The Fundamental Purpose of China’s Initiatives to Comprehensively Deepen Reform

From: English Edition of Qiushi Journal Updated: 2014-05-09 16:32
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The Decision of the CPC Central Committee on Major Issues Concerning Comprehensively Deepening Reform (hereinafter referred to as the Decision on Comprehensively Deepening Reform, or simply as the Decision), which was recently adopted at the Third Plenary Session of the Eighteenth CPC Central Committee, constitutes a framework document that will guide China in its efforts to refine the system of socialism with Chinese characteristics. The Decision states, “We must remain committed to orienting reforms towards the development of a socialist market economy; regard promoting social equity and justice and improving the people’s wellbeing as the fundamental purpose of our initiatives; further free our minds; continue to release and develop productive forces; unleash and boost the vigor of our society; resolutely discard defects that are present in our systems and mechanisms; and strive to open up broader prospects for the cause of socialism with Chinese characteristics.” These guiding principles fully demonstrate the immense political courage and outstanding political wisdom of the CPC Central Committee with Xi Jinping as General Secretary in breaking away from outdated ideas and notions and breaking through the barriers of solidified interests in a new round of reform.

By rallying the people together under its leadership and relying closely on their support, the Communist Party of China has steadfastly pressed ahead with a policy of reform and opening up over the last 35 years, despite having no prior experience to draw upon in this regard. During this time, we have made constant efforts to free the mind, to seek truth from facts, to keep up with the times, to make innovations and explorations, and to balance the relationship between reform, development, and stability. By “feeling out the stones to cross the river,” we have paved an approach to reform that sees easier issues being tackled before more difficult ones, that goes from shallow to deep, that draws on key initiatives to promote widespread change, and that creates a mutually reinforcing relationship between progress on the whole and breakthroughs in key areas. China’s reform and opening up drive has led to the creation and development of socialism with Chinese characteristics. It has greatly liberated and developed the country’s productive forces, considerably increased China’s overall national strength and international competitiveness, and significantly enriched the Chinese people’s material and cultural life. A wealth of facts demonstrate that reform and opening up has been the single most crucial decision in the shaping of the China that we see today, and that reform and opening up is among the key reasons why the cause of the Party and the people has been able to catch up with the times at such an extraordinary pace.

As a means for the self-improvement of the socialist system, China’s reform has the prominent features of being systematic, integrated, and coordinated. On the one hand, with most of the easier reforms having already been completed, we are now mainly left with difficult reforms that involve complicated relationships and conflicting interests, signaling that China’s reforms have now entered more challenging territory. On the other hand, against the backdrop of the profound changes that have taken place globally, nationally, and within the Party, the orientation of China’s reform is shifting from “giving priority to efficiency with due consideration to fairness,” which was based on the level of productive forces in the past, to “giving consideration to both efficiency and fairness, with greater emphasis on fairness.” Under such circumstances, laying emphasis on grasping the laws governing socialist reform, responding to public concerns, representing the will of the people, and confronting risks and challenges head-on, the CPC has incorporated the statement “we must regard promoting social equity and justice and improving public wellbeing as the fundamental purpose of our efforts to comprehensively deepen reform” into the Decision on Comprehensively Deepen Reform. This statement has charted the course of our next round of reform. It comes as a sign that the Party is maintaining its commitment to a distinctive governing philosophy that strives for equality with regard to rights, opportunities, and rules, and that strives to ensure that all of the people can benefit from the fruits of development more fairly and more thoroughly. With this statement as our guideline, we will be able to rally consensus among society, converge efforts behind reform, give play to the principal role of the people, and march forwards with great determination on the course that the Decision has set. As reforms continue to progress, the dividends that they create will gradually be released, allowing the people to benefit on a constant basis.

The Decision on Comprehensively Deepening Reform continues to identify economic development as the central task of the country. With a view to leveraging the role of economic reform as a driving force, it has laid down comprehensive plans for political, cultural, and social reforms, for the reform of institutions pertaining to ecological progress, and for the reform of systems concerning the Party. The idea that promoting social fairness and justice and improving public wellbeing constitutes the fundamental purpose of reform has been fully incorporated throughout all parts of the Decision on Comprehensively Deepening Reform. From the perspective of economic reform, all of the reform measures that have been presented in the document are demonstrative of this principle.

