In order to give a relatively complete and objective description
of the current conditions in 2001 in which the government was
adapted to marketization, the following will be an analysis on the
reforms carried out by the government to adapt to the needs of
marketization since 1992 when establishing a socialist market
economy was determined as our goal, focusing mainly on the size of
the government and government's control over economy, so as to
understand the influence of governmental behavior on market
economy.
(Ⅰ)Measuring the Government Size
Under the conditions of a market economy, as far as the
relationship between the government and the market is concerned, a
smaller size of the government will be favorable to the free
operation of the market. But, when confronted with market failure,
the government should not remain inactive. The government should be
appropriately sized to maintain a certain degree of intervention in
economy. Internationally, economic freedom is often used in
measuring the market-oriented development. The two well known
reports on research of economic freedom, the Index of Economic
Freedom compiled jointly by the Heritage Foundation and the
Wall Street Journal of the United States, and the Economic
Freedom of the World Annual Report by Fraser Institute of
Canada, both used the size of the government in measuring the
government's intervention in market economy, and both of them
believed that the size of the government and the degree of
marketization are in inverse relations, i.e., the greater the size
of the government, the lower level of market-oriented development
of economy. We will borrow the methods they used, based on the data
from the years between 1992 and 2001, to measure the size of
China's government in terms of the government revenues, the
government institutions and staff, government expenditures,
government investment and government subsidies, and to analyze,
after 10 years of reforms since 1992 when the establishment of a
socialist market economy was determined as our goal, the changes in
the Chinese government's size and their impacts on the market
economy.
1. Government Revenues
It was the government that initiated the process of
marketization. For this reason, the government must raise huge
amounts of funds in promotion of the reforms and in promoting,
developing and maintaining social stability. The Chinese government
raised its funds through a diversity of revenue sources, which may
be divided into three major parts, namely, budgetary,
extra-budgetary and non-budgetary sources. The fiscal budgetary
revenues consist of taxes, super-taxes, revenue funds, special
revenues and regulation charges. The extra-budgetary revenues
include administrative charges, government fund revenues and other
miscellaneous revenues. Extra-budgetary revenues are distinctly
different from budgetary revenues in that they are widely
scattered, and that they are complicated in structure, unstable in
availability and have special purposes in use. Non-budgetary
revenues mainly include social securities funds, government raised
funds, funds obtained by unauthorized replacing of system funds,
"private coffers" accumulated from "revenue creating" activities
and funds raised by rural township governments etc. In the
governmental revenue system of China, budgetary revenues accounted
for about 60 percent, and have always been the mainstay of the
government revenue. With the improvement in government control
according to standardized market rules, extra-budgetary and
non-budgetary revenues will be gradually reduced and will be
managed within budget.
The proportion of government revenue in GDP represents the share
directly controlled by the government and forms the government's
influence on national economy. The proportion of government revenue
has always accounted for about 20 percent of the GDP since 1992, in
which year the percentage was 42 percent however. The drastic
decline in the proportion of the government revenue was due to the
following reason: in 1992, the reform of small-sized state-owned
enterprises was initiated focusing on the reform of property
ownership system, and the reform of large-and-medium sized
state-owned enterprises was initiated aiming at establishing a
modern enterprise system. Tremendous changes took place in the way
the government controls the enterprises. The government started to
function in the capacity as a mere owner of the stats assets, and
the state-owned enterprises were turned into microeconomic entities
responsible for their own operations and losses and profits,
resulting in a drastic reduction in revenues obtained by the
government from the enterprises. After the year 1993, however, the
decline in the proportion of government's revenue in GDP was curbed
and a slight recovery was brought about, from 20.38 percent in 1993
to 25.78 percent in 2001, up by 4.95 percent. This is mainly due to
three reasons: the first is the financial resources: the growth in
economy and higher efficiency of enterprises brought about a wider
ranges of financial resources; the second is the policies:
preferential tax policies were either cleared up or their grace
periods were expired; the third is the controlling, intensified tax
collection effectively checked the loop-holes for tax evasions, tax
arrears and short payment of taxes by enterprises were restrained.
