 |
| Beijing has a large domestic market with a population of more than 1.4 billion people, of which more than 400 million are middle class. Illustrative photo. (Source: Xinhua) |
China defines a unified domestic market as a highly efficient, rule-based, fair and open domestic market that eliminates protectionism, market segmentation or local barriers that restrict economic circulation, thereby facilitating the circulation of products and resources on a larger scale.
Unified domestic market
The concept of a single domestic market was first formally proposed by policymakers in a top-level reform document in 2013, focusing on eliminating regional protectionism and encouraging competition.
By April 2022, Beijing had issued specific guidelines to accelerate the establishment of a unified domestic market, facilitating more efficient and smooth movement of production factors, including labor, goods, capital and data.
The guidelines are seen as a cornerstone to support Chinese President Xi Jinping's new economic development strategy, which focuses on quality economic growth, safe development and increased innovation.
Reason for timing
With a population of more than 1.4 billion people, including more than 400 million middle-class people, China owns the world's only super-large market with spending on consumer goods and food services reaching 44 trillion yuan ($6.2 trillion) by 2022.
China is the world's leading importer of iron ore, crude oil and industrial metals.
The move to establish a unified domestic market is seen as a response to the rapidly changing domestic and international environment.
Externally, the move is seen as a response to the US trade war and ongoing efforts to decouple the world’s two largest economies, with China facing increased consumption amid falling overseas demand, high tariffs and supply chain disruptions from the pandemic.
Beijing emphasized this in May 2020 when it announced its dual-circulation strategy, which focuses more on the domestic market or internal circulation, gradually reducing its dependence on export-oriented development or external circulation, although it does not abandon it completely.
A unified domestic market, according to economists, is a way to retain foreign investors because this is a huge and potential consumer market with a growing middle class, promising many great business opportunities.
In the first four months of 2023, the world's second-largest economy saw a steady decline in orders from the US, while foreign direct investment fell 3.3% year-on-year.
Key tasks
The key tasks set out in the 2022 guidance document are to encourage competition, reduce regulatory costs, increase efficiency and productivity, enhance technological innovation, and promote international cooperation. All of these tasks are important to China’s 2035 growth target of doubling its 2020 gross domestic product.
Specifically, the Government's campaign includes plans to implement unified market access standards, fair competition, a social credit system, intellectual property protection, free flow of labor and data.
What do foreign investors think?
Foreign and private companies have long complained about different standards and regulations for each type of business when accessing the market. The state-owned sector still seems to have a hidden advantage in some areas such as government procurement, bank lending and bidding.
In its annual report released at the end of May, the British Chamber of Commerce in China said that the implementation of administrative documents in many localities is uneven in many areas, such as customs clearance waiting time or the implementation of new data privacy laws.
According to research by Wu Qunfeng, a scholar at Peking University’s School of Economics, an item typically incurs an additional 3.8 to 19.6 percent tax when it crosses provincial borders. Companies also face the challenge of less mobility in the workforce under China’s hukou system, which allocates public services to citizens based on their place of birth. This also means it costs companies more to attract talent from other provinces.
Time to complete unified domestic market
This will be a long-term plan, and while some tasks have already begun, progress is generally slow.
Late last year, China's top economic planning agency, the National Development and Reform Commission, launched a public consultation on reforming the social credit system, claiming it would help optimize the business environment.
China has largely lifted its household registration restrictions, while central-level cities such as Shanghai and Beijing have loosened restrictions, creating more opportunities for talent and introducing more public services for migrant workers.
Since mid-May this year, the Chinese government has been implementing a new evaluation system for officials. Previously, officials often gave priority to their local businesses, leading to increased local protectionism.
Source
Comment (0)