A Unified Market over Uneven Development

Xiao Xin

Over the years， China has achievedtop market positions in a wide range of spheres including smartphones，e-commerce， semiconductorequipment， and new-energy vehicles， rendering the appeal of its domesticmarket a key element of its economic prowess.

Hence， the sheer size of the megamarket—amplified by a rather complete industrial system—is often cited as adefault setting of the world’s secondlargest economy.

The quantity-oriented focus ofChina’s domestic market has recentlyenjoyed a high-profile upgrade， perhaps the highest in decades， in a courageousand elusive attempt to maximize market potential in a haze of uncertainty bothat home and abroad.

In a late-night announcement on aSunday in April， the Communist Party of China （CPC） Central Committee and the State Council， the cabinet， unveiledguidelines to accelerate building aunified national market， appropriatelyfour months after the ordinance wasreviewed and approved at a meeting ofthe Central Committee for deepeningoverall reform in mid-December.

The wide-ranging guidelines eyebreaking local protection and marketfragmentation and removing barriersimpeding domestic flows of goods，services， capital， and labor.

The top-level guidelines instantlymade headlines， shining anunprecedented spotlight on the weak links in an almost invincible market famed for its enormity and vitality.

Why System Upgrade？

The call for an accelerated moveto build a unified national marketessentially unmasked stumbling blocks to free movement of resources such asgoods， people， and ideas in the domestic market.

In a question-and-answer published shortly after the guidelines wereunveiled， the official Xinhua NewsAgency said that the push for a unifieddomestic market has made significant headway in recent years， but someissues continue to keep the countryfrom achieving a unified nationalmarket.

Citing an exclusive interview with an unidentified official with the NationalDevelopment and Reform Commission， the country’s top economic planner，the Xinhua report enumerated marketfragmentation and local protection，as well as market regulation rules，standards， and procedures that have yet to be unified.

Describing the market as the scarcest resource in today’s world， the reporttraced the unified market push back tothe Third Plenary Session of the 18thCPC Central Committee in November2013. The key plenum concluded thatthe building of a unified and openmarket system with orderly competition would lay the necessary groundworkfor the market to play a decisive role inresource allocation.

Apparently， a unified market is by no means a new concept.

In a research note circulated in lateApril， Cheng Shi and Xu Jie， economists with ICBC International， derived thephrase from the Third Plenary Sessionof the 14th CPC Central Committee in1993， also a milestone in the country’seconomic policymaking.

The key session that formallyendorsed the country’s socialistmarket economy envisioned breakingsegmentation and blockage betweenregions and departments， quellingunfair competition， fostering acompetitive environment， and forming a unified and open market throughorderly competition.

As the economists pointed out，the government has long pursued the creation of a unified domestic market.

The fact that the guidelines tailored for the vision weren’t unveiled untilnearly 30 years after the propositionfirst appeared in the momentous Party statement arguably speaks volumesabout the arduousness of unifying amarket as big as China’s.

Speaking via video at a seminar on government and market economics in late April， Huang Qifan， former mayor of Chongqing and an influential voice in the Chinese economy， said thatChina’s ultra-large single market withnearly 20 percent of the world’s totalpopulation， coupled with its complete manufacturing system， has nurturedunparalleled competitiveness in itsfactory sector. The country， therefore， exerts a huge impact on global supplyand demand.

For years， China has graduallybecome more and more known for its gigantic single market， but at the same time some weak links in the markethave become increasingly glaring.

Rivalries among regions overeconomic growth and scale have beenattributed as an inherent engine for the economy’s continued rapid growth.Such competition also reverberatesnegatively however， when localgovernments compete to start newprojects. Consequently， massiveovercapacity has emerged， according to Huang. Local governments’inclination to protect local businesses and evenoutdated capacity has exacerbated theovercapacity issue.

An urban-rural dual structure withlabor migration between differentparts of the country still subject to therestraints of the household registration system， as well as a separated landmarket between the rural and urbanregions， among other aspects ofimbalanced development， were cited as other weak links.

The planned economy mentality has been stifling in areas such as energywhere the market has yet to place adecisive part in allocation of resources， Huang said， adding that differentregions opt for different policies when it comes to market access in certainfields. A company can be registeredin one place but not allowed to do sosomewhere else.

Moreover， unchecked expansionof capital in real estate， finance， andinternet sectors has stoked woes overmarket monopolies， according toHuang， pointing to a crucial overhaul of the Chinese market.

Mounting economic challenges inrecent years such as the China-U.S.trade war and economic fallout fromthe COVID-19 have likely heightened the need for the country to build a unifiedmarket faster.

When the economy was growingbriskly， issues with local governments’ excessive focus on GDP and local taxrevenues and the prevalence of localprotectionism often went unaddressed， said chinanews.com in an article in mid- April， citing Zhu Keli， executive director of the China Institute of New Economy.

Local governments have also tended to champion local businesses andbrands and in turn set up either visible or hidden obstacles to discourage theforay of non-local firms， Zhu said.

Such problems have risen to thesurface amid downward pressureon the economy， he continued.Consequently， fluctuations in tradeterms and manufacturing andoperating challenges facing thebusiness community are underlining the imperative necessity of a unified market.

It is becoming increasinglyimperative for the country to establisha unified national market in the faceof global economic slowdown and thestill-raging pandemic， said Yang Delong， chief economist at Shenzhen-basedFirst Seafront Fund Management Co.

The economist expressed hope that unified rules and standards wouldresult in a substantial increase inmarket efficiency.

