Economist: China's Market-Oriented Reforms in Retreat

Wu Jinglian, researcher at the Development and Research Center at the State Council, said reforms to the state economy have undergone a reversal of momentum since the start of the 2000s

(Beijing) - China's "market forces have regressed" as government agencies have started to play a more obstructive role in resource allocation, Wu Jinglian, one of China's foremost economists, said on July 4.

(Wu Jinglian/Li Mo)

Although the state economy no longer contributes a major portion to gross domestic product, it maintains a monopoly in sectors like petroleum, telecoms, railways and finance, Wu said in a keynote speech in the opening ceremony of a global conference sponsored by the International Economic Association.

Governments at various levels also have a huge hold over major economic resources such as land and capital, said Wu, who serves as a researcher of the Development and Research Center at the State Council.

China still lacks a legal foundation that is indispensable for a modern market economy. Government officials intervene in the market at their will through administrative means, said Wu.

China's market forces gained vigor when the pricing of goods was liberalized in the early 1990s and millions of township enterprises were privatized at the turn of the last century, said Wu.

Entering the 2000s, however, the reform of state-owned enterprises suffered a setback, and SOEs have inhabited an increasingly assertive role in the market at the expense of private businesses. "The government has acted more intrusively in the name of macro-economic regulation," said Wu.

In China, there have been two distinct views over the origins of China's rapid economic growth.

One view attributes the achievement to the "China model" marked by the domination of the state economy and the forceful regulation over the economy by the government.

The other view holds that the high-speed growth was the result of market-based reforms and the liberation of the entrepreneurial spirit of the people.

For this question, Wu noted the current growth model is unsustainable and has been built on investment that exploits resources and damages the environment.

Another consequence of strengthened government control over the distribution of resources and active intervention in economic activity is more corruption and a larger wealth gap, said Wu.