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Adhering to “Two-Unwaveringly” and Constructing the Modernized Economic System

Submit Time:16-03-2018 | Zoom In | Zoom Out

Author:Huang Qunhui | Source:Guangming Daily (February 7, 2018, Page 11,)

Abstract:

The basic economic system of China is dominated by the public ownership and allows diverse forms of ownership to develop side by side. It is stated in the report at the 19th National Congress of the CPC that we must uphold and improve China’s basic socialist economic system and socialist distribution system. There must be no irresolution about working to consolidate and develop the public sector; and there must be no irresolution about working to encourage, support, and guide the development of the non-public sector. The development history of reform and opening up for 40 years has proved that upholding and completing the basic economic system dominated by the public ownership and allowing diverse forms of ownership to develop side by side, and continually promoting the collaborated development of the public and non-public sectors is an important magic approach to ensure the long-term high speed growth of Chinese economy. After the Chinese economy has shifted from the high speed growth phase to the high quality growth phase, the “two-unwaveringly” is also an important guarantee in the construction of a modernized economic system in China. No doubt, it is important to completely and accurately understand the “two-unwaveringly” in further promoting the development of socialist economy of China and giving better play the advantages of the basic economic system of socialism with Chinese characteristics. Therefore, the Economics Journal invited three experts to discuss on the theme how to comprehensively and accurately understand the “two-unwaveringly”.  

The basic economic system dominated by the public ownership and allowing diverse forms of ownership to develop side by side is an important pillar of the system of socialism with Chinese characteristics, and also the root of the socialist market economy system. With the public sector as the main body, the state-owned economy can play a dominating role in the national economy, and this can ensure realizing development of national economy according to plan in proportion, prevent polarization, safeguard social equity, promote social harmony and self-reliance innovation, and provide a powerful economic foundation for consolidating the political power of the socialist country. Economy with different forms of ownership developing side by side is conducive to forming independent market competition relationship between them, giving play to the basic regulation role of the market mechanism, motivating the initiative and creativity of different economic entities, and ensuring the vigor and efficiency of the market economy. Both public and non-public sectors of economy are important components of the socialist market economy, and important foundation for the economic and social development of China. The practices in reform and opening up for 40 years have demonstrated that unwaveringly consolidating and developing public ownership of economy, unwaveringly encouraging, supporting and guiding the development of non-public economy, and the co-existence, shared prosperity and side-by-side development of both public and non-public sectors of economy is an important experience in creating the miracle of economic growth in China. After the Chinese economy has shifted from the high speed growth phase to the high quality growth phase, the construction of a modernized economic system became the core task in the economic development of China, and the “two-unwaveringly” is an important guarantee in the construction of this modernized economic system.  

Upholding the “two-unwaveringly” is an important experience in 40 years of reform and opening up.  

In the 40 years of reform and opening up in China, the traditional planned economic system gradually transited to the socialist market economy system with Chinese characteristics where the market plays a decisive role in resource allocation and the government can play a better role. During this period, by adhering to the “two-unwaveringly”, large number of market entities have been fostered, including state-owned enterprises that have been pushed to the market by deepening the reform of state-owned enterprise, and large number of individual privately run enterprises growing up on the market and enterprises with foreign investment introduced in opening up. The miracle of economic growth in China in 40 years of reform and opening up was created by the side-by-side development of two types of market entities, in both public and non-public economic sectors. To sum up the experience in 40 years of reform and opening up, “upholding two-unwaveringly” is undoubtedly one of the very important experience.  

On one hand, the public sector of economy was unwaveringly consolidated and developed with continually deepening the reform of state-owned enterprises as the core. The state-owned economy is the pillar of national economy, and the important foundation for the Party to govern the country. The reform of state-owned enterprise, as the core of the economic system reform of China, has gone through a complicated and zigzagged course of 40 years. The reform and development of state-owned enterprises in the 40 years has gone through roughly four periods: from 1978 to 1993, the period of decentralization of power and transfer of profit with the main content as expanding the autonomy of state-owned enterprises; from 1993 to 2003, the period of institutional innovation with the main content as establishing the modern enterprise system; from 2003 to 2013, the period of state assets regulatory with the main content as establishing the new state-owned asset management system; and from 2013 up to now, the period of classified reform with the main content as deepening the state-owned enterprise reform based on functional classification. After these four periods, especially the reform and development of state-owned enterprises since the 18th National Congress of the CPC, great achievements were obtained in the development of public economy of China. The total amount of assets of enterprises in the whole country subjected to state-owned asset regulation reached 144.1 trillion yuan at the end of 2016, a growth of 101.8% compared with that at the end of 2012, the total amount of taxes paid is about 1/3 of the national tax revenue, and the added value accounts for about 1/7 of the national GDP. In 2017, the central enterprises realized revenue of 26.4 trillion yuan, up 13.3% year on year, and realized profit of 1423.08 billion yuan, exceeding 1.4 trillion yuan for the first time, an increase of 187.4 billion yuan over the previous year, a year on year increase of 15.2%.  

