Several Major Issues with Regard to Comprehensively Deepening Economic Reform

From: English Edition of Qiushi Journal Updated: 2013-08-20 14:57
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Since the Communist Party of China (CPC) outlined the strategies of deepening economic reform across the board and accelerating the improvement of the socialist market economy at its Eighteenth National Congress, a new wave of economic reforms has been gathering momentum in China. At this point, there are a number of major issues pertaining to both theory and practice that we must consider carefully and thoroughly as we proceed with the deepening of economic reforms. 

I. The direction of economic reform

As we set out to deepen our economic reforms, it is essential that we continue to move forward in the right direction. In other words, our reforms must continue to be oriented towards the development of the socialist market economy. If we are not clear on this issue, we will face the danger of veering off course during the implementation of reforms in practice. 

The socialist market economy is tied to the basic system of socialism. On one hand, this relationship allows for the advantages of market mechanisms to be exerted, such as information responsiveness, high efficiency, effective rewards, and flexible regulation, which serves to boost vitality in the economy; on the other hand, it also brings the institutional advantages of the socialist economy into full play, such as public ownership of the means of production, distribution according to work, planned regulation, overall coordination, as well as independence, unity, and mutual aid. This means that the blindness, spontaneity, and hysteresis inherent to the capitalist system, as well as the other profound shortcomings of this system, such as economic crisis and economic equality, can be overcome. Therefore, the socialist market economy has allowed us to transcend the crude dogma of the capitalist market economy, the foundation of which is private ownership, in both theory and practice. It has greatly promoted the growth of productive forces, provided a strong impetus and institutional guarantee for the development of socialism with Chinese characteristics, and created unprecedented prospects for scientific socialism and human progress. This is the fundamental reason why we must remain resolutely committed to orienting our economic reforms towards the socialist market economy.

Looking out over Lujiazui in Shanghai’s Pudong New Area (Photo taken on December 7, 2011). Steady, rapid growth has seen China quickly become the world’s second largest economy. / Xinhua (Archive photo)

Does our orientation towards the socialist market economy equate to marketization? Strictly speaking, the two cannot simply be equated. This is because as a reform target, the socialist market economy comprises of two aspects: one being to leverage the basic role of market mechanisms in the allocation of resources; and the other being to uphold and improve the basic socialist economic system. Leveraging the basic role of market mechanisms requires the establishment of a system for the independent operation of enterprises, market-regulated price mechanisms, a fully-developed market system, and ample market competition. These reforms can be referred to as market reforms. Improving the basic socialist economic system, on the other hand, requires that we establish a basic economic system in which public ownership is the dominant form of ownership and multiple forms of ownership are able to develop side by side; implement an income distribution system in which distribution according to work is the main form of distribution and multiple forms of distribution coexist; leverage the role of macroeconomic regulation by the socialist state; safeguard social fairness and justice; and achieve the goal of common prosperity for all members of society. Quite clearly, these cannot be described as market-oriented reforms. On the contrary, they are actually intended to rectify, regulate, and transcend the limitations and shortcomings of the market economy, and this is where the superiority of socialism is found. In the socialist market economy, leveraging the role of market mechanisms to realize the marketization of resources is no doubt a fundamental aspect of deepening reform, but so is improving the basic economic and distribution systems in order to realize common prosperity and safeguard social fairness. Only by bonding these two aspects together organically can we fully demonstrate the true nature of the socialist market economy and accurately reflect what orienting reforms towards the development of the socialist market economy entails.     

II. The goals of economic reform

We should be aware that the goals of economic reform pertain to two aspects: the basic economic system and the economic structure. With regard to the basic system, reform pertains to the self-improvement and development of the socialist economic system; whereas with regard to the economic structure, it pertains to the establishment and improvement of the socialist market economy. The basic economic system, basic income distribution system, and socialist market economy, which the Party has established through the development of socialism with Chinese characteristics in practice, are all innovations that expand on the basic socialist system and the nature of socialism. Without innovation and development, the historic transformation from a highly centralized, planned economy to a fully vitalized socialist market economy would not have been possible. In other words, the self-improvement and development of the socialist system would have been unattainable. 

