The outcomes of the 20th Central Committee’s Third Plenary Session have emerged as a crucial framework guiding China’s comprehensive reforms as it embarks on a new journey. To unpack the “seven focal points” outlined in these decisions, Xinhuanet’s Sike platform has launched a series titled “Authoritative Interpretations of the Spirit of the Third Plenary Session by Party School Experts.” This initiative aims to delve into the core of these reforms. A significant highlight from the decisions is the goal of establishing a high-level socialist market economic system. In this segment, we have the opportunity to speak with Professor Hong Xianghua, Deputy Director of the Research Department at the Central Party School and a member of the Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era Research Center, along with Gao Xingwei, a researcher at the same center.
Xinhuanet Sike: The decisions from the Third Plenary Session emphasize the construction of a high-level socialist market economic system as the top priority among the “seven focal points.” How can we best understand this high-level system?
Gao Xingwei: The decisions underscore that economic system reform remains a focal point for advancing deeper reforms. A central challenge in this reform process is balancing the relationship between government and market. One of the pivotal points in the document is its commitment that, by 2035, we will have fully established a high-level socialist market economic system. Gaining a clear understanding of this high-level system involves clarifying six critical relationships.
First, it combines Party leadership with market economy principles. Fundamentally, a socialist market economy is one that is guided by the Communist Party of China. We need to leverage both Party leadership and market efficiency. Support for Party leadership ensures our economic “ship” is steered in the right direction towards common prosperity, while allowing the market to play a decisive role in resource distribution enhances our economic growth. Both elements should work in concert, utilizing their strengths.
Second, there is a need to integrate socialism with market economy practices. We must optimize the institutional strengths of socialism while also capturing the advantages of a market economy. As Deng Xiaoping famously stated, “A planned economy does not equal socialism, and a market economy does not equal capitalism; socialism can indeed incorporate markets.” This encapsulates the integration we seek.
Third, we must ensure the compatibility of public ownership and market economy dynamics. Some voices in the West challenge our market economy status, arguing that our commitment to public ownership undermines it. However, this confusion stems from conflating “ownership” with “property rights.” Ownership pertains to asset possession, while property rights define the responsibilities and benefits associated with those assets. As long as property rights are well-defined, we can successfully develop a high-level socialist market economy.
Fourth, effective coordination between the “two hands” of government and market is fundamental. Theory and experience show that markets are the most efficient way to allocate resources. Before the 18th National Congress, we recognized the market’s fundamental role in resource allocation, and by the Third Plenary Session of the 18th Congress, this role was elevated to a decisive level. This means that all resources that can be allocated by the market should be managed by the market, while businesses should operate within their capacity. However, while the market holds a critical role, the government must also remain engaged, particularly in addressing market failures. The decisions from the Third Plenary Session stressed enhancing the market mechanism to create a fairer, more dynamic market environment, optimizing resource allocation efficiency and maximizing benefits. This necessitates both a “flexible” market and “effective” governance from the government.
Fifth, the interdependence of economic and political factors cannot be ignored. Politics cannot exist without economics, nor can economics thrive without politics. Currently, we observe a notable trend towards politicizing economic matters.
Sixth, establishing a regulatory framework for capital is essential for a high-level socialist market economic system. We must harness the positive aspects of capital while mitigating its potential negative effects.
Xinhuanet Sike: How does the high-level socialist market economic system reflect its “high” qualities?
Hong Xianghua: The decisions from the Third Plenary Session emphasize the development of a high-level socialist market economic system, and the “high” quality manifests in several key areas.
Firstly, it involves an effective synergy between a dynamic market and an active government. A high-level socialist market economic system requires effective management of the government-market relationship, ensuring the market plays a decisive role in resource distribution while enhancing the government’s ability for macroeconomic regulation. This balance helps prevent both market and government failures, fostering efficiency in resource allocation and economic benefits.
Secondly, the creation of a unified national market is vital. This market aims to eliminate fragmentation and barriers, enabling the free movement of goods and resources, which is crucial for improving market efficiency and competitiveness—a defining characteristic of a high-level socialist market economic system.
Thirdly, refining the foundational institutions of the market economy is critical. The decisions stress the need for improving essential market systems, such as property rights and market access. Enhancements in these areas contribute significantly to the smooth functioning and healthy development of the market economy.
Ultimately, the “high” aspect of this system is evident across various dimensions, and these improvements will lead to higher quality, more efficient, equitable, and sustainable economic growth in China.
Xinhuanet Sike: The decisions promote both “flexibility” and “control.” How can these concepts be harmonized?
Hong Xianghua: The successful integration of “flexibility” and “control” is vital for achieving a high-level socialist market economic system and is essential for advancing Chinese-style modernization.
“Flexibility” relates to deepening reforms to fully unleash market vitality. “Control,” on the other hand, involves employing governance and management strategies to effectively regulate market behaviors, uphold fair competition, address market failures, and respond to external shocks, ensuring stable economic operations and sustainable growth. Striking a balance between flexibility and control requires effective coordination between the market’s “invisible hand” and the government’s “visible hand,” leveraging the strengths of both to address their respective shortcomings.
In practical terms, on one hand, we need to refine the market system and mechanisms to support the market’s decisive role in resource allocation. We also aim to establish a unified national market, expand our international market presence, and facilitate domestic and international cycles to create broader market opportunities. On the other hand, we must clearly define the government’s functions and responsibilities within the socialist market economic system, enhancing the effectiveness and scientific rigor of governmental management and regulation.
Xinhuanet Sike: The decisions advocate for the construction of a unified national market and highlight the importance of regulating local investment laws to prohibit illegal advantages. What does this signify, and what behaviors should the government avoid?
Gao Xingwei: The unified national market we aspire to cultivate is not simply a collection of small regional markets or a narrow local cycle. We must confront historical challenges such as unfair competition and excessive “involution” in investment attraction. While attracting investment is crucial for high-quality local economic development and industrial restructuring, we need to reflect on the appropriate roles of both the market and government.
In the context of investment attraction, the government’s responsibilities primarily focus on two areas: first, compelling local governments to improve the business environment and public service quality by enhancing investment attraction; and second, bridging the information gap between the government and enterprises. Therefore, the decisions stress the importance of standardizing local investment laws and strictly prohibiting any illegal advantages extended to businesses. We must prevent discriminatory and biased industrial policies that hinder fair competition. Local governments should avoid skewing incentives, rewards, or subsidies toward select enterprises simply for short-term economic gain, as such actions would undermine fair competition and negatively impact the development of a unified national market.
Xinhuanet Sike: The decisions reinforce the policies of “two unwavering principles,” calling for a favorable environment and more opportunities for the non-public economy. How can we further stimulate the growth of the private economy?
Gao Xingwei: A high-level socialist market economic system is not an isolated phenomenon; it is fundamentally supported by established socialist economic systems, with the “two unwavering” principles being particularly crucial.
Currently, these “two unwavering” policies are firmly anchored in our constitution and Party charter, reflecting their permanence. We must steadfastly support and develop the public ownership economy while simultaneously encouraging, supporting, and guiding the growth of the non-public economy. Ensuring that all ownership types enjoy equal access to production factors, fair competition, and legal protections is essential. This sends a strong message that private enterprises and entrepreneurs play an integral role in our system.
The private sector is a significant contributor to the economy, comprising over 50% of total tax revenue, 60% of GDP, 70% of innovations, 80% of urban employment, and 90% of all businesses. Therefore, it’s vital to convey to the market and society that while state-owned enterprises provide the foundation for common prosperity, the private sector also serves as a crucial engine for growth.
The Third Plenary Session has proposed a Law on Promoting the Private Economy to legally protect market players and ensure the practical implementation of the “two unwavering” policies. Furthermore, it stresses the removal of barriers preventing private firms from entering the market, empowering them to spearhead vital national technological initiatives and gain better access to major state research facilities. This reassures them of their critical role in fostering high-quality economic growth in China.