From the policy point of view, terminating all preferential tax
policies that have already expired satisfied the requirement of a
market economy for fair tax burden. It is beneficial to tax
collection and control on the one hand, and facilitates the
standardization of taxation system on the other. From the
administration point of view, intensified tax collecting and
controlling has the strongest impact on increasing the government
revenues. Previously the ineffective tax collecting and controlling
in China resulted in losses in tax revenues and a relatively large
differential between the nominal tax rates and the actual tax
rates. In this sense, the rise of proportion in government revenues
in GDP is mainly due to the reduction in losses in tax revenues. In
a word, between the years of 1992 and 1993, the proportion of
government revenue in GDP dropped sharply, but in the following ten
years it recovered slightly and was kept at a relatively low
level.
Although China's government revenue is calculated on a different
basis from that of other countries, since there are some
incomparable factors (for instance, China's government revenue
includes not only the budgetary, but also the extra-budgetary and
non-budgetary revenues), when compared with other countries'
proportion of government revenue in GDP (usually above 30 percent),
China's proportion of government revenue in GDP is relatively low.
The reason this proportion is kept low lies in the fact that the
functions of the government has changed since the initiation of
market-oriented reforms, where the market has become the basic
means for allocation of resources. In addition, China is currently
experiencing economic take-off, the principal function of the
government is to regulate the economy and to provide public goods,
and is therefore not able to conduct re-distribution of revenues on
a large scale like the developed countries. Higher efficiency
resulted from improved tax policies and taxation system led to an
expanding size of the government revenue. However, when compared
with other countries, the size of China's government revenue is
still relatively small.
2. Government Institution and Staff
The sizes of government institutions and the number of
government staff are also frequently used as criteria for judging
the size of the government. The more institutions within the
government and the more staff members working for them would mean
the large the size of the government. All the past reforms in
government institutions were aimed at cutting down the size of the
government. Since 1998, in order to adapt the administrative system
to the needs of the market economy system, a new round of reform of
governmental institutions with greater magnitude was conducted
successively from the State Council to local governments. This
round of reform was the largest in scale since the founding of the
People's Republic of China with the strongest magnitude and covered
the widest fields. The reform emphasized the change of governmental
functions by clearly distinguishing the roles of the government and
of the enterprises; the numbers of institutions together with the
staff working for them were to be reshuffled and trimmed to the
extent that they were compact but highly efficient with consistent
powers and responsibilities. The comprehensive economic departments
and the law enforcing and monitoring departments were to be given
the priority of being reinforced; the specialized economic
departments were to be cut down in number by means of mergers. The
State Administration of Domestic Trade, the State Administration of
Coal Industry, the State Administration of Machinery Industry, the
State Administration of Metallurgy, the State Administration of
Petrol and Chemical Industries, the State Administration of Light
Industry, the State Administration of Textile Industry, the State
Administration of Building Material Industry and the State
Administration of Non-Ferrous Industry were cancelled. After the
institutional reforms, the number of existing component departments
of the State Council was reduced to 29 from the former 40, and the
number of staff members working for ministries, commissions,
offices and administrations under the State Council was reduced to
16, 500 from the original 33,000. Organizations within the
departments were cut by one quarter. Propelled by the institutional
reforms in the State Council, local governments at various levels
conducted corresponding trimmings, further defining the
responsibilities and authorities. The average number of
institutions on the provincial level was reduced to 40 from the
previous 55, an average reduction of about 20 percent, and the
number of personnel was reduced by an average of 47 percent, or a
total of 74,000 persons. After this institutional reform of the
government, the number of government staff accounted for 4.56
percent of the total employment in 2001, while previously the
percentage was 5.16 percent. The government staff accounted for
13.9 percent of the total urban employment in 2001, compared to
17.86 percent in 1992.
3. Government Consumption Expenditures
Government consumption expenditure refers to the expenses made
by the government as a consumer in purchasing the final products
and services, including expenditures on law system, regulation
administration, fire fighting, police, national defense, education,
science, culture and public health related matters. Appropriate
government expenditure provides the economy with services such as
national defense, education and macro economic control for the
economic stability and long-term development. The proportion of
China's government consumption expenditure accounted for 13.11
percent of the GDP in 1992, which rose to 13.58 percent in 2001
showing that the variation in the proportion of government
consumption expenditure in GDP has been negligible over the past 10
years. Compared with other countries, the proportion of China's
government consumption expenditure in GDP is relatively low, as in
United States, the government expenditure accounted for 16 percent
of the GDP in the 1990's; that of Western Europe and Canada
accounted for about 20 percent of the GDP. The same figure is
usually even higher in Nordic welfare countries. The government
consumption expenditure in other developing countries is also
high.
