The Hands-Off Approach

By+Zhou+Xiaoyan

As the old saying goes， time is money. That is especially true in the business world， where even a small temporal delay may cost millions of dollars. Tedious approval procedures cost time and therefore threaten businesses viability.

To this end， when Chinese Premier Li Keqiang took office in March 2013， he promised that streamlining government administration would be on top of the reform agenda. He pledged to cancel or decentralize over one third of the approval items in the State Council， Chinas cabinet， within his tenure.

Over the past two years， the Chinese Government has made great efforts to ease market maneuverability by reducing the amount of administrative approvals required for businesses. Less administrative approvals also entail simpler procedures， take a shorter time to be processed and involve more transparency.

“Market dynamics are beyond your imagination. Therefore， the government must uphold the transformation of its functions by streamlining administrative approval， so as to give full play to the ‘unimaginable power of the market，”Premier Li said during an inspection tour to Shenyang， northeast Chinas Liaoning Province， in March 2014.

A self-inflicted reform

Over the past two years， the Chinese Government has massively cut down on red tape and lessened intervention in the market， aiming to give it a decisive role in allocating resources， as outlined by the Third Plenary Session of the 18th Central Committee of the Communist Party of China （CPC） held in November 2013.

When delivering the government work report to lawmakers at the Third Session of the 12th National Peoples Congress （NPC） on March 5， Premier Li announced that the government has met its goal ahead of schedule. At last years NPC session， the premier disclosed that the State Council plans to cancel or decentralize over 200 more administrative approval procedures by the end of 2014 to unleash more market dynamics.

Decentralizing administrative powers has also been a point of focus among participants at Chinas annual sessions of the NPC and the National Committee of the Chinese Peoples Political Consultative Conference （CPPCC）， the countrys top political advisory body， during the past two years.

According to xinhua News Agency， as of the end of 2014， 798 administrative approval items had been canceled or delegated to lower-level governments， more than one third of the total approval items in effect in March 2013.

Throughout 2014， Li presided over 40 executive meetings of the State Council， 21 of which explicitly focused on streamlining government administration. In all， a total of 247 approval items were canceled or decentralized， including those in key areas such as innovation， startups， business management and increasing employment rates.

“The government used to intervene too much with microbusiness operations. That would greatly twist the relationship between the government and the market， seriously undermine market vitality and cause corruption. Since Premier Li assumed office in March 2013， his administration has accelerated the transformation of government functions by streamlining administrative approvals. The quicker the pace is， the more vitality the market will have. As a result， more intrinsic growth momentum will be created，” said Chi Fulin， President of the China Institute for Reform and Development （CIRD） in south Chinas Hainan Province.

Liu Junhai， Director of the Business Law Center at the Beijing-based Renmin University of China， said streamlining administrative approval will increase the credibility of the government and unleash the untapped power of the market.

“The government is stepping back to judge the game while letting businesses play，”Liu elaborated.

xin Ming， an economics professor at the Party School of the CPC Central Committee， said that streamlining administration can help combat corruption.

“Too many administrative approvals will not only reduce market vitality but also raise corruption. By canceling unnecessary approvals， government power is less likely to be abused. It will create a more open and transparent market environment，” xin said.

In a bid to boost entrepreneurship， the State Administration for Industry and Commerce （SAIC） lifted restrictions on minimum registered capital， payment deadlines， and the down payment and cash ratios for registered capital on March 1， 2014， a move also aimed at energizing the economy.

By virtue of the new policy， the number of newly registered companies reached 3.23 million during the March-December period in 2014， surging 48.76 percent year on year. Registered capital reached 17.07 trillion yuan（$2.72 trillion）， up 97.09 percent year on year， according to data from the SAIC.

“Previously， over 150 approval items had to be cleared before a business license was granted. Now， some of the approval items have been canceled， while some are still required after a business license is granted to a company，” said Zhang Mao， Minister of the SAIC.

“A looser market entry should be combined with stricter post-establishment supervision， while supervision should mainly rely on credit instead of the daily inspections of SAIC staff. A broader supervision network includes the selfdiscipline of businesses， industry self-regulation， social supervision， media supervision and finally government supervision，” Zhang said.

More to do

Chi Fulin， President of CIRD， however， said that local governments may still resist.

“Now that the Central Government has set the tone for delegating more power to the market， the most difficult part lies in the competitive development pattern of local governments. Under the pattern， local governments compete with each other in areas such as GDP growth rate and the volume of projects and investment， meaning the government supplants businesses as the major market entity in local economies，” Chi said. “In order to change that kind of mindset， fiscal reform should be carried out and assessment of the upper echelons of local leadership should not be based on GDP data.”

Chi also said cutting red tape is by no means the end of the story. “The government should intensify present- and post-establishment supervision accordingly，” he said.

“Currently， there is considerable overlap between the administrative approval system and market supervision system， and some government departments use administrative approval to replace post-establishment supervision，” Chi said. “In the modern market economy， administrative approval and market supervision are two totally different things. Pre-establishment administrative approval involves the power of the government， which requires the law to be explicitly definitive， while post-establishment supervision should be based on the rule of law.”

“Therefore， China should change its current administration-based supervision to law-based supervision in order to reconstruct the market supervision system，” Chi suggested.

According to Chi， the new supervision system requires the government to do four things.“First， a negative list， which defines areas off-limits to businesses， should be formulated to increase transparency and fully unleash the latent potential of businesses. Anything thats not on the negative list should automatically pass， and government energy will be better spent on strengthening postestablishment supervision，” Chi said.

“Second， a comprehensive market supervisory authority should be brought into being. Third， in the modern market economy， the government alone is not able to deal with a countless number of market entities. Therefore， the government should make full use of industrial associations and the supervisory power of the general public. Finally， a legal framework on market supervision should be established， such as making the negative list part of the law.”

“Streamlining administration represents the biggest challenge to the government，”said Shi Jun， Deputy Director of the Economic Committee of the 12th National Committee of the CPPCC.

“The goal of giving the power back to the market cannot be accomplished in one fell swoop. Its a long-term and arduous responsibility. What has been ceded is not only administrative power but also interests behind the approval power. Thats a real challenge for governments at all levels，” Shi said.