China’s ‘Socialist Market’ Economy

People’s Republic Of China News Release

Chinese Premier Zhu Rongji has said that in the past five years, the reform and opening up achieved many breakthroughs, and the basis of a socialist market economy was established. Zhu said this when he delivered the Report on the Work of the Government at the opening of the First Session of the 10th National People’s Congress on June 9. According to the report, during these five years, the ownership structure was further readjusted and improved. The public sector of the economy grew stronger in the course of readjustment and reform, and efforts to diversify ways of realizing public ownership were successful.

The state sector of the economy went through accelerated restructuring, and markedly enhanced its dominance and competitiveness. The objective of turning loss-making state-owned enterprises around within three years was basically attained. Most large and medium-sized key state-owned enterprises attained by and large the goal of establishing the modern corporate system, and a number of dynamic and competitive enterprises have come to the fore.

Further progress was made in opening up and revitalizing small and medium-sized state-owned enterprises. Substantive progress was made in restructuring the management system of monopoly industries. The collective economy in urban and rural areas made new headway. The joint-stock company sector of the economy expanded continuously. And individually-owned businesses, private enterprises and other non-public sectors of the economy developed fairly fast and played an important role in stimulating economic growth, creating more jobs, invigorating the market and expanding exports, the report says.

The modern market system developed in a comprehensive way. The national economy has become more market-oriented, and the basic role of the market in allocating resources has become noticeably stronger. Price reforms in the area of public services, energy and transport were constantly deepened, according to the report. The development of markets for capital, property rights, land, technology and labor was accelerated. Modern methods of distribution and marketing continued to spread. Significant results were achieved in straightening up and improving the order of the market economy.

Large-scale nationwide campaigns were carried out against smuggling, fraudulently obtaining tax and foreign currency benefits, and producing and selling counterfeit and shoddy goods. Special efforts were also made to target wrongdoings in cultural activities, tourism, the building industry, rural market fairs and production safety. A large number of economic crimes were dealt with in accordance with the law, and criminals found to have seriously undermined the market order were punished. As a result, the market environment and the consumption climate gradually improved, the report says.

Reforms of the banking, fiscal, taxation, investment and financing systems were deepened. A banking system compatible with a growing socialist market economy has begun to take shape. China gradually improved the way the country exercises financial regulation, restructured the management system of the People’s Bank of China (China’s central bank), and established a unified national regulatory system for securities and insurance. Reform of the wholly state-owned commercial banks and policy banks proceeded steadily, and the structure of the small and medium-sized commercial banks was optimized.

Significant progress was made in rectifying and standardizing nonbank financial institutions. Upholding the principles of law, regulation, self-discipline and standards, the securities industry has developed through progressive standardization. Reform of the insurance industry was deepened. Rural-based cooperative funds were screened and put out of business. Unauthorized nongovernment financial services and other illegal activities were banned in accordance with the law. As financial regulation was gradually tightened, our ability to prevent or defuse financial risks has improved, and the proportion of non-performing assets of Chinese banks decreased. A rudimentary public finance framework compatible with the socialist market economy came into being.

On the basis of the tax-sharing reform, new reforms for sharing income tax revenue were implemented in China’s fiscal system. The system of preparing department-specific budgets was introduced at both central and provincial levels. Experiments on separating management of revenue and expenditures and reforming the unified treasury collection and payment system progressed steadily. Noticeable results were also achieved in the reform of the taxation system and the tax collection and management. Reform of the investment and financing system was gradually deepened, with new sources of investment and financing opened up and the ways of investment and financing diversified. Basic forms of the legal person responsibility system for projects, the tender system, the contract system and the project supervision system were set up, according to the report.

During these five years, the framework of a social security system was established by and large, the report says. The establishment of basic old-age pension and medical insurance systems in urban areas has made significant headway. Systems of basic living allowances for laid-off workers from state-owned enterprises, unemployment insurance, and subsistence allowances for the urban poor were established. The coverage of social security programs continued to expand. The number of urban residents participating in the basic old-age pension program, the basic medical insurance system and the unemployment insurance program increased significantly. Needy urban residents came gradually under the coverage of the subsistence allowances program, and we made sure that all eligible urban residents were by and large provided for. A national social security fund was established, and it has already accumulated 124.2 billion yuan of capital.

Significant progress was made in reforming the basic medical insurance system for urban workers, the health care system, and the drug production and distribution system. Pilot projects to introduce a new cooperative medical care system in rural areas were launched. Accelerated development of the social security system provides an effective guarantee for maintaining social stability, deepening reforms, making structural readjustments and furthering development. The report says that China’s opening up was expanded in greater scope and depth.

China’s foreign trade has taken several big steps forward. The combined volume of imports and exports increased from U.S. $325.2 billion in 1997 to U.S. $620.8 billion in 2002, raising China from the tenth to the fifth place in the world. The country’s total exports increased from U.S. $182.8 billion to U.S. $325.6 billion.

China has continued to optimize its export mix. China has markedly improved its ability to use foreign investment. The amount of foreign direct investment actually used over the past five years came to U.S. $226.1 billion, more than the total used in the 1979-1997 period. Significant increases in using foreign capital occurred in high and new-tech industries, infrastructure and service industries. Owing to the “going global” strategy, outbound investment, construction contracts for overseas projects and labor cooperation programs kept growing.

After 15 years of arduous efforts, China became a full member of the World Trade Organization (WTO) in December 2001, which was a new landmark in our opening up, according to the report.

—People’s Republic of China, June 16, 2004