For this reason, the deepening of economic reform across the board comprises of two inter-related aspects: the improvement of the basic socialist economic system, and the improvement of the socialist market economy. This is exactly what is stated in the report to the Eighteenth National Congress of the CPC under the goal of deepening reform and opening up in an all-round way. Economically speaking, the goals of deepening reform and opening up in an all-round way are as follows: speeding up the improvement of the socialist market economy; improving the basic economic system in which public ownership is the dominant form of ownership and multiple forms of ownership are able to develop side by side; improving the income distribution system in which distribution according to work is the main form of distribution and multiple forms of distribution coexist; improving the system of macroeconomic regulation, so as to leverage the basic role of the market in the allocation of resources over a wider scope and on a deeper level; and improving the open economy to ensure more efficient, equitable, and sustainable economic development. These goals not only pertain to the improvement of the basic socialist economic system and distribution system, but also to the improvement of the socialist market economy. Covering production, distribution, exchanges, and other major economic elements of socialism with Chinese characteristics, as well as major aspects such as China’s basic system, economic structure, and opening up, these targets represent a relatively complete set of institutions which together have pointed us in the right direction for deepening economic reforms across the board under new historical conditions.     

In order to correctly understand these targets for the deepening of economic reform, the following points must be clarified. 

First, as reform pertains to the self-improvement and development of the socialist system, under absolutely no circumstances can we negate or abandon the socialist system. We need to be particularly vigilant against the idea that the capitalist market economy is a so-called universal value. This involves taking the capitalist market economy as the standard when identifying the goals and drawing the blueprints of China’s economic reforms; calling for the all-out implementation of privatization and liberalization, total alignment with the world capitalist system, and the implementation of the capitalist constitutional democracy of the West; and interpreting those so-called reforms which are tailored towards the capitalist market economy as genuine reforms, whilst regarding systems that do not conform to that standard, such as public ownership, planned regulation, common prosperity, and the leadership of the CPC, as remnants of the old system and obstacles to reform. In addition to being vigilant against the capitalist market economy, we also need to be vigilant against the tendency to doubt the market economy altogether, including the viewpoint that we should revert to the traditional path of socialism that we followed in the past. Though these two tendencies may appear to conflict with each other, they share a common trait in that they both negate the socialist path with Chinese characteristics and the orientation of our reforms towards the socialist market economy.

Second, the achievements that China has made so far in reform and opening up serve as a foundation and a starting point for the further deepening of economic reforms. China’s economic reforms have advanced constantly since the Third Plenary Session of the Eleventh Central Committee of the CPC. Speaking in overall terms, China has succeeded in making the historic transformation from a highly centralized, planned economy to a fully vitalized socialist market economy. It has established the socialist economic system with Chinese characteristics, whose core is the basic economic system and distribution system for the primary stage of socialism as well as the socialist market economy, and developed the socialist market economy. With this, the socialist economic system with Chinese characteristics has already demonstrated its huge superiority and enormous vitality through the course of practice. Only once we have acknowledged this point, and boosted the confidence we have in our system, will we be in the position to expand on what we have achieved in the past and take China’s economic reforms another step forward. The notion that our economic reforms have come to a halt, that our economy is on the verge of collapse, and that we need to start all over again and implement radical change is totally groundless.

