Local protectionism shackles the market
By Xin Bei (China Daily)
Updated: 2004-06-24 09:36

Huang severely criticized some local governments for sheltering local enterprises via administrative, economic, technological and legal means.

This is part of the country's latest effort to remove local barriers to build a unified domestic market.

As the country opens wider its huge domestic market to foreign competitors, a sense of urgency prevails that lack of a national market will definitely undermine domestic enterprises' competitive edge.

Because of the country's existing taxation and fiscal systems, local governments have a huge stake in fostering a number of local enterprises as their tax base and source of financial revenue.

To protect enterprises from fierce competition, some local authorities have erected barriers to prevent outsiders from entering local markets.

But local protectionism backfires as enterprises grow. Segmented domestic markets mean competitive local enterprises can hardly grow by obtaining needed access to markets in other areas. Less-competitive enterprises' dominance of most local markets, in turn, lowers the efficiency of the local economy.

As multinational giants accelerate their efforts to tap the Chinese market, the time left for domestic enterprises to sharpen their competitive edge is running out.

China used to put a priority on encouraging export, but now it is high time to encourage domestic competition.

For most Chinese enterprises to survive international competition they must first be able to stand on their own feet in the face of domestic competition.

For that to happen, a thorough clean-up of governmental intervention in local markets is urgently needed.

In addition, the Ministry of Commerce's criticism should also serve as a timely warning to enterprises still sitting behind the paper wall of local protection.

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