Unified market doesn’t mean central planning

Liu Zhibiao, an economist at Nanjing University, explains the latest State Council guidelines on fragmentation and protectionism of the internal Chinese market.



The Central Committee of the Communist Party and the State Council issued guidelines on Sunday to tackle fragmentation and protectionism, but some wonder if the unified market is a slippery slope to central planning.

When Liu Zhibiao, an economist at Nanjing University, spoke with Jiemian News, he said a unified domestic market will help China build an economy that depends less on cheap labor and more on innovation, claiming that an open, fair market will direct resources to where they are most needed.

Jiemian: What is a unified domestic market, and why does China want one?

Liu: The guidelines say that a unified market will lay the foundation for a new economy, which will be governed by unprecedented forces given the current state of the world. China should take advantage of the size of its economy and transform it into one that expands and innovates internally and opens up internationally.

China’s market currently operates under rules dictated by provincial governments. A unified market will consolidate a fragmented structure. Fair competition instead of big government will be central in allocating resources. The role of the government will shift from directing to regulating. This will help China participate in the global economy.

Jiemian: The central government has tried this before. What’s new this time?

Liu: Details. The policies encourage experimentation and reward local governments that deliver results. Rich provinces and special economic zones will take the lead and come up with innovations that can be replicated elsewhere. Protectionism and unfair competition will be punished. The National Development and Reform Commission and State Administration for Market Regulation will coordinate the efforts and monitor the progress.

Jiemian: Does a unified domestic market mean a return to central planning?

Liu: Absolutely not. It’s called a unified domestic market, not a unified domestic plan. Being unified means that the market is open and orderly to those within while being resilient and friendly to those outside. In the end, it is the market, not a central planner, that does the magic. It’s a market economy with Chinese characteristics.

Jiemian: What are these Chinese characteristics?

Liu: There are mainly two. The first is that centrally formulated industrial policies are highly effective in directing resources to certain strategic industries. These can be industries China wants to catch up on or be self-reliant in. This creates competition among provincial governments, who are held accountable for the implementation of these central policies. An unintended consequence, and also the second characteristic is that in order to show results, local governments tend to over-invest. This also explains fragmentation and protectionism on the local level.

Jiemian: How will a unified domestic market help?

Liu: Sheer size is China’s most valuable resource. China once relied on a large, cheap labor force and to some extent still does, but this is beginning to change. We still need to find an innovative edge, but before that, we should make the most of the volume.

Globally, opening up used to simply mean setting up a special economic zone, lowering tariffs, and waiting for foreign companies to come. But now, we want better, deeper engagement. It means sending out products and services to a global audience, as well as bringing in talent from around the world. To do this, we need a strong, unified market where the best people are willing to work.