Third, there are still problems with the economic system and structure we are employing at present, which means that the deepening of economic reforms will be an arduous task. In addition to unbalanced, uncoordinated and unsustainable development, we are still facing a number of pronounced economic problems that can only be resolved through the deepening of economic reforms across the board. These include a basic economic system that is in need of improvement, inequality in the distribution of income, an overly large gap between rich and poor, and serious corruption. The causes of these problems are numerous, and must be analyzed concretely and all-sidedly. Some are the result of insufficient marketization, which is manifested in the underdevelopment of market systems and the fact that the transformation of government functions is yet to be completed; some are the product of over-marketization, which includes the commercialization of public services and the spread of power-for-money deals; and some are the result of shortcomings in laws, regulations, policies, and management. However, the fact remains that most problems are inherent to development, such as China’s low capacity for independent innovation and its dualistic urban-rural structure. In particular, now that the market system and market laws are being exerted in economic activities, it is no longer appropriate to blame all of the problems we encounter on the remnants of the planned economy or on insufficient market reform. On the contrary, problems such as economic fluctuation, inequality in the distribution of income, and the worship of money are in many ways inherent shortcomings of the market economy, and are unavoidable even in a highly-developed market economy. These shortcomings must be overcome by improving the socialist system and by exerting the superiorities of the socialist system. It would be a fruitless endeavor to place our hopes on so-called thorough marketization to address problems that are inherently a part of marketization. 

Ultimately, the entire point of establishing a more mature economic system is that the essence of the socialist system can be demonstrated more fully. In many ways, this comes down to the question of whether or not common prosperity for all can be achieved. The essence of socialism is to liberate and develop productive forces, eradicate exploitation, end polarization, and ultimately realize common prosperity. The liberation and development of productive forces are the means, whereas meeting the ever-growing material and cultural needs of the people to the greatest possible extent, and realizing common prosperity and the full development of the person, are the goal. Together, the two embody the fundamental characteristics and superiorities of socialism. The soundness of our basic economic system and distribution system must ultimately be demonstrated through the realization of common prosperity. At the same time, the realization of a scientific mode of development that puts people first, the establishment of a harmonious socialist society, the safeguarding and improvement of public wellbeing, the preservation of social fairness and justice, and the building of a government whose purpose is to serve the people must ultimately be embodied in common prosperity. The report to the Eighteenth National Congress of the CPC clearly states that common prosperity is the fundamental principle of socialism with Chinese characteristics, and that China must remain committed to the path of common prosperity. This principle must be embodied throughout the deepening of economic reforms. Taking this as a basis, solid action needs to be taken to address the various shortcomings present in our current economic system, so as to further liberate and develop productive forces, pave the way for the realization of common prosperity, ensure that all people can benefit from the fruits of development more fairly, and better exert the superiority of the socialist system.  

III. Upholding and improving the basic economic system  

A basic economic system constitutes the foundation of a society’s economic system. It is the fundamental determinant not only of a society’s production, distribution, exchanges, and consumption, but also of the nature of that society and the direction of its development. Therefore, the effort to deepen economic reform must begin by upholding and improving China’s basic economic system. Though China has established a basic socialist economic system which serves as a constitutional principle for the country’s economic reform and development, it should be noted that under market conditions, changes in the structure of ownership are mainly determined by market mechanisms, and are thus influenced by a variety of factors including competition, globalization, and the flow of capital. For this reason, the structure of ownership is constantly changing. Under such conditions, without effective systems, mechanisms, laws and measures to serve as a guarantee, simply allowing the market to exert its role could cause the basic economic system to be undermined. For this reason, a mechanism to safeguard our basic economic system must be established and developed. The key to this mechanism is the establishment of a regulatory body whose responsibilities are to monitor the development of the basic economic system, urge the implementation of various laws, policies, and measures pertaining to the basic economic system, and balance the relationship between various different forms of ownership. China has already developed a relatively complete macroeconomic regulatory system, but it is yet to establish a well-developed regulatory framework for the structure of ownership. The latter is no less important than the former; in fact, it may even be more important. 

The deepening of economic reforms must involve resolute efforts to bolster and develop public ownership, so as to ensure that the leading role of the state-owned sector is fully exerted. In the socialist market economy, the leading role of the state-owned sector is derived from the dominance of public ownership. The purpose of the socialist state-owned sector is to promote the steady, balanced, and planned development of the national economy, to bolster and improve the socialist system, and to realize common prosperity and the fundamental interests of the overwhelming majority of the people. Negating the dominance of public ownership and the leading role of the state-owned sector would inevitably intensify the conflict between labor and capital, worsen the trend of polarization in the distribution of wealth, give rise to private capital and especially large capital, and result in the emergence of financial oligarchs. If that were to happen, our social stability would be sabotaged, our society would descend into a state of chaos, the foundations of socialism with Chinese characteristics would be rocked, and the healthy development of productive forces would ultimately be compromised. Therefore, we need to be totally clear on this point. 