4. Government Investment
Under the system of the market economy, the existence of "market
failure" necessitates the government investment in the public goods
fields such as public utilities and public services. As a
developing country and due to historical reasons, China's economic
base and technological levels are relatively underdeveloped.
Economic developments at various localities are extremely
unbalanced. The government has thus to assume its historical
responsibility, namely, apart from investing in the above-mentioned
"market failure" areas, it has to invest in the "bottleneck"
industries that have restrained the development of economy,
especially in transportation, post and telecommunications as well
as agriculture, energy all raw material related industries, and has
to invest in backward areas as well in order to eliminate
inter-regional inequality. As China is in transition to a market
economy, fluctuations in economy are inevitable. The government
investment therefore has also the function of regulating the total
social supply and demand, and adjusting for the invigoration of the
national economy.
China's government investment mostly concentrates in areas such
as social infrastructure, public services, part of the significant
capital industrial projects, as well as the investment for the
development of national defense, and aerospace and high-and-new
technology industries. Industries and departments in this category
include: the infrastructure departments such as railways, highways,
maritime transportation, civil aviation, ports and harbors, post
services and telecommunications, and supply of electricity; public
services and public securities departments such as treatment of
rivers and water courses (anti-flooding and drainage),
environmental protection, water supply and sewage systems, gas
supply and heating system for the urban areas, administering the
national land, protective forestation, science and technology,
education, culture, public health, sports, national defense. public
security and judiciary systems; high-and-new technology industries
such as aerospace, micro-electronics and biological engineering; a
few projects of major significance relating to the deployment of
labor forces and the regional development; projects of the
infrastructure industry that require huge amounts of investment and
that are highly risky.
5. Government Subsidies
As an important means for effective state intervention and
regulation of social economic life, government subsidies are
practiced worldwide. In market economy countries, subsidies, either
as a fiscal policy or a pricing policy, exist on a widespread scale
not only in developed countries, but are also found in large
quantities in economically less developed countries. China's
government subsidies are mainly price subsidies and subsidies to
make up for the losses in state-owned enterprises. Price subsidies
are macro control expenditure, a means by which the government
regulates the revenues all stabilizes the prices. Subsidies for
making up for losses of state-owned enterprises are a deduction
made by the government from fiscal revenues to be used as
expenditure for making up for the losses in state-owned
enterprises. In total government subsidies, the price subsidies
rose to 71.19 percent in 2001 from the 41.96 percent in 1992, while
subsidies for making up for losses in state-owned enterprises
dropped to 28.81 percent in 2001 from 58.04 percent in 1992.
The Chinese government's subsidies to prices mainly include
subsidies for prices of grains, textiles and edible oil, subsidies
for stabilizing prices, subsidies for meat and some other types of
price subsidies, of which the subsidies for prices of grains,
textiles and edible oil are the mainstay, while the latter three
types of subsidies add up to less than half of the former. China's
subsidies were initially for alleviating the pressure of price rise
in a limited number of bulky products that injured consumers'
interests. On account that the marketization of prices would lead
to the rise in prices and inevitably affect the interests of the
consumers, while market allocation of resources is mainly aimed at
improving the efficiency without considering the stability of the
society, then the government would have to be responsible for the
external instabilities caused by such price rises. With the market
mechanism improving for the better, the proportion of China's price
subsidies in GDP witnessed a continuous decline. In 1992 the
proportion of government price subsidies accounted for 1.21 percent
of the GDP, by 2001 it dropped to 0.77 percent. Since the scope of
price subsidies is extremely limited and the amount is accordingly
small, therefore, in the field of commodity transactions, the
market prices started to become the main signal for resource
allocation in 1992. In 2001, prices determined by market accounted
for 95 percent of both the total social consumer goods retail sales
and the total agricultural product purchase volume.