I. A well-developed basic socialist economic system is essential if the people as a whole are to become wealthier through their own hard work

Deng Xiaoping once said: “To build socialism, it is necessary to develop productive forces. Poverty is not socialism.” Following the founding of the People’s Republic of China, the CPC led the people on a painstaking journey to explore a means of building and developing socialism. While tremendous achievements were made during this process of exploration, there were also several missteps. A rigid economic system and a sole form of ownership restricted the rapid flow and optimal use of factors of production. This dampened the initiative, enthusiasm, and creativity of urban and rural workers, and prevented the socialist economy, which otherwise should have thrived, from reaching its full potential. Following the introduction of the reform and opening up policy in 1978, the CPC, having drawn profound lessons from the past, and with the realization that China was still in the primary stage of socialism, gradually established a basic economic system whereby public ownership constitutes the mainstay while various forms of ownership are able to develop side by side. As a result, China’s productive forces, overall national strength, and living standards have all witnessed remarkable improvement. However, we must be aware that China will remain in the primary stage of socialism for a long time to come, and that development is still the key to the resolution of all of China’s problems. Therefore, we must unwaveringly consolidate and develop the public sector of the economy, unwaveringly encourage, support, and guide the development of the non-public sector, and thereby lay down more solid material foundations to underpin the prosperity and strength of the country, the happiness and wellbeing of the people, as well as the harmony and stability of our society. 

The Decision on Comprehensively Deepening Reform presents a series of requirements on what must be done in order to preserve and develop China’s basic economic system. At the same time, it also sets forth a considerable number of new reform measures, all of which fully reflect the requirement of promoting equity and justice and improving public wellbeing. For instance, it clearly states that “the property rights of the public sector are inviolable, as are those of the non-public sector,” and that “the state protects the property rights and legitimate rights and interests of all forms of ownership.” These statements have provided an institutional guarantee for economic entities operating under various forms of ownership to legally use factors of production as equals, to compete in the market on an equal footing, and to enjoy the same protection afforded by the law. The Decision also states that vigorous efforts will be made to “develop a mixed economy in which state capital, collective capital, and private capital can hold shares in one another and become mutually integrated.” Being bound together by property rights, this new type of economic community will not only promote the integration of labor, knowledge, technology, managerial expertise, and capital, thereby maximizing the efficiency of resource allocation, but will also ensure that various factors of production are able to participate in the distribution of income equally on the basis of their respective contributions. This will help to increase public identification with and participation in economic development. Emphasizing that “state-owned enterprises (SOEs) are owned by the whole people,” the Decision states that a proportion of state-owned capital will be used to supplement social security funds, and that the proportion of state capital gains that is turned over to public finance will be increased to 30% by the year 2020. In these statements, the inherent nature of SOEs and the social responsibility that they have to benefit the people as a whole is fully reflected. In addition, the Decision also states that “the non-public sector of the economy plays an important role in sustaining growth, stimulating innovation, creating jobs, and increasing tax revenues,” and that “all manner of irrational regulations concerning the non-public sector will be abolished, hidden barriers will be removed, and specific measures will be formulated to allow private businesses to enter fields that require special permission.” These statements represent a major step forward in ensuring equality between various forms of enterprise with regard to rights, opportunities, and rules. The implementation of these measures will enable workers to obtain more employment opportunities and receive stable incomes from various kinds of enterprises. 