China’s efforts to reform and develop state-owned enterprises have given rise to a basic system, mechanism, and layout for state-owned enterprises to be adapted to the market economy. However, there are still certain problems that need to be addressed through further reform. These problems mainly include the following: the relatively dispersed layout of state-owned enterprises means that advantages such as pooling strength behind major undertakings and coordinated development have not been sufficiently tapped; problems such as the abuse of power for personal gain and irregularity in the formulation of major decisions are present in the management of state-owned enterprises, which means that management systems need to be further refined; the wide distribution of state-owned enterprises across various sectors of the economy and in various regions of the country means that the management of state-owned enterprises needs to be further standardized and regulated; and given that state-owned enterprises are the common property of all the people, mechanisms for the democratic management and supervision of state-owned enterprises need to be further developed. What needs to be emphasized is that deepening the reform of state-owned enterprises in absolutely no way means that state-owned enterprises will be privatized, or that they will withdraw from the fields in which they compete. On the contrary, the purpose of further reform is to develop a better system of economic management that is geared to public ownership, and to further strengthen and optimize the state-owned sector so that it can better serve the interests of all the people. The distorted notion that the goal of reforming state-owned enterprises is privatization, which views the strengthening and enlargement of the state-owned sector as a step back for reform, not only runs counter to the direction that has been set for the reform and development of China’s state-owned sector, but also fails to conform to the will and the requirements of the overwhelming majority of the people.

The non-public sector is a major constituent of the socialist market economy and an important driving force behind the development of the national economy. China’s private sector has witnessed enormous development since the beginning of the reform and opening up drive. However, the development of the private sector is also facing a number of problems, which are attributable to both internal and external factors. Externally speaking, these problems include restrictions on entry into certain market sectors, limited options for securing finance, a heavy tax burden in real terms, and the frequent infringement of companies’ legal rights and privileges. In responding to these problems, effective policy measures must be adopted in order to further encourage, support, and guide forward the development of the non-public sector. However, it needs to be acknowledged that in addition to external constraints, the development of China’s private sector is also being restricted by internal factors, such as extensive modes of development, insufficient capacity for technological innovation, and low awareness of social responsibility. Other serious internal constrains include the shortcomings of family-based and patriarchal modes of corporate governance, and frequent violations of laws and regulations. Internal factors are restricting the development and strengthening of private enterprises in the same way that external factors are. Therefore, a two-way approach involving efforts to improve the external environment and efforts by companies themselves to improve their operations must be adopted. 

IV. The reform of the income distribution system

Only by looking to our basic economic system and our basic system of distribution will we be able to accurately identify the main issues that China is facing in the distribution of income at present, and find an effective means of closing the income gap whilst deepening the reform of the distribution system. The key to addressing these problems is to make a distinction between two different kinds of income gap.    

The first kind of income gap occurs among ordinary working people, and is primarily the result of differences in the quality, contributions, and living costs of working people in different sectors of the economy, different regions of the country, and different areas of profession. This kind of income gap has a rational side, as it reflects the demands of distribution according to work and the market economy, and is conducive to motivating producers. However there are also irrational factors that contribute to this earnings gap. For example, in many private enterprises, the pay that workers receive has long been lower than subsistence level, while to a large extent the costs of reproducing labor power are borne by workers themselves. Also, in state-owned enterprises, the insufficiency of mechanisms to regulate the distribution of earnings means that the pay and job-based consumption of senior managers lack effective constraints. These problems must be resolved through the reform of the income distribution system. 