6. Inter-Government Transfer Payment
The system of inter-government transfer payment is commonly
practiced by all countries that have adopted the tax sharing fiscal
administration system. This is an effective method in solving the
vertical unbalances between the central and local financial
authorities and the horizontal unbalances between the financial
authorities of various localities, and for standardizing the
distribution relations between the central and local financial
authorities. The basic purpose of transfer payment is to achieve a
relative balance in the development of economy, ensuring fairness
and efficiency. As far as efficiency is concerned, a relative
balance in the development of economy may on the one hand reduce
invalid flow of resources and cut down the transaction costs; on
the other, it may promote competition between the backward areas
and the developed areas, enhancing the overall efficiency of
resource allocation by market so as to bring about accelerated
economic growth and increase in the gross volume of economy. Where
fairness is concerned, relative balance in the development of
economy is a necessary condition for achieving social fairness.
Only when relative balance in economic development is realized can
the backward areas afford to provide elementary public services to
the local residents, and can the central government make
regulations between the backward and developed areas for the
realization of social fairness.
Since the implementation of the tax sharing fiscal system in
1994, a transfer payment system mainly characterized in the form of
returning tax revenues has preliminarily taken shape in China. This
is an important step towards the transfer payment under a public
fiscal system. China's inter-government transfer payment is
embodied in five forms: i.e. the administrative allowances, the
annual final fiscal accounts, the returning of tax revenues, the ad
hoc allowances and the part specified in the Interim Procedures For
Transfer and Payment (i.e. the standardized part). As stated above,
the proportion of China's government revenue in GDP is on the lower
side. Confined by the limited fiscal ability, the central
government is not capable of offering sufficient amount of founds
for use in transfer payment, resulting in the relative small size
of China's inter-government transfer payment, which accounted for
6.27 percent of the GDP in 2001. At the same time, the development
of economy is extremely unbalanced among different areas of China.
The transfer payment from the central government to the localities
can only ensure that the local governments can afford the lowest
national standards in basic public services. In order to achieve
balanced development of economy among areas and raise the
efficiency of market in allocation of resources, it is necessary to
expand the scale of transfer payment to a suitable extent.
(Ⅱ)Government's Economk Administration
Under a market economy, the basic principle for the government's
economic administration is to let the market solve any problem that
can be solved by the market. The government's main role lies in the
fields where the market fails or lacks strength. In 1993, the
Decision on Several Issues Concerning the Establishment of a
Socialist Market Economy System by the Central Committee of the
Communist Party of China pointed out that "Changing the
functions of the government and restructuring the government
institutions are the urgent needs for establishing a socialist
market economy system. The government's function in controlling the
economy is mainly to formulate and implement the macro control and
regulating policies, to build the infrastructure and to create a
good environment for the development of economy. Meanwhile, it is
necessary to cultivate a market system, monitor the operation of
the market and maintain fair competition, regulate the social
distribution and organize the social security system, curb the
increase in population, protect the natural resources and
biological environments, manage the state assets and monitor the
operation of state assets, to realize the country's economic and
social development goals. The government shall apply economic,
legal and necessary administrative measures to controlling the
national economy, instead of directly intervening the production
and operational activities of the enterprises". This statement
generalized China's understanding of the government's economic
functions, and at the same time indicated the general direction in
which the government's function shall be changed.
The government's administration of economy is by itself an
enormous and extremely complex subject. The following discussions
are focused on the marketization related issues only. There are six
issues in all: the establishment of a macroeconomic control system,
the reform in the administrative examination and approval system,
tax burdens, the government's administration of prices, the
government's administration of production, as well as the
maintenance of the market order.
1. Establishment of a macroeconomic management
system
The Chinese government has preliminarily established a framework
of macroeconomic control system that mainly works by indirect
means. A control and regulation mechanism has taken shape in which
the three major systems of the state planning, the fiscal and
taxation and the financing are conditioning each other
interactively. The state economic development plan emphasized that
it was on a macroscopic, strategic and policy-related level mostly
for forecasting and directive purposes, and on such grounds the
mandatory planning quotas were basically cancelled. The fiscal and
taxation system is in transition to the public finance under the
conditions of modern market economy, in which a new fiscal and
taxation system with the tax sharing system as the crucial part has
taken shape. The financial system is, according to the needs for
developing a market economy, structuring a modernized system of
financing institutions, a financial market system and a financial
control, regulation and administering system. Fiscal policies and
monetary policies are applied in a combined way to regulating the
economic operation, to ensure steady growth in economy. When the
development of economy is over-heated, appropriate tight fiscal and
monetary policies are implemented so as to successfully realize the
"soft-touch down" of the national economy; when the economy is
losing its growth impetus, positive fiscal policies, such as
increased issuance of constructional treasury bonds for stimulating
the construction of infrastructure will be implemented in order to
expand the internal demand. At the same time the monetary policy is
brought into play. Various monetary policy instruments are utilized
in a comprehensive way, like, utilizing the instruments such as
regulatory interest rates and the deposit reserve rates, open
market operations and credit policies in changing the amount of
money supply.