II. Reforms to establish a well-developed modern market system are the key to ensuring that market entities under all forms of ownership can compete and gain on an equal footing for the benefit of the general public

A uniform market system which is characterized by openness and orderly competition can be regarded as the most prominent symbol of a well-developed economy. The major reasons why prolonged economic stagnation has been seen in certain developing countries that once enjoyed a certain degree of success in economic development are that social interests in these countries have become solidified, ordinary people have lost the right to participate in market activities equally, and neither efficiency nor fairness can be guaranteed. Since the establishment and development of a market system was first proposed at the Third Plenary Session of the Fourteenth CPC Central Committee 20 years ago, China has put in place a variety of market systems covering means of production, commodity distribution, finance, technology, personnel, and information following two decades of tireless efforts. However, the boundaries between the government and the market are still somewhat blurred, there is still too much government intervention in market activities, and the decisive role of the market in the allocation of resources has yet to be fully realized. In certain fields and industries, the market rule of fair competition has been distorted, and the right of market entities to compete on an equal footing has been undermined by the interference of monopoly interests. Therefore, in comprehensively deepening reform, we must accelerate the establishment of a modern market system in which enterprises operate independently and compete equally, consumers make choices freely and spend of their own accord, and commodities and factors of production flow freely and are exchanged on equal terms. By tearing down all manner of market barriers, we will strive to make resource allocation fairer and more efficient.

The Decision on Comprehensively Deepening Reform puts forward a number of specific requirements with regard to establishing fair, open, and transparent market rules, improving the mechanisms that ensure prices are predominately subject to market forces, establishing a unified construction land market for both urban and rural areas, improving the system of financial markets, and improving mechanisms to ensure that technological innovations are market-oriented. With regard to the financial system, for example, the Decision presents a number of new reform measures. According to the Decision, “eligible non-government investors will be allowed to set up financial institutions such as small and medium-sized banks.” This measure will help to improve the environment for the financing of enterprises, addressing the high cost and the difficulty that small and medium-sized enterprises face in securing finance. At the same time, this measure will also provide ordinary people with additional channels to invest, manage their wealth, and increase their incomes. The Decision also states that “reform will be implemented to make the issuance of stocks registration-based.” This provision will boost the capacity of the market to discover value, make it easier for quality enterprises to go public and junk stocks to exit the market, and promote the healthy development of the stock market. In addition, it will fundamentally plug up loopholes that allow insider trading to take place as a result of asymmetric information between stock issuers and investors, thereby protecting investor rights and interests and helping to ensure that investments can retain their value and appreciate. According to the Decision, efforts will also be made to “promote equity financing through multiple channels.” This measure will help to improve the mechanisms under which Chinese enterprises form capital stock, channel more private capital into the real economy, address the high debt ratios that are common in Chinese enterprises, and fend off enterprise debt risks. At the same time, it will also effectively guide the flow of private capital, helping to increase people’s equity earnings.

III. The further reform of the fiscal and taxation system is required to promote social equity and justice, properly adjust national income distribution, and improve public wellbeing 

A sound fiscal and taxation system can serve as an institutional guarantee for our efforts to optimize resource allocation, safeguard a unified market, promote social fairness, and ensure the enduring peace and stability of the country. In recent years, with the rapid development of the national economy, China’s fiscal revenue has maintained steady growth, reaching 11.7 trillion yuan in 2012. Despite this, however, there are still a number of problems present in China’s fiscal system. For instance, powers and corresponding spending responsibilities at different levels of government are not clearly defined, transfer payments are often discretionary, and support for public services is insufficient. In line with the requirement to “improve the system of public finance,” which was set forth at the Eighteenth National Congress of the Party, the Decision on Comprehensively Deepening Reform states that efforts will be made to improve China’s budgetary management system. To do this, the government will “reevaluate and regulate major expenditures that are linked to increases in fiscal revenues or GDP, and rescind such linkages in principle”; “improve the mechanism for increases in regular transfer payments”; and “phase out dedicated government funds and matching funds from local governments in competitive areas.” These measures all represent institutional arrangements for optimizing national income redistribution. They will play a positive and highly significant role in keeping both the central government and local governments motivated, promoting the transformation of government functions, balancing financial resources among different regions, and increasing our capacity to provide basic public services for the benefit of the public.

