mechanism coordination, providing principled guidance for the top-level design and strategic deployment of related reforms.

China’s ongoing reform and opening-up will provide impetus and broad space for cooperation and win-win outcomes for global development. The development trajectory of China shows that in the face of new circumstances in domestic and international development, the reform spirit of emancipating the mind, taking the initiative, pioneering innovation and mutually beneficial cooperation are valuable experiences to be shared with other developing countries.

The author Zhang Xu is director and professor of the Political Economy Research Office, Institute of Economics, Chinese Academy of Social Sciences. Co-author Zhang Chi is deputy director and associate research fellow of the Political Economy Research Office, Institute of Economics, Chinese Academy of Social Sciences.

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