The second kind of income gap arises from differences in the amount of property that people possess, including means of production, real estate, various financial assets, and natural resources. This kind of income gap is an inevitable product of a market economy in which various forms of ownership and various forms of distribution exist side by side. The presence of this gap helps to exert the role of market mechanisms. However, without the safeguard provided by China’s basic economic and distribution systems, and without the effective regulation of the government, simply allowing this disparity to grow according to the laws of the capitalist market economy would inevitably bring about polarization in the possession of property and the distribution of income.              

What is the root cause of the expanding income gap in China at present? The Marxist political economy tells us that distribution is determined by production. The main cause of the expanding income gap cannot possibly be labor earnings, and therefore can only be property-based earnings. Data indicates that the income disparities between urban and rural areas, between the highest earning province and the lowest earning province, and between the highest and lowest earning industries each amount to more or less three-fold, or slightly higher. However, as the structure of ownership and property relations have become increasingly diverse, a significant gap has emerged in terms of the possession of property and the generation of income from property, with the poorest people paling in comparison to the richest people in this regard. In particular, the contribution of unfair and irrational factors to the expansion of the property income gap has been the cause of widespread public dissatisfaction. This is extremely dangerous.    

For this reason, efforts to deepen the reform of the income distribution system must involve two aspects. On one hand, the level of income redistribution needs to be raised, and efforts to improve redistribution mechanisms, which mainly comprise of taxation, social safety nets, and transfer payments, need to be accelerated. On the other hand, the basic economic system and basic system of distribution must be upheld and improved, and the reform of the system for primary distribution needs to be deepened. Specifically speaking, the further reform of the income distribution system should comprise of the following: First, factors of production in key sectors and majorly important areas of the economy must remain firmly in the hands of the state. Mechanisms for supervision and management should be improved, so as to ensure that these factors of production are able to serve the interests of the people. Second, labor income must continue to be upheld as the primary form of income, so that people can be encouraged to exchange their labor and intellect for pay that is rightfully theirs. Third, efforts should be made to bring the growth of resident incomes in step with the growth of the economy, and the growth of labor remuneration in step with increases in labor productivity. Fourth, the level of resident incomes as a proportion of the overall national income needs to be raised, and the proportion of labor remuneration in primary distribution needs to be increased. Fifth, the system of distribution for state-owned enterprises should be improved. This includes taking solid steps to ensure that distribution according to work remains the overriding principle for distribution, guaranteeing that equal pay is given for equal work, strengthening the management of remuneration for senior managers in state-owned enterprises, and establishing sound mechanisms for the sharing of gains from state-owned capital. Sixth, in the non-public sector, collective bargaining for wages should be steadily promoted on a per-company, per-industry, and per-region basis, so as to address the issue of low employee wages in some industries and companies. Seventh, mechanisms for the use of public resources and for the distribution of gains from those resources should be improved. To do this, the regulation of high earnings, property income and the exploitation of natural resources by means of taxation should be further enhanced.   

V. The relationship between the government and the market        

The relationship between the government and the market is a core economic issue. Taking China’s national conditions as our foundation, we must take into account three aspects of China’s economy before we can gain a correct understanding of the relationship between the government and the market under the socialist market economy. They are the general rules of the market economy; the current historical stage of China’s economic development; and the requirements of the socialist economic system with Chinese characteristics. The meeting of these three aspects gives special meaning to the roles of the government under the socialist market economy. These roles are as follows:  

Overall planning: Taking the long-term, underlying interests of society as its basis, the government engages in the planned regulation of economic and social development and coordinates the relationship between all interested parties.  

Economic regulation: The government regulates supply and demand conflicts at the macroeconomic level in order to maintain an essential balance in terms of overall supply and demand and structural supply and demand.   

Market supervision: The government monitors and administers market entities and their actions in accordance with the law in order to protect fair competition in the market. 

Social management: Through the formulation of policies and regulations, the government engages in the lawful administration and regulation of social organizations and social affairs in a bid to preserve social harmony.  

Public services: By providing public goods and services, the government establishes a foundation and creates conditions for public participation in economic, political, cultural, and social activities. 

