Six Systemic Reforms with which China Must Press Ahead

After thirty years of reform and opening up, a socialist market economy framework has taken hold in China. Two characteristics feature prominently- first, resource allocations are market-driven. Prices are determined in a market system, with the exception of selective infrastructure services. China has shifted from a planned economy in which output quotas were state-directed to a market economy guided by masterplans formulated on a five-year basis. The market is free to decide how much is to be produced and consumed. As China is an open economy and its currency is convertible under the current account, the international market plays a key role in resource allocation. The second characteristic is institutional guarantees that underpin the stability of the macro economy. China practices a revenue-neutral tax regime and maintains effective tax collection and management. Fiscal revenue is witnessing strong and steady growth and fiscal conditions remain sound. China’s central bank and regulatory authorities are working with efficiency and competency. These institutional strengths empower China to rise above a situation of either inflation or deflation. Admittedly, there are many other factors at work, but these two are the most fundamental in that they facilitate market-driven resource allocation and help deliver macroeconomic stability, thus maximizing the well-being of the people.