On the other hand, under the support, encouragement and guidance by the Party's policies, China's non-public economy has achieved a rapid development from scratch, from small to large, and from weak to strong during the 40 years. The year of 1978 started the prelude for the development of the non-public economy, the 12th National Congress of the CPC confirmed that individual economy was indispensable supplement to the socialist public economy, the 13th National Congress of the CPC clearly stated that private run economy was the necessary and beneficial supplement to the public economy, and the 15th National Congress of the CPC further pointed out that the non-public economy was an important component in the socialist market economy of China. In 2002, at the 16th National Congress of the CPC, the “two-unwaveringly” was officially stated —— it is necessary to consolidate and develop unwaveringly the public sector of the economy, and it is necessary to encourage, support and guide unwaveringly the development of the non-public sectors of the economy. In 2005, the State Council issued the first policy document for all-round promotion of the development of non-public economy —— Some Opinions on Encouraging, Supporting and Guiding the Development of Self-Employment and Other Non-public Economy (36 Articles on non-public economy for short). After the 17th National Congress of the CPC, laws specifying standardized and equal competition such as the Property Law and the Enterprise Income Tax Law were promulgated, determining the equal market position of the non-public economy at the legal level, and building up the all-covering, multi-level and operable policy framework that supports the development of non-public economy. At the 18th National Congress of the CPC, it was stated to uphold the “two-unwaveringly”, further indicating the direction and acting point of maintaining and completing the basic economic system and developing the non-public economy. Since the 18th National Congress of the CPC, General Secretary Xi Jinping has emphasized a number of times that both public and non-public economies are the important components of the socialist market economy, the position and role of non-public economy in the economic and social development of China has remained unchanged, our principles and policies to encourage, support and guide the development of non-public economy have remained unchanged, and our principles and policies to endeavor to create good environment and provide more opportunities for the development of non-public economy have remained unchanged. It is with the support and guidance by the Party policies that the development of non-public economy in China has obtained great achievements. By June 2017, there had been 24.97 million privately run enterprises in China, the contribution from non-public economy exceeded 50% in taxation, and exceeded 60% in GNP, fixed assets investment and direct outbound investment, the proportion of high-tech enterprises exceeded 70%, that of employment in urban area exceeded 80%, and the contribution to new employment reached 90%. We can see that the non-public economy is playing a very important role in all aspects of stabilizing growth, promoting innovation, providing jobs and improving people's livelihood.  

Upholding the “two-unwaveringly” provides the institutional guarantee for the construction of modernized economic system 

The Chinese economy has shifted from the phase of high speed growth to that of high quality development, and the construction of a modernized economic system is an important strategic goal and major task in the development of China. A modernized economic system needs an institutional mechanism with effective market mechanism, vigorous microscopic entities and moderate macroscopic regulation, which requires completing more quickly the socialist market economy system. A complete and mature socialist market economy system must be able to stimulate the vigor of all types of market entities of both public and non-public economy, to ensure the innovation power and competing power of the modernized economic system through the fair and orderly competition among all market entities. Therefore, the “two-unwaveringly” is an important guarantee for the construction of the modernized economic system, with important significance to the realization of the “Two Centenary Goals” and the Chinese Dream for the great national rejuvenation, and we must uphold it in long term.  

The main tasks in the construction of the modernized economic system as stated in the report at the 19th National Congress of the CPC show that the tasks on all aspects cannot be accomplished without the reform of institutional mechanism guided by the “two-unwaveringly”. The first is to deepen the supply-side structural reform, the key lies in improving the supply quality, and it demands promoting industrial upgrading and fostering new functions of economic growth. This requires deepening the state-owned enterprise reform, to support state capital in becoming stronger, doing better, and growing bigger, and improve the supply quality of state-owned enterprises, and also requires deepening the reform in the business sector and completing the property right protection system to create a fair competition environment, to stimulate the innovation and development initiative of private economy. The second is that speeding up the construction of innovative country requires deepening the reform of scientific research system, to give play to the critical role of state-owned economy in the basic research and major scientific and technological projects, and also to motivate the initiative of scientific research personnel and give more support to innovation by small and medium-sized private run enterprises. The third is that the implementation of rural vitalization strategy requires deepening the reform of rural land system and rural collective property right system, to develop modernized big agriculture while guaranteeing the property rights and interests of farmers and strengthen the collective economy. The fourth is accelerating efforts to improve the socialist market economy, with the emphasis to improve the property right system and market-based allocation of factors, to provide a better institutional foundation for the fair competition of all types of market entities. The fifth is to promote all-round opening, we should encourage Chinese enterprises, especially big enterprises to go global, and also significantly ease market access, and protect the legitimate rights and interests of foreign investors. We can say that all main tasks on all aspects of construction of modernized economic system put forth in the report at the 19th National Congress of the CPC are connected with the requirement of upholding the “two-unwaveringly” as a main line.  

A modernized economic system is one that can adapt to the high quality development phase, this economic system must be able to give full play to the advantages of economy of different forms of ownership and promote economy of all forms of ownership to compete in a fair way and cooperate for shared prosperity, and only by so doing can it promote the high quality development of the whole national economy. The public economy, especially state-owned enterprises, have the advantages in making up defects of market, guaranteeing the common interests of the people and realizing catch-up and surpassing in some major strategic fields for China as a late-comer, to play their important roles in major strategy concerning the development of the nation and major undertakings of national economy and people's livelihood; while the non-public economy such as self-employed, private-run and foreign invested entities has unique advantages in meeting the multi-level and diversified demands on market, improving the supply quality and promoting the balanced development of productive force. Therefore, only by upholding the “two-unwaveringly”, can we ensure that the modernized economic system has such diversified and hybrid advantages, thus promoting the high quality development of economy.  

Pushing forward the mixed ownership reform is an important action in building a modernized economy 

To uphold the “two-unwaveringly”, the specific realizing forms include that in which the public and non-public economy develop independently and embodied as the mixed ownership economy at the macroscopic level, and that in which the state-owned capital and non-state-owned capital hold shares in crossing and mutual integration, with stock system enterprises as the carrier, and embodied as the mixed ownership economy at the microscopic level. The former is in the structure of mixed forms of economic ownership, and the latter is demonstrated as enterprises of mixed ownership. Economy of mixed ownership at the macroscopic level, when giving play to the respective advantages of the public economy and non-public economy, is mainly demonstrated as the division of work and mutual complement roles and competition and incentive roles of the two, while enterprises of mixed ownership at the microscopic level embody the organic combination of public and non-public economies. Enterprises of mixed ownership are conducive to the establishment of efficient corporate governance structure, to fully mobilizing the initiatives of employees, and to forming market-based operation mechanism, therefore the reform for mixed ownership has provided good foundation of institutional mechanism to enable enterprises to become microscopic entities with more vigor and competing power. To build the modernized economic system, we need to adhere to putting quality first and giving priority to benefit, to push ahead quality reform, efficiency reform and drive force reform with the supply-side structural reform as the main line, and raise the total factor productivity of economy. To meet these requirements for high quality and high efficiency of economic development at the macroscopic level, there must be large number of microscopic entities with innovation and competing power at the microscopic level, and the mixed ownership can provide the institutional guarantee conducive to fostering innovation and competing power of enterprises. Therefore, to build a modernized economic system, it is necessary to foster a batch of enterprises of mixed ownership as its microscopic foundation.  

Since the 18th National Congress of the CPC, active progress has been made in the reform for mixed ownership in the state-owned enterprises of China. From 2013 to 2016, the proportion of enterprises of mixed ownership in central enterprises increased from 65.69% to 68.93%; from 2013 to August 2017, central enterprises conducted 211 transactions to transfer part of state-owned equities to non-state-owned market entities via the property right market; the pilot for mixed ownership reform has also been actively pushed ahead in important fields of power, petroleum, natural gas, railway, civil aviation, telecom and military industry, and the pilot on employees of state-holding mixed ownership enterprises holding shares has also been smoothly pushed ahead. For example, the Ouyeel Company affiliated to China Baowu Steel Group Corporation Limited attracted shares of 6 strategic investors including Benxi Steel Group Corporation, Shagang Group and Mitsui & Co., Ltd.; and the employee share-holding platform through mixed ownership reform, obtaining additional capital of 1 billion yuan, the proportion of state-owned shares of China Baowu Steel Group Corporation Limited was lowered to 72%, making it an enterprise of mixed ownership of multiple capital of state-owned capital, private-run capital, foreign capital and employee shares. Another example is China Electric Institute, a wholly-owned subsidiary of SINOMACH Group, by mixed ownership reform of introducing civil capital and key employees holding shares, it became an enterprise of mixed ownership with state-owned shares accounting for 60%, employee shares for 22% and strategic investor shares for 18%. In the meantime, 126 enterprises in 21 provincial level regions also smoothly pushed ahead pilot on employee holding shares for mixed ownership. These reforms for mixed ownership on one hand enlarged the function of state-owned capital, promoting the state-owned enterprises to change their operation mechanism, and on the other hand, the access area for non-public capital has been expanded, to give play to the governance and stimulating effect of non-public capital, so that capital of different ownership can make the best of others and promote each other for joint development at the enterprise level. These reform practices for mixed ownership also show that, since the 18th National Congress of the CPC, China has been upholding the “two-unwaveringly”, not only encouraging the independent development of public and non-public economies, but also promoting the integration and co-existence of the public and non-public capital through reform for mixed ownership.  

(Author: Huang Qunhui, general director of Institute of Industrial Economics of CASS and research fellow of Socialism with Chinese Characteristics Theoretical System Research Center of CASS)


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