Safeguarding of public wellbeing: With a view to improving the material and cultural living standards of the people, the government strives to ensure that all the people have access to education, medical care, and old-age care, receive the pay that is rightfully theirs, and enjoy adequate housing conditions.

Management of state-owned assets: As the owner of the state-owned sector, the government engages in the effective supervision of state-owned assets on behalf of the people, so as to ensure that these assets remain secure and appreciate over time.   

Regulation of income distribution: Regulation is achieved through market forces, although the government engages in the necessary regulation of the income process.

In summary of the above, making up for the shortcomings of the market is not the only role of the government in the socialist market economy. More importantly, the role of the government is to promote the balanced and sustained development of society and the economy, bolster and refine the socialist system, liberate and develop productive forces, and ultimately realize common prosperity. Macroeconomic regulation by the government and adjustment by the market itself are both essential requirements of the socialist market economy; the two exist in harmony with each other, forming a mutually-complementary and mutually-reinforcing relationship. In working to establish and improve the socialist market economy, it is essential that the basic role of the market in the allocation of resources is fully exerted, that the allocation of resources by the market is actively promoted, and that direct government intervention in the market is reduced. At the same time, it is essential that we do not allow ourselves to be constrained by the “big market, small government” doctrine of liberalism. From the early stages of capitalism to the emergence of modern capitalism, the economic roles of government have not decreased, but have actually increased, and governments have not become smaller, but have actually gotten larger. In the modern market economy, government has long since grown beyond its role as a “night watchman,” having expanded into almost all aspects of economy and society. The strength of a country’s government has a decisive bearing on that country’s international standing and competitiveness, and the liberalist ideal of small and weak government has become a thing of the past. China is a major socialist country whose economy is founded on public ownership. In an age where major historical trends such as industrialization, informatization, marketization, and globalization are intertwined, the combination of rapid economic development, drastic social transformation, and major changes in the international landscape has given rise to a range of acute and exceptionally complicated problems both internationally and domestically. Against this backdrop, the historic task of achieving socialist modernization would simply be unattainable without the strong, unified leadership of the CPC Central Committee and the effective guidance of the government.  

The report to the Eighteenth National Congress of the CPC states, “The underlying issue we face in economic reform is how to strike a balance between the role of the government and the role of the market. We need to follow the rules of the market more closely, and better exert the role of the government.” This is a highly relevant statement that reflects the essential requirements of the socialist market economy. Regarding the relationship between the government and the market, there is still too much government interference in the micro-economy, our market systems remain underdeveloped, and we are yet to sufficiently exert the basic role of market mechanisms. At the same time, macroeconomic regulation needs to be made more scientific, effective, and authoritative, the transformation of the role played by the government has yet to be completed, the government management system is still somewhat irrational, and there are certain areas that the government is required to regulate but has failed to do so effectively. For this reason, efforts to accelerate the improvement of the socialist market economy must cover two aspects. On one hand, efforts need to be made to promote reforms in line with the principle of following the rules of the market more closely. This includes further streamlining administration and delegating power, developing the market system, improving mechanisms for the pricing of factors of production and natural resources, and promoting the free flow of factors of production between urban and rural areas in order to boost the vitality of the market. On the other hand, efforts need to be made to promote reforms in line with the principle of better exerting the role of the government. This includes further improving the fiscal and taxation system, the banking regulatory system, and the macroeconomic regulatory system, deepening the reform of the administrative system, making decision-making processes more rational and democratic, upholding fairness and justice, and promoting common prosperity. Through these efforts, we will be able to achieve better integration between the invisible hand and the visible hand. 

VI. Methods of deepening economic reform

In the late 1980s and early 1990s, two very different approaches to the transition from the planned economy to the market economy emerged: the drastic approach to reform that played out in the Soviet Union and Eastern Europe; and the gradual approach to reform chosen by China. China’s economic reforms were a success not only because they showed the world that socialism and the market economy could be integrated, but also because they saw the creation of a gradual, distinctly Chinese approach to reform through the course of practice. The main features of this approach are as follows: 

—Combining top-down leadership with bottom-up participation: Under the condition that unified leadership was maintained, China exerted the active and creative role of grassroots organizations in institutional development whilst respecting the creativity of the people. 