Since the launch of the reform and opening up drive in 1978, through continued efforts to deepen the reform of its tax system, China has gradually established a composite tax system in which turnover tax and income tax represent the main tax forms while other types of tax play a supplementary role. However, under China’s current tax system, the development of the local tax system has lagged behind, and the function it assumes in secondary distribution needs to be strengthened. In setting out to deepen the reform of China’s tax system, we need to further improve the mix of taxes in line with the principles of pursuing a simple tax system, a broad tax base, and steady tax burdens. By doing so, we will provide the people with a stronger incentive to start businesses and create wealth, thereby increasing the amount of wealth in our society. The Decision on Comprehensively Deepening Reform emphasizes that the focus of tax system reform is to “unify the tax system, promote greater equality in tax burdens, and ensure fair competition.” In recent years, China has implemented a number of reform measures regarding the tax system, such as replacing business tax with value-added tax and raising the threshold for individual income tax. In the future, we will accelerate a series of tax reforms, including the reform of excise tax, property tax, and resource tax, as well as the replacement of environmental protection fees with taxes. The purpose of these attempts is to make better use of taxation as a lever to promote the transformation of China’s growth model. At the same time, we will use tax as a means of reversing the widening income gap and promoting social harmony and stability.

IV. In order to ensure that farmers can participate in modernization and share in the fruits of modernization as equals, systems are needed to underpin new relationships between industry and agriculture and between urban areas and rural areas, and to promote the integrated development of urban and rural areas 

In the early days of the People’s Republic of China, a society that was both poor and backward constituted the foundation on which China would attempt to carry out socialist modernization. Under such particular historical conditions, it was necessary for China to create systems that would allow it to accumulate capital for industry through agriculture, such as a system for the state purchase and distribution of farm products, and a system for the separate registration and management of urban and rural households. While these systems were successful to a certain extent, they also caused and solidified a serious urban and rural divide. Following the launch of the reform and opening up drive, a household contracting system for farmland was instituted in rural areas. At the same time, the system for the purchase and distribution of farm products was revamped, the development of town and township enterprises and private businesses was supported, and rural workers were encouraged to shift to non-farming jobs. Owing to these reform measures, the barriers that divided urban and rural areas were gradually broken. Since the beginning of the new century, the government has adopted a series of policies aimed at strengthening agriculture and raising the incomes of farmers, such as rescinding agricultural tax, lifting controls over the purchase and sale of grain, subsidizing agriculture, and establishing a social security system for rural residents. Though those policies have done a great deal to balance development between industry and agriculture and between urban and rural areas, considerable disparities still exist between urban and rural areas with regard to infrastructure, basic public services, and incomes, while the systems and mechanisms that are hindering the integrated development of urban and rural areas are yet to be fundamentally removed. For this reason, the Decision on Comprehensively Deepening Reform provides that efforts must be made to “improve systems and mechanisms so as to establish a new type of relationship between industry and agriculture and between urban areas and rural areas in which industry promotes agriculture, urban areas support rural development, industry and agriculture reinforce each other, and urban development and rural development are integrated.” These guidelines have provided us with an institutional foundation on which efforts can be made to promote the synchronization of industrialization, urbanization, agricultural modernization, and the widespread application of IT.

