Reform and opening up is not only a crucial choice that China made regarding its destiny in modern times, but also plays a decisive role in reaching two centennial goals and the rejuvenation of the Chinese nation. With the utmost determination in reform, the 2014 Report on the Work of the Government delivered by Premier Li Keqiang made arrangements for reform in key sectors in 2014 to implement the third Plenary Session of the 18th CPC Central Committee. The reform measures cover a variety of sectors in social and economic development, which will pave the way for reform this year and beyond.

To promote reform, we should recognize the key issues of reform. On the one hand, after gaining a position among upper-middle income economies, China needs to further create impetus and unleash potential for development to increase economic efficiency and bring development to a new level; on the other hand, it should handle the income distribution problem to promote social fairness and justice.

As the third Plenary Session of the 18th CPC Central Committee pointed out, China must "stick to the socialist market economy as the orientation of its reform, take promoting social fairness and justice and improving the well-being of people as the starting point and goal of its work, further liberate the mind, liberate and develop social productivity, liberate and enhance social vitality." Such guiding theory on reform focuses on solving problems that undermine fairness and efficiency: the "Three Liberates" aims to improve efficiency and growth; the "starting point" and "goal" aim to enhance fairness and justice. In fact, the reform tasks mentioned in Premier Li's report are centered on promoting fairness and efficiency.

Since last year, the Chinese government has adopted a series of key reform measures to boost efficiency and fairness, but problems have not been fully resolved yet. In the next period, the measures need to be further implemented according to the central government to lay a new institutional foundation for improving efficiency and fairness.

Major Progress in Reform in 2013

Last year, the central government worked to expand reform in all sectors in a systematic, integrated and coordinated manner. To improve efficiency, a number of reforms were implemented:

First, the government accelerated the transformation of government functions, streamlined administration and delegated more power to lower-level governments. Hundreds of items previously subject to State Council review and approval - 416 - were abolished or delegated to lower-level governments; 348 items of administrative charges were either canceled or exempted, thus reducing the burden on businesses by more than 150 billion yuan.

Second, the government worked to foster a fair market. The reform of the business registration system was conducted, the pilot project to replace business tax with value-added tax (VAT) was extended, and interest rate controls on loans were completely lifted. The establishment of the China (Shanghai) Pilot Free Trade Zone, introduction of the management model of pre-establishment national treatment (PENT) with a negative list, and reforms in railway investment and financing systems, resource product prices and government purchase services all greatly boost the vitality of market entities.

Third, the development of an innovation-driven country centering on restructuring was promoted. The central government expanded reform of the science and technology management system and implemented knowledge and technology innovation projects. China’s R&D spending accounted for over 2 percent of its GDP in 2013, with major breakthroughs made in a number of key technologies, which stimulated the internal impetus to growth.

Meanwhile, effective reforms to promote fairness were also adopted:

First, the government took improving people's livelihood as the starting point and goal of our work to fully promote the development of social undertaking. The systems of social aid and retirement insurance were improved. We also launched the project to alleviate poverty through education and education equality. We improved the basic medical insurance system, raised the subsidy standard and carried out pilot programs in medical insurance covering major diseases. All this brought real benefits to the people.

Second, workplace safety and market oversight were strengthened. We improved relevant mechanisms, conducting thorough investigations into major workplace accidents and holding those involved accountable. A unified food and drug oversight and management mechanism was established to maintain the market order.

Third, we innovated in social governance. We improved the system for handling people's complaints expressed in letters or visits and for mediating disputes, abolished the system of re-education through labor, enacted or revised 47 administrative regulations, which greatly promoted social fairness and justice.

Severe Challenges in Promoting Efficiency and Fairness

However, we should be keenly aware that while the old fairness and efficiency problems are being resolved, new ones have been emerging. There are severe institutional obstacles on our road ahead, which requires our special attention.

First, there still exist factors restricting the economic quality, returns and industrial upgrading. At present, the pace of China's economic growth is changing; painful structural adjustments need to be made; the global economic environment faces increasing complexities and uncertainties; the basic conditions underpinning development are undergoing profound changes; problems concerning unbalanced, uncoordinated and unsustainable development are increasingly prominent.

Against this backdrop, the key to addressing challenges and solving problems lies in improving economic quality and efficiency, but the long-term mechanism for increasing efficiency has not been set up yet. To handle the relationship between government and market, our thinking, systems and mechanisms need to be improved. The transformation of government functions is not complete with much intervention in microeconomic activities and lack of effective supervision over the market, which hinders the market from fully playing its role in allocating resources.

Also, the allocation of rights and responsibilities of central and local governments requires further improvement; fiscal and tax, and financial systems and mechanism for evaluating officials’ performance are not complete.

If we could not seize the opportunity to deepen reform and make new breakthroughs in key sectors, we would not be able to fully tap the creative potential in society, improve the growth model and make structural adjustments. All this would influence the economic efficiency, and even incur great economic and social risks, leading China to fall into the "middle-income trap".

Therefore, we need to firmly remove constraints on market players and efficiently allocate factors of production, ensure that the market plays a decisive role in allocating resources and make the government better play its role to achieve sustainable development of high returns and quality.

In addition, it remains a difficult task to maintain social harmony and stability, and achieve favorable social governance. Since China became one of the upper-middle income countries, the current phase is usually characterized by profound changes in social structure and accelerated social divisions, while members of society hold growing expectations of fairness and justice.

Nevertheless, constrained by the stage of development and factors regarding systems and mechanisms, China’s society is confronted with serious problems as follows:

First, unequal income distribution is prevalent with a widening wealth gap and increasing cases of corruption.