2.Reforming the Administrative Examination and Approval
System
Full round reform of the administrative examination and approval
system is to be implemented, in order to establish an
administrative control system that fits well with the market
economy system, pushing forward the change in the government's
function. In 2001, the State Council endorsed the Opinions for
Carrying Out the Reform in the Administrative Examination and
Approval System. Its main purpose was to thoroughly clear up
economic and business related issues subject to administrative
examination and approval by relevant departments of the State
Counci1 and the governments at the provincial level. In November
2001, the State Planning Commission cancelled the requirement for
examination and approval for the projects that do not require
investment by the central government, the projects that are
encouraged by the state industry policy and the total amount of
investment is below norm, the projects that are funded by local
governments and are subject to examination and approval by local
planning authorities, and the projects the funds required by which
are raised by enterprises at their own discretion. The first batch
of the projects the examination and approval of which are cancelled
include: urban infrastructure construction projects, agricultural,
forestry and water reservation projects that do not require
investment from the central government, social undertaking projects
to be constructed by the localities and enterprises with funds
raised by themselves, real estate development and construction
projects and business and trade facility projects. With regard to
other projects that should no longer be subject to examination and
approval, consultations with relevant departments are underway, and
the list of such projects will be publicized as soon as possible.
Concerning the projects that remain to be examined and approved,
concrete measures were put forward in order to simplify the
procedures, raise the efficiency and establish a supervising and
restraining mechanism. In the same year, the State Economic and
Trade Commission cancelled the requirement for examination and
approval of 30 items in the first batch. The Ministry of Finance
cancelled 7 items relating to enterprise assets and financial
matters that required administrative examination and approval
previously. Apart from projects relating to economic development,
long-term social security programs and well deployed public welfare
and infrastructure projects, all other required examinations and
approvals will be cancelled step by step. Wherever the market
regulation works, wherever the services by the intermediary
organizations are available and wherever the enterprise can make
its own decision, the market shall have the say. The reform of the
administrative examination and approval system made it possible for
the market to play its role and stimulated the transformation of
government's functions..
3. Alleviation of Tax Burden
Government taxation must benefit economic development. The issue
of tax burden must, therefore, be taken into consideration when
formulating taxation policies. Too light tax burden will weaken
government functions, while too heavy tax burden will smother
economic development. In formulating the taxation policy, the
government must strive to make tax burden fair and reasonable.
Whether tax burden is fair and reasonable or not is reflected in
two aspects: first, it is reasonable in terms of taxpayers' bearing
ability; second, taxes must be impartially levied from all types of
taxpayers. If tax burden is not fairly shared, tax payers may
resort to various measures to fit the lighter the burden and evade
the heavier one, causing obstacles in market transactions,
detrimental to the establishment of the market economic order.
The mainstay taxes in China's existing taxation system are
turnover taxes and income taxes, of which, turnover taxes are the
principal taxes. The principal tax of the turnover taxes is the
value added tax, which is not only of significant importance in
government revenue, but also plays an important role in realizing
fairness in market and in enhancing economic efficiency. Firstly,
the tax rates applicable to most taxpayers are 17 percent (in
respect of the general tax payers) and 6 percent (small sized tax
payers) respectively. The level of tax burden is theoretically
consistent basically. The benefits gained by the tax payers are
mainly related to the efforts exerted by themselves, and will not
be affected unfavorably by taxation; Secondly, tax payers of value
added tax are divided into two categories: ordinary tax payers and
small size tax payers, for whom the tax bearing magnitude is in
fact uniform in a considerably wide range. Among tax payers of the
same category there is generally no taxation discrimination. The
tax burden of China's value added tax is designed to be reasonable
and fair theoretically. The categorization of taxpayers is on the
whole consistent with the actual conditions of China. Especially, a
simplified structure of the tax rates laid the foundation for
creating a fair market.
The income taxes consist of company income taxes and individual
income taxes. In 2001, a proportional tax rate of 33 percent was
applied to the company income taxes for all domestic funded
enterprises in China. The average rate of the company income tax
fell to 14.7 percent from the 2O.01 percent in 1992. The rate of
company income taxes in China is not particularly high from the
viewpoint of pure comparison of tax rates. Beginning from the
mid-1980's, the average rate of company income taxes in developed
countries dropped by nearly 10 percentage points, but the average
rate of company income taxes is still about 30 percent for most
countries in 2000. However, taking into consideration of the fact
that many countries adopted progressive tax rates, the 33 percent
tax burden in China is a bit too heavy as far as the medium- and
small sized enterprises are concerned. In the countries where
progressive tax rates are implemented, lower tax rates are
generally applicable to the medium- and small sized enterprises as
their taxable earnings are relatively small. While in China, except
for the small enterprises with annual taxable earning less than
100,000 yuan, which are eligible for preferential tax rates (still
as high as 27 percent and l8 percent), all domestic funded
enterprises are subject to the 33 percent tax rate. On the whole,
the tax burden of China's company income taxes is quite reasonable,
and is favorable for the fair competition between enterprises of
different ownerships, with different sources of fund and operated
in different approaches. Where the individual income taxes are
concerned, progressive rates or proportional rates are applied in
connection with earnings of different natures. Earnings of wage and
salary are subject to a nine-grade extra amount progressive tax
rate from 5 percent to 45 percent, with the highest marginal income
tax rate being 45 percent; production and business earnings of
individual industrial and commercial households and earnings from
contracted or tenant operations by enterprises and institutions are
subject to a five-grade extra progressive tax rate system from 5
percent to 35 percent. Earnings from labor service, writer's
payments, franchise loyalties, interests, stock interests,
dividends, property leasing, property transference, incidental
incomes and other incomes are subject to a uniform proportional tax
rate of 20 percent. The maximum marginal rates of individual income
taxes in other countries of the world are generally around 40
percent, and China's rate of individual income taxes is basically
consistent with that of the international level.
4. Government's Price Administration
The government has greatly reduced its intervention as far as
the prices are concerned. The government's administration over
prices is simply regarded as a means for macro control, aimed at
maintaining stable market prices and regulating the distribution of
revenues. In 2001, the government issued the Price-Setting
Catalogue of the State Development Planning Commission and the
relevant departments of the State Council, according to which,
prices of most commodities and services that were previously fixed
by the Central Government are now set free. The types (categories)
of commodities and services the prices of which were fixed by the
price administrative authority and other relevant authorities of
the State Council was reduce to 13 from the 141 in the 1992
Price-Setting Catalogue.
The government retains the price setting or price control power
only for very few important commodities and labor services. The
Price law stipulates that when necessary the government may
exercise government guided prices and government fixed prices for
the following five types of commodities and services: (1) prices of
very few commodities of important significance to national economic
development and people's livelihood; (2) prices of a few
commodities the resources of which are limited; (3) prices of
commodities under natural monopoly; (4) prices of important public
utilities; (5) prices of important public welfare services.
5. Government's Production Administration
The government does not intervene in production operations. The
production operations of all market entities of the whole society
are determined by the enterprises and by the market. The principal
function of the government is to prevent and abolish monopolization
and regional blockade, to fight against unfair competition and to
create a fair environment for production and business operation.
Apart from exercising mandatory planning on a few important
products, the government leaves the rest to market regulation and
to directive planning. In industrial production, only five products
are subject to mandatory planning, namely, timber, gold,
cigarettes, salt and natural gas. Among these five products,
mandatory planning is limited to some stages or some types of
by-products of timber, natural gas and gold. While in agricultural
production, mandatory planning is completely abolished, and the
main farm produces are under directive planning or subject to
market orientation.
