As the fourth quarter of 2018 is approaching, this means that the 40th year of China's reform and opening up is near to its completion. Despite the intensified trade friction between the United States and China, the substantial large-scale promotion of the next step of deepening reforms in China remains unclear; yet there are also activities to commemorate, review, and summarize the reforms. Some senior leaders have also revealed certain deepening signs of reform. Although this information is not systematic, it deserves the attention of the market.
On September 16, at the China Development Forum Special Session, Yang Weimin, deputy director of the Finance Commission of the CPPCC National Committee and former deputy director of the Office of the Central Leading Group on Financial and Economic Affairs, delivered a talk entitled "Improving Property Rights System and the Marketization of Essential Factors to Accelerate the Economic System Reform”. Yang Weimin has worked in the high-level areas of China's economic decision-making for a long time; he believes that China's deepening reforms in the future, the key to China's state-owned enterprise and rural land reform is the reform of the property rights system, rather than merely focusing on ownership.
Yang Weimin said that China's "new era" is an era where reform and opening up are further accelerating; it is also an era of comprehensive deepening and advancing of the reform. He believes that perfecting the property rights system and the marketization of factors is the basic trend of the "new era" economic reform. In the past 40 years, China’s success has relied on reform and opening up, and one of the reasons for China’s success is the reform of property rights and marketization. Yang Weimin said that property rights incentives are different from the "work-based distribution" in the early stage of reform and opening up. “Work-based distribution” is a question of who and how much gets under the established conditions. Property rights incentives are different; in property rights incentives it is clear that producers will find ways to optimize factