Call for free market's bigger role

Zhang Chengliang / China Daily

Third Plenum statement shows how serious the leadership is about reform

From the statement issued after the Third Plenum of the Communist Party of China's Central Committee that finished on Nov 12, it is clear that the meeting has the potential to make history.

There are at least four breakthroughs in the statements that are expected to change the course of China's economic growth.

First, "big market, small government" will serve as the centerpiece of economic reform.

That will be the direction China's reform endeavors are expected to pursue in the coming decade.

The statement said: "The core issue is to straighten out the relationship between government and the market, allowing the market to play a decisive role in allocating resources and improving the government's role."

The role of the market is for the first time defined as "decisive". Earlier, it was described as "basic".

This is a clear signal that authorities are determined to let the free market play a bigger role in the economy.

Judging from what the new leadership has done since it took charge, it is serious about curbing the role of government.

Second, in line with the philosophy of "big market, small government", the statement elevates the role of the private sector.

Despite repeating that public ownership plays an important role, for the first time there is a declaration that both public and non-public sectors are "important components of the socialist market economy and significant bases for economic and social development".

This was a strong endorsement for the private economy. It is expected that private businesses will be given bigger market access and State monopolies will be checked to some degree.

Third, the rural-urban divide has been singled out as a problem that the Party needs to tackle.

The statement calls for a unified trading market for land for construction, ensuring equal exchanges of (production) elements and balancing the distribution of public resources.

This implies that authorities may touch on the reform of the hukou, or household registration system, and land transfer system, a move that is expected to pave the way for sound urbanization and free, fair flow of resources between rural and urban areas.

As growth in urban areas slows, promoting urban-rural integration will give fresh impetus to economic growth over the coming decade.

Fourth, the statement vows to further open up by "widening investment access, accelerating the building of free trade zones and expanding the opening up of inland and border regions".

Considering the new leadership has quickened the pace of striking free trade and investment deals on both bilateral and multilateral fronts, with the latest negotiations to be launched on a bilateral investment treaty with the European Union, it is clear that it wants to promote internal reforms by promoting integration with the global economy.

The launch of the Shanghai zone is the third round of opening-up initiatives, after the establishment of the Shenzhen Special Economic Zone in 1980 and China's entry into the World Trade Organization in 2001. The focus of the Shanghai free trade zone is the opening-up to foreign capital, especially in services. The existing approval system for foreign investment will be replaced by the negative-list system. Foreign investors will obtain pre-entry national treatment in the Shanghai free trade zone. The zone will serve as a testing ground for China's multilateral trade negotiations such as the Trans-Pacific Partnership.