Second, the social security system needs to be improved. The system division and treatment disparity among groups are prominent.

Third, complaints are concentrated in housing, healthcare, education, food and drug safety and other key areas concerning people's livelihood.

Fourth, incidents involving land expropriation, labor disputes, and environmental pollution, are on the increase, which poses unprecedented challenges to social peace.

Fairness and justice is the everlasting pursuit of human society. As history shows, if we cannot improve the social system and uphold social fairness in the transition period, there might be a change in power and social disturbance. The Soviet Union, Eastern Europe, Libya and Latin countries all provide a lesson that deserves our attention.

As a result, we should strive to address the issue of unbalanced social and economic development, and focus on establishing a fairer system for sharing benefits and upholding social fairness and justice. Also, we should deepen reforms in the social welfare system, innovate social governance, and narrow down the income gap between regions, urban and rural areas, and social groups, which will enable the people to share more fruits of development.

Enhance Social Fairness and Justice

For now and for quite a long time to come, guided by the third Plenary Session of the 18th CPC Congress and speeches delivered by President Xi Jinping, we should give equal priority to fairness and efficiency, create impetus and promote fairness by deepening reform to fully tap the internal impetus for growth, promote social fairness and justice, and achieve more sustainable development of greater efficiency and fairness based on the requirements delivered by the 2014 Report on the Work of Government.

First, we will take reform of the administrative system as a breakthrough to build a law-based and service-oriented government. As increasing practice of reform shows, the transformation of government functions holds the key to setting up a socialist market economy system and transforming the growth model, which focuses on streamlining administration and delegating more power to lower-level governments. We will further reduce items subject to administrative review and approval, innovate the management model of review and approval, introducing a system of listing government powers. Preliminary review and approval procedures will be abolished or simplified to give business more power over their investment decisions and make it easy to make investments, which will help enhance the transparency of government.

Targeted at giving full play to initiatives by the central government and local governments, we will adjust the power division and expenditure responsibility of governments at the central and local level, and improve the transfer payment system to make the government budget more scientific, standardized and transparent. A system for evaluating officials’ performance should be established to form an incentive for promoting industrial upgrading, people's well-being and green development.

Second, we will take improving the market system as the focus to enhance the vitality of economic entities. The transition period of growth pace not only indicates the slowing down of growth speed, but also a fundamental change in growth impetus structure, which will be driven more by the market.

By deepening reform and improving the market system, we will address the resource mismatch and price distortion, unleash the restricted potential for growth, give full play to initiative and creativity of enterprises and individuals to create a new impetus for economic development.

We will simplify and standardize market access rules to offer a market environment of fair competition for companies, which will facilitate the participation of non-public enterprises in monopoly industries and franchising.

We will further liberalize capital, labor force, land and other elements, promote reform of resource product price and make new progress in liberalizing the market, developing capital market at multilevel and rural land system pilot reform.

We will innovate the development mechanism for a modern service industry, set up a start-up and innovative platform for emerging industries, expand the scope of applying preferential policies such as extra deductions for businesses' R&D expenses and equity-based incentives for making innovation, and improve incentives for talent in science and technology.

Third, we will make strengthening the regulatory system of market as a cornerstone to maintain order of the market economy.

As an important duty of modern government, to exercise scientific and effective supervision on market is the essential prerequisite of maintaining market order and increasing efficiency, as well as a powerful guarantee to advance social fairness and justice.

While promoting market competition, we should accelerate the building of a regulatory system to prevent market failure and give better play to the role of government. We will attach equal importance to both delegating power and strengthening oversight, and establish a mechanism for coordinating management between government bodies at both the same and different levels to encourage unified supervision on market.

We will strive to improve the regulatory system of key areas, institute a monitoring mechanism for food and drugs to oversee the whole process from production and processing to distribution and consumption, and hold those involved accountable.

We will improve governance with the joint participation of government, enterprises and the public, and implement regional joint prevention and control to effectively curb air pollution.

We will build a social credit system and make a blacklist of companies breaking promises to expose fraud and default as well as production and distribution of counterfeited products.

Fourth, we will take establishing an equal system of fruit sharing as the basis to uphold social fairness and justice. The system to share fruits equally is an important source to prove the legitimacy of a market economy system, and foundation to maintain social harmony and stability.

Starting with upholding social fairness and justice, we will promote fairness by improving efficiency, and boost efficiency by promoting fairness, which will further develop equality in rights, opportunities and rules.

To provide equal basic public services for the people, we will establish an equal development mechanism for education, complete a basic health insurance system, create equal employment and start-up opportunities for urban and rural residents, and carry out a new type of people-centered urbanization to solve the three tasks concerning 100 million people .

We will deepen reform of the income distribution system, improve the mechanism for increasing salaries of enterprise employees on a regular basis, encourage collective bargaining, and implement salary reform at State-owned enterprises, government bodies and public institutions. All this will contribute to sustaining the order of income distribution and narrowing down the income gap.

In addition, we will advance reform of the social security and assistance system, establish a unified basic retirement insurance system for both rural and non-working urban residents, reform the retirement insurance system for government bodies and public institutions, and support the development of charities.

We will promote the innovation of social governance, and establish a law-based co-governance mechanism that adapts to changes in economic and social structure to safeguard the fundamental interests of all the people and promote social harmony and stability.

Authors: Zhang Junkuo, vice-minister of the Development Research Center of the State Council (DRC), and Hou Yongzhi and Wang Hui, research fellow of the DRC

Source: People's Daily, March 11, 2014