In promoting the integrated development of urban and rural areas, it is essential that we create systems and mechanisms to ensure the equal exchange of factors of production and to balance the allocation of public resources between urban and rural areas. According to the Decision, “collectively-owned land for construction and commercial purposes in rural areas will be allowed to be transferred, leased, and contributed in exchange for shares, provided that plans and usage restrictions for the land in question are adhered to, so as to ensure that rural construction land for commercial purposes can enjoy the same market access, the same rights, and the same prices as state-owned land.” The Decision also states that “mechanisms for the distribution of land value gains that take into account the state, collectives, and individuals will be formulated, under which the proportion of land value gains that goes to individuals will be significantly increased.” These new regulations have eliminated the urban-rural divide in the construction land market. By granting rural construction land the same rights that are afforded to urban construction land, we will be able to significantly increase the income that farmers derive from property. The Decision also includes the following statements: “On the condition that the strictest possible system for the protection of arable land is adhered to and improved, farmers will be endowed the rights to possess, use, profit from, and transfer their contracted land, and to use it as collateral or guarantee, and they will be allowed to contribute their contracted land-use rights in exchange for shares in industrialized agricultural ventures”; “Farmers will be granted the rights to possess, profit from, sell, and inherit shares of collective assets, or to use them as collateral or guarantee”; and “Steady yet prudent progress will be made in allowing rural residential property rights to be transferred or used as collateral or guarantee.” The creation of these major new systems and mechanisms will produce a number of effects. First, by regarding rural contracted land-use rights and rural residential land-use rights as property rights, and clearly defining the ownership of these rights, these measures have provided an institutional foundation for rural residents to become part of a unified market that covers both urban and rural areas. Second, by making use of such property rights, farmers will be able to achieve a significant increase in the proportion of their income that comes from property whilst continuing to receive income from other sources such as business, non-farming jobs, and transfer payments. This will improve their income mix. And third, by opening up a new channel for mortgaging or pledging of rural property rights, these systems and mechanisms will help to address the lack of options that rural households face in obtaining credit and finance for their household business operations, which in turn will invigorate the rural financial market. The Decision on Comprehensively Deepening Reform requires that we “promote the integration of rural migrant workers into cities as permanent urban residents, and allow eligible rural migrant workers to become urban residents on a step-by-step basis.” According to the Decision, a number of new systems with regard to housing, healthcare, and social security will be created for rural workers who have settled in cities. These provisions will serve as a major breakthrough point for the dismantling of the urban-rural divide. By protecting the rights and interests of rural migrant workers and enabling them to integrate into cities as quickly as possible, we will be able to fully reap the dividends that urbanization generates.

V. The creation of a fully open economy will help to promote coordinated and balanced development and narrow the development gap between different regions 

Since the launch of the reform and opening up drive, China has gradually opened itself up to the outside world in all directions, on multiple levels, and across a broad range of fields, beginning with the establishment of Special Economic Zones and moving on to the opening up of river-belt regions, border areas, and inland regions. These efforts have greatly spurred economic and social development in China. In particular, China’s accession to the WTO has enabled the country to study and make use of common international rules to the greatest possible extent, significantly improved China’s capacity to allocate and make use of global resources, and rapidly raised the country’s international competitiveness. The Decision states, “We must work to ensure that opening up domestically and opening to the outside world reinforce each other; better integrate the ‘bring in’ and ‘go global’ strategies; and promote the orderly and free flow of international and domestic factors of production, the highly efficient allocation of domestic and international resources, and the in-depth integration of domestic and international markets. By doing so, we will step up efforts to foster new advantages in participating in and leading international economic cooperation and competition, with a view to promoting reform through opening up.” This statement fully demonstrates a more proactive strategy of opening up. It has set a clear direction for our efforts to seize on an important period of strategic opportunity and raise both the quality and level of China’s open economy.  

In order to transform the way that China achieves outward-oriented economic growth, we must work to expand the depth and breadth of China’s open economy. Free trade zones represent the depth of China’s open economy. The Decision requires that we step up efforts to create a set of cross-border investment and trade rules that are oriented towards international practices and based on law, press ahead with the reform of institutions concerning market access and port management, and work to establish a high-standard network of free trade zones that is geared towards international needs. All this will greatly facilitate international investment, promote the robust development of trade in services, and increase China’s international competitiveness. The openness of China’s inland regions represents the breadth of the country’s open economy. Development is still highly unbalanced between China’s eastern region and its central and western regions, and to a large extent this imbalance is manifested in the uneven opening up of China’s inland areas and its coastal areas. At present, the volume of exports and imports and the rate of foreign capital utilization in inland China account for less than 20% of respective national totals. This lopsided layout has already had an adverse effect on China’s overall opening up and on the momentum of its opening up over the long term. In a bid to address this problem, the Decision has given higher priority to the opening up of inland and border areas. It provides that efforts will be made to “promote the coordinated development of trade, investment, and technological innovation in inland areas,” and also that efforts will be made to “establish innovative models for the processing trade and create systems and mechanisms that are conducive to the development of inland industry clusters.” By giving inland regions a strong impetus to seize on the opportunities presented by a new round of global industrial restructuring, these provisions will help us to increase the pace of development in inland areas and narrow the gap between China’s eastern region and its central and western regions. The Decision further requires that efforts be made to “build a corridor of the outward-oriented economy that traverses eastern, central and western China and links together southern and northern China.” This will allow inland China to increase interaction with neighboring countries and regions along the corridor via the China-ASEAN gateway and the Chongqing-Xinjiang-Europe International Railway. As a supporting mechanism, the Decision also states that efforts will be made to “promote cooperation in customs clearance between inland areas and coastal and border areas, so as to realize exchanges of information, mutual recognition of supervision, and mutual assistance in law enforcement between port management departments in all areas.” This mechanism, which conforms to international practices, will be effective in removing the institutional barriers that obstruct the customs clearance of inland exports. In doing so, it will help to create a new national layout for our open economy under which various regions each assume their own tasks and work in collaboration with one another, draw on each other’s strengths, and develop in a balanced and coordinated manner. These major reforms are certain to further unleash the potential for the opening up of inland areas, narrow the gap in the openness between inland and coastal areas, and allow our vast inland areas to become a strategic hinterland of openness and a new driver of economic growth in China.