The approach used by the government in directly controlling the
state owned enterprises has been changed a great deal, as a result
of remarkable progresses made in distinguishing the roles of the
government and the enterprises. Concurrently with the reforms of
the government institutions, armed forces, military police, the
judiciary system, the Communist Youth League, the Women's Union and
various government departments underwent reforms in which their
relations with the associated enterprises were separated. Some of
the enterprises that have severed relations with the patronizing
government institutions entered into a group of 500 large
enterprises under the direct control of the State Economic and
Trade Commission, others were taken over by the localities. The
government departments cancelled their relations with the economic
entities or enterprises that were previously run by them or
belonged to them, and no longer ran these enterprises. In order to
enhance the supervising function as an owner, the government
designated the board of supervisors to key state-owned enterprises
and financial institutions, and authorized asset managing
institutions and large enterprises to run state-owned assets, in
order to safeguard and enhance the value of state-owned assets. To
some key enterprises, the government exercised the system of
designating monitors, and intensified the work of the board of
supervisors of state-owned enterprises. In most areas, the
government exercised the system of designated accountants to some
state-owned enterprises, thus intensifying financial supervision of
state-owned enterprises by the government. The government proposed
the principle of "advancing in some areas and retreating from
others", and "be active only in a selected number of areas" to
implement strategic adjustments to the state-owned economy.
The government relaxed the control over some monopolized
industries. Fighting against monopolization will benefit the
nurturing and growing of the market. The process of China's
economic reform is in essence a process of breaking the monopoly in
various aspects to be replaced by the optimal allocation of
resources by the market step by step. In recent years, China's
access restrictions on monopolized industries such as
telecommunications, aviation, railway and electrical power have
been relaxed to some extent. The reform of the telecom industry was
the most successful. "Telecom industry" here is used in the narrow
sense, referring to the telecommunications network and network
services. Network services cannot be independent of the
telecommunications network, so the telecommunications network is
highly monopolized. Before 1994, in China's telecommunications
market, especially the part of basic businesses of it, there was
only one enterprise due to the government's severe access
restrictions, namely China Telecom under the Ministry of Post and
Telecommunications, which was under monopolized management all over
the country. In 1998 the restructuring of the telecom industry was
initiated. To date, a new pattern of the telecom industry has taken
shape consisting of a number of companies including China Telecom,
China Mobile, China Unicom, CHINAVSAT, Jitong Communications, and
China Railcom.
6. Government's Maintenance of the Market
Order
By formulating policies and perfecting rules and regulations,
the government can maintain the market order, striving for creating
a favorable market environment for fair competition of the market
entities. The basis for a successful market economy system lies in
the bonding relations between the market entities enjoying equal
rights. This type of relationship is maintained by a well-developed
law system in combination with an effective mechanism to enforce
it. The Chinese government has made significant progress in
establishing and developing the market rules.
-- In maintaining the market order, the promulgation and
implementation of the Economic Contract law, the
Technical Contract law, the Foreign Economic Contract
Law, the Arbitration Law, the Trademark Law,
the Product Quality Law, the Accounting Law, the
Audit Law, the Law of Counter-Unfair Competition
and the Price Law made specific stipulations in relation
to the rules for enterprises' market access, equal participation of
market competition and transaction; the promulgation and
implementation of the Consumer Protection Law, the
Trade Union Law, the Regulations on the Settlement of
Enterprise Labor Disputes and the Labor Law etc. are
for safeguarding the lawful rights and interests of the consumers
and laborers.
-- In improving and enhancing the macroeconomic control by the
State, the formulation of the Budget Law defined the
budget control powers between the Central Government and the
localities; a series of taxation related laws and regulations were
issued and amended, such as the Law of Individual Income,
the Income Tax Law for Enterprises, the Provisional
Regulations on the Enterprise Income Tax, the Provisional
Regulations on the Value Added Tax, the Provisional
Regulations on the Consumption Tax, the Provisional
Regulations on the Business Tax, the Provisional
Regulations Concerning the Stamp Duty, the Provisional
Regulations on the Resource Tax, the Provisional
Regulations on the Land Value Added Tax and the Procedures
for Administering the Levying and Collection of Tax etc.,
establishing a preliminary framework for China's taxation system.
The formulation of the Law of People's Bank of China, the
Law of Commercial Banks and the Insurance Law established
and perfected the macroeconomic control system of the central bank
and intensified the supervision and control of the financial
industry. The formulation of the Law of Agriculture, the
Land Administration Law, the Law of Waters, the
Forestry Law, the Mineral Resources Law, the
Law of Coals, the Law of the Highway, the
Civil Aviation Act, the Railway Law, the
Electric Power Law, the Postal Law, the
Construction Law, the Tobacco Monopoly Law, the
Fisheries Law and the Environmental Protection
Law etc. ensured that the government will formulate industrial
policies in compliance with the laws and promoted the healthy
development of China's infrastructure industry.
(China.org.cn November 7, 2003)