By Wu Jinglian, Development Research Center of the State Council (DRC)

Abstract:

"Guidelines on pushing forward price mechanism reform" (hereinafter referred to as "Guidelines") passed by the Leading Group for Comprehensively Deepening Reform of the CPC Central Committee require that by 2017, price liberalization in competitive sectors and fields will be put into effect and that by 2020, the mechanism for market to decide pricing will be basically perfected, price supervision system and law enforcement system will be basically established, and price macro-control mechanism will be basically formed. It means the reform to establish China’s market price system will be fully launched. First, the Guidelines clearly define micro-economy and macro-economy as two different fields, which could prevent macro-economic management from taking wrong steps. The Guidelines distinguish specific prices in micro-economy from overall price level in macro-economy, pointing out that the former should be dealt with by the market while the latter is handled through strengthening and improving macro-control with fiscal, monetary, investment and other policy measures. Only in this way can we avoid making common mistakes of the past. Second, the Guidelines adhere to the fundamental principle that "any price that can be formed by the market is left to the market and the government does not interfere". Since prices with naturally monopoly features are still decided by government and social organization, the Guidelines also illustrate clear regulations that clear, standard, open and transparent work procedures should be established in government pricing process. Third, the Guidelines exemplify a clear and determined approach in principle and lay emphasis on a prudent and appropriate manner in specific operations. On one hand, price is an economic variable that bears on interests of each household; on the other hand, price reform requires a so-called "relaxed economic environment" to balance total supply and total demand so as to avoid tense price fluctuations in reform.