Vital to lower institutional costs

When meeting a delegation of business leaders from the United States in Beijing on Tuesday, Premier Li Keqiang said China will gradually expand its market access and further optimize its business environment to raise the competitiveness of the country’s economy. Li’s remarks came only days after he stressed in a teleconference that the business environment is a productive force and local governments should transform themselves from the suppliers of preferential policies into the creators of a fair business environment.

It is under the persistent efforts of the central government that China’s business environment has improved in recent years.

According to the World Bank’s report, Doing Business 2017: Equal Opportunity for All, China has risen 18 places over the past three years in terms of its business environment, and in terms of how convenient it is to start a business, China has moved up 31 places among other global economies.

Yet despite the improvements, China’s business environment still lags behind not only the developed but also many developing economies, as Li pointed out.

It is not difficult to understand the importance of such traditional factors of production as technology, labor and land.

However, the business environment is not only a factor of production, but also one that is “non-substitutable”, which means particular efforts are needed to release productivity through optimizing the business environment to raise a country’s entire production efficiency and promote its healthy economic and social development.

To optimize the business environment means, essentially, lowering the institutional costs for economic activities.

Institutional obstacles and the lack of good institutions are holding back China’s economic development. More important, only a well-designed institutional environment can ensure the other factors of production play their roles to the maximum.