Unified Blueprint

The new guidelines are in essenceinterwoven with another buzz phrase in China’s economic retool.

As part of efforts to shield theeconomy from an increasinglymercurial external environment， thecountry’s leadership proposed the “dual circulation”strategy in May 2020.

The two-pronged strategy hassince anchored the economy toward a new development paradigm which eyes the domestic market， or internalcirculation， as the mainstay. Meanwhile， the economy remains open to theoverseas market—external circulation.

The implicit reorientation toward the domestic market apparentlyprecipitates the rollout of the long-awaited guidelines for the market to shift from big to strong.

The far-reaching guidelines in Aprilencompass property rights protection，market access， energy， technology， land， and labor markets， shining light onhow the economy plans to redesign itsmarket apparatus.

The ordinance apparently seeks totroubleshoot weak links and promptcleanup of policies that hamper aunified market and fair competitionthrough local protection， marketsegmentation， and designated deals.Varied preferential policies thatdiscriminate against foreign businesses and non-local firms will be sanitizedwhile new policies will have to pass fair competition screening.

Describing the guidelines as a “consequential guiding paper” tobreak regional separation and allow a coordinated push for deeper reformand wider opening-up， Yang wasupbeat about sustainable economicdevelopment in the guidelines’wake.

To achieve a unified domesticmarket， the country will improve itsproperty rights protection system toensure a unified and regulated lawenforcement and juridical regime for lawsuits concerning property rightsdisputes. Cross-regional jurisdictionover intellectual property rights （IPRs） will be improved to straighten out IPR litigation， arbitration， and mediation， according to the guidelines.

Furthermore， a unified marketaccess system will be implementedwith a nationwide negative list ofprohibited and restricted sectors. Local governments and bodies are bannedfrom issuing their own negative liststhat delineate market access.

Furthermore， a unified mechanism for fair competition would besafeguarded， with an improved regime for fair competition-enabled policyimplementation. The guidelines alsopromise revision of the country’santitrust law and anti-unfaircompetition law.

A unified social credit system thatcovers all of society， all categories ofcredit information， and all parts of thecountry will also be formed.

As such， the guidelines map outa unified market over the long term，touching on industries ranging fromenergy and traditional infrastructureto logistics， big data， and emergingtechnologies such as facial recognition，fingerprinting， and iris scans.

Planned measures to unify thenational energy market includeimproving availability of a unifiednatural gas measuring and pricingsystem， building a national electricitytrading center， and honing a unifiednational coal trading market.

Such efforts will surely make adifference for the country that stillhas lingering fears over coal supplyshortages， which ravaged much of thecountry last year. Increased awarenessabout energy security amid the Russia-Ukraine tension is only increasing theurgency of the need for energy marketallocation at a national level.

Flow of capital across a unifiedsingle market was also mentioned inthe unified strategy that pledged to “install red and green lights for capitaland prevent the disorderly expansion ofcapital.”

In remarks at the 2022 TsinghuaPBCSF Global Finance Forum inBeijing in mid-April， Xue Lan， deanof Schwarzman College at TsinghuaUniversity， explained that capital would head toward destinations with highestprofit returns and naturally flow intoareas with both sound earnings ineconomic and social terms.

For areas with decent social benefits but lagging in comparison to other more economically rewarding spheres， green lights should be installed to encouragecapital flow into these areas， Xue went on to say. Conversely， red lights oughtto apply to areas with fat returns yetsubstantial social impact.

Thorny Road

While the comprehensive visionintends to remedy most of the recurring headaches haunting the Chinesemarket， concerns remain over howeffective the plans will be in terms ofgenuinely achieving a unified domestic market.

For starters， worries remain overhow much government oversight aunified domestic market would require to function efficiently.

“Fundamentally speaking， obstacles impeding China’s unified marketshould be addressed by the systemof administrative intervention in themarket，”said Lu Ming， an economicsprofessor at Shanghai Jiao TongUniversity， at a mid-May ChinaMacroeconomy Forum webinar， asquoted by South China MorningPost.

“Only rule of law will really break the administrative monopoly，”Lu stressed.

With no timetable for the grand goal， the unified market strategy has beeninterpreted as a creed of dos and don’ts， rather than a legally binding decree that would penalize individuals， businesses， institutions and government bodies in violation.

To ensure guideline implementation， a system of incentives and disincentives is being planned， with rewards forregions delivering remarkable results in constructing a unified domestic market.

Meanwhile， a checklist ofproblematic and inappropriateinterventions will be published in a dynamic manner. Establishment of a system that circulates typical cases and summons violators to makerectifications is also on agenda.

No specifics were providedconcerning rewards or punishments.

Additionally， plans were revealedto set up a cross-departmentalcoordination mechanism headed by the NDRC and the State Administration for Market Regulation.

Measuring implementation of theunified market proposition in provinces and cities and gauging the performance of local governments may be a difficult task， so gauging progress on theproposition will likely be difficult.

If local governments can’tsufficiently be incentivized into ordissuaded from the unified market dos and don’ts， they could possibly just pay lip service to the vision.

Under the strategy， localgovernments are urged to preventvicious competition to woo investment with encouragement to rely on “premium institutional supplies and       innovation” to attract more investmentfrom select firms.

After decades of unevendevelopment across the country， it is often easier for developed regions to make institutional innovation thantheir less developed peers.

In any event， the country has proven to be astutely prepared to rearrange its astronomical market， however bumpy the road ahead.