Open, Rule-of-law Thinking Reshapes Chinese Economy
China seeks to create a stable, fair, transparent, and predictable business environment, and protect the autonomy of market entities and all their legitimate rights and interests in accordance with the law.
THE fourth plenary session of the 19th CPC Central Committee convened at a critical moment in the process of China’s national rejuvenation, in the year of the 70th anniversary of the founding of the People’s Republic of China, and at the confluence of the country’s two Centenary Goals. It therefore has great historical significance.
Open Thinking
The session reviewed and adopted the CPC Central Committee’s Decision on Some Major Issues Concerning How to Uphold and Improve the System of Socialism with Chinese Characteristics and Advance the Modernization of China’s System and Capacity for Governance. Among others, Wu Jing’an, deputy director of the Urban Economy Study Section of Shanghai Academy of Social Sciences, was impressed with the following line in the document: “Upholding and improving the system of socialist rule of law with Chinese characteristics and improving the Party’s capacity for law-based governance and law-based exercising of state power… Upholding and improving China’s basic socialist economic system and promoting the high-quality development of the economy.” In his view, this reflects China’s clear understanding that our world is undergoing profound changes unseen in a century and its commitment to letting the market play a decisive role in allocating resources and allowing the government play a better role.
When addressing the BRICS Business Forum held in Johannesburg in July 2018, Chinese President Xi Jinping said, “We are witnessing major changes unfolding in our world, something unseen in a century.” He predicted, “The next decade will be a crucial one in which new global growth drivers will take the place of old ones… The next decade will see faster changes in the international landscape and the international alignment of forces… The next decade will see a profound reshaping of the global governance system.”
In Wu’s view, these “unseen in a century” changes began with the 2008 financial crisis and have their roots in the global currency cycle that is centered on printing and issuing more U.S. dollars and the international economic cycle that follows the “consumer country + producer country” pattern.
In the years following the 2008 financial crisis, the U.S. national debt soared from US $10 trillion to US $22.72 trillion by the 2019 fiscal year. As the country is plagued by both budget and trade deficits, American corporations, consumers, and financial institutions are also sinking deeper into the mire of overwhelming debts. In addition, with the ultra-low rate of domestic savings, the aggregate demand in the U.S. has long outpaced the aggregate supply. The result is ballooning debts, which, according to Wu, is the decisive factor in the faltering international currency cycle and economic cycle.
Facing this reality, the fourth plenary session of the 19th CPC Central Committee decided to further improve the system of the socialist market economy, China’s system and mechanisms of sci & tech innovation, and its economic mechanism to achieve a higher level of opening-up.
According to Wu, China has been reconstructing its exterior economic cycle through further opening-up over the last several years. For instance, it proposed the Belt and Road Initiative, has established 18 pilot free trade zones (FTZS), introduced 11 measures to open up its financial sector, issued the Circular Concerning Measures on Further Opening up and Actively Utilizing Foreign Investment (2017), and adopted the new Foreign Investment Law, which went into effect on January 1, 2020.
On a domestic level, China has been cultivating new growth drivers through sci & tech innovation. It has established national sci & tech centers in Zhangjiang of Shanghai, Huairou of Beijing, and Hefei of Anhui Province, built a number of major sci & tech facilities, and executed a raft of sci & tech programs. Last October the Political Bureau of the CPC Central Committee held a group session to discuss the development of blockchain technology, which is expected to spearhead breakthroughs in China’s independent innovation.
China is also making efforts in boosting domestic consumption to offset uncertainties in external demands. In August 2017, it published a guideline for expanding and upgrading information consumption; in September 2018, it released a document on improving the consumption system and mechanisms to further unleash citizens’ consumption potential; in October of the same year, it promulgated an action plan to boost rural tourism; and in August 2019, it released a document on accelerating the circulation of goods and services to stimulate commercial consumption, and then another document on exploring the potential of cultural and tourism consumption. All of the above documents aim to cultivate a stronger domestic market.
“The above developments will foreseeably further enrich the content of China’s basic socialist economic system and enable the country to keep the initiative firmly in its hands and grasp the overall situation amid intertwined problems and fleeting changes in the world,” Wu said.
China is also making efforts in boosting domestic consumption to offset uncertainties in external demands.
Rule of Law Thinking
In the early days of China’s reform and openingup, the factors of production in China, such as land and labor were redundant. Utilizaiton of these factors was therefore the dominant driver of its economic development. But after decades of rapid growth, the shortage of migrant workers and construction land has become pronounced, and the contest for attracting professionals has intensified. There is now little room for growth driven by these production factors, and it is the general consensus that China’s future
lies in upgrading the allocation of resources.
Wu believes that when the market plays a decisive role in allocating resources and the government improves its role in the process, all factors of the economy, including labor, knowledge, technology, management, and capital will become vibrant, and all forces creating social wealth will be released.
“In stimulating market vitality and building up the internal forces powering economic growth, President Xi has stressed the need to create a business environment which is stable, fair, transparent, and predictable. Rule of law can nurture the most stable, fair, transparent, and predictable environment.”
Facing the new requirements of development, the fourth plenary session of the 19th CPC Central Committee reiterated that China will unswervingly follow the path of socialist rule of law with Chinese characteristics, improve law-based governance and law-based exercising of state power, and build a lawbased country, government, and society.
The market economy, at its core, is a law-based economy, in which the rule of law guarantees and serves economic reform and development. The Regulation on Optimizing the Business Environment that was issued last October, for instance, is aimed to regulate the relationship between interests of different market players within the framework of the law, and ensure that competitive companies and individuals have unimpeded access to the market and resources, thus enabling them to thrive on a level playing field.
In Wu’s opinion, the regulation well embodies
China protects the autonomy of market entities in their operation and all their legitimate rights and interests, including personal and property rights, in accordance with the law.
the rule-of-law thinking. It stipulates that the government will minimize direct interference in the market, further curtail administrative review and examination, and replace that with a notification-and-commitment-based procedure for items truly requiring administrative permits. Any addition to the items requiring government permits must be subject to extensive debate and rigorous review in accordance with laws and regulations. No government department can issue negative lists for foreign investment market access other than the national one or seek self-interest by means of conducting business environment assessment. Public institutions, social organizations, and corporations owned or controlled by government agencies are in principle prohibited from providing intermediary services for activities involving government permits issued by the agencies in question.
China protects the autonomy of market entities in their operation and all their legitimate rights and interests, including personal and property rights, in accordance with the law. It has also strengthened protection of intellectual property rights and introduced a punitive compensation mechanism to crack down on infringements. It is removing all obstacles to market entry and exit. China is working to streamline the procedures for deregistration of market entities, aiming to require fewer papers, cut the time needed, and lower the cost of deregistration. More than this, it has made the point that new laws and regulations should leave room for future modifications so as to avoid adverse impact of overlapping or contradicting policies on business activities of market entities.
As Wu sees it, advancing law-based governance is a profound social transformation. The rule-of-law thinking, which underpins the Regulation on Optimizing the Business Environment, will take hold in all aspects of the Chinese society and its people’s lives, leading to constant improvements in the country’s market, economy, and people’s livelihood. C