—Dual-track transition and quantitative change: On a planned and coordinated basis, China made the gradual shift towards a market economy by progressively raising the proportion of new resources that were subject to regulation by the market.    

—Overall coordination and breakthrough in key areas: Under the precondition of overall nationwide coordination, breakthroughs were made on a per-sector, per-enterprise, and per-region basis, gradually culminating in the overall transformation of the economic structure. 

—Balancing reform, development, and stability: A balance was maintained between the intensity of reform, the speed of development, and the capacity of society to cope with change. 

—Treading forward cautiously on the basis of reality: Reforms were pushed forward on a gradual basis, with trials being conducted prior to widespread implementation. Reform approaches were modified constantly in line with the needs of the actual situation. 

The methods that one applies are determined by the goals that one aspires towards. For this reason, it is meaningless to engage in an abstract discussion of reform methods without taking into account the nature and targets of reform. Above all else, it was the unique nature of the socialist market economy as a target for reform that urged China to adopt a gradual approach to its economic reforms. There are three reasons why this is the case: First, China’s reforms pertain to the self-improvement and development of the socialist system, and not the negation of that system. This fundamental trait dictates that the methods and processes of reform can only be mild and gradual in character. In this context, there is a clear continuity between the new and old systems, which are neither entirely distinct nor totally opposed to each other. Second, China is currently in the primary stage of socialism. During this stage, marketization is integrated into industrialization, and the transformation of the economic structure is integrated into the transformation of the mode of development. For this reason, the formation and development of a market economy will inevitably be a relatively long historical process. Third, our understanding of reform is not transcendental or predetermined, but is developing constantly along with advances in both practice and in theory. In particular, given that the socialist market economy is a new form of market economy that has never before been seen in history, the development and improvement of this economy, as well as our ability to understand it scientifically, will inevitably involve a long and drawn-out process.      

Fact has demonstrated that China’s gradual approach to reform has been a success. But given that China is now setting out to deepen its economic reforms under new conditions, is this gradual approach to reform still necessary? The answer is yes. This is because the fundamental conditions that urged China to take this gradual approach in the past, such as the nature and goal of reform, as well as China’s basic national conditions, have by no means changed. However, compared with the early phases of reform, important changes have occurred to the tasks and the situation that we are facing at the current stage of economic reform. As a result, there will undoubtedly be some differences with regard to the specific characteristics that our gradual approach to reform demonstrates. First, our understanding of the laws of reform has progressively deepened along with development of the economic structure, which in turn has enabled us to place a greater emphasis on the overall design of reform and proceed with the deepening of reform in a coordinated and systematic manner. Second, with the diversification of economic interests and the increasing complexity of social contradictions, clear differences are certain to emerge with regard to the way that reforms are perceived. This requires that we place a greater emphasis on overall coordination and democratic decision-making during the process of deepening reform, so as to balance the relationship between various different interests. Third, with the gradual improvement of the socialist market economy and the progressive development of the socialist economic system with Chinese characteristics, there will be increasingly less room to maneuver for our dual-track mode of transition, which has seen the growth of the new system alongside the retention of the old system for a long period of time. Fourth, changes have occurred to the areas where overall coordinated reform and priority emphasis are needed. State-owned enterprises are no longer the core aspect of economic reform, and pricing reforms are no longer the key factor determining economic success or failure. Instead, reforms pertaining to the social domain, to the wellbeing of the people, and to the safeguarding of fairness are becoming increasingly important. 

History is created by the people. Only by making the people both the purpose and the foundation of reform will China’s economic reforms ultimately be a success.  

(Originally appeared in Red Flag Manuscript, No.5, 2013)

Author: Professor at the School of Economics of Renmin University of China and Editor-in-Chief of the China Review of Political Economy

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