VI. Deepening the reform of various social programs will provide an institutional guarantee for our efforts to safeguard and improve the public wellbeing and allow all people to benefit from the fruits of development more fairly and more thoroughly

Solving problems that concern the immediate interests of the people in work and everyday life, safeguarding the economic, social, cultural, and social rights and interests of the people, and striving to achieve all-round personal development constitute the fundamental purpose of all the initiatives of the Party and the government. Since the launch of the reform and opening up drive, China’s social programs have witnessed considerable development, and the living standards of urban and rural residents have improved significantly. Despite this, however, the development of social causes has still lagged behind in contrast to the rapid pace of our economic development. There are still urgent issues to be resolved in a range of areas that have a very direct bearing on the interests of the people, such as education, employment, social security, medical care, housing, the environment, the safety of food and drugs, production safety, public security, law enforcement, and justice administration. In a bid to address these problems, the Decision states, “We must accelerate the reform of social programs, find effective solutions to issues that people are most concerned about and that affect them most directly in their everyday lives, strive to provide the public with diversified services, and do a better job of satisfying the demands of the people.” This requirement fully embodies the Scientific Outlook on Development, which puts people first and seeks to promote comprehensive, balanced, and sustainable development. It also fully demonstrates the principle that development is for the people, dependent on the people, and beneficial to all the people. 

The Decision on Comprehensively Deepening Reform sets out a series of reform measures in order to meet the requirement of establishing a “framework of measures to guarantee social fairness, the core aspects of which include equal rights, equal opportunities, and fair rules for all,” which was proposed at the Eighteenth National Congress of the Party. These reform measures include promoting the reform of the examination and enrollment system for entrance into universities; removing all institutional barriers that undermine equal employment and rooting out employment discrimination; increasing the proportion of labor remuneration in primary distribution; pooling basic old-age pension funds at the national level; and advancing the comprehensive reform of health care, medical services, public health, and the pharmaceutical supply and regulatory system. It is foreseeable that as these reform measures are carried out, the equal educational opportunities, stable employment, fair income mechanisms, strong social safety nets, healthy living conditions, and peaceful social environment that the people long for will materialize more quickly. It can also be foreseen that the rights and interests of all people will be further safeguarded; that a harmonious society in which all people can give rein to their talents and find their proper place will be built; that people’s enthusiasm, initiative, and creativity will be fully leveraged; and that the great cause of socialism with Chinese characteristics will continue to show great vitality as it brings the people together in one heart and one mind.

Reform has a bearing on society as a whole, on the sentiment of the public, and on the interests of every single citizen. As long as we rally closely behind the CPC Central Committee with Xi Jinping as General Secretary, remain committed to the fundamental goal of promoting social equity and justice and improving public wellbeing in our new round of reform, unite minds and forge strength, and press forward in a determined manner, we will be able to write a new chapter in comprehensively deepening reform. We have great confidence that the prospects for the great cause of socialism with Chinese characteristics are broad and bright!

(Originally appeared in Qiushi Journal, Chinese edition, No.24, 2013)

Author: Mayor of the Chongqing Municipal People’s Government, the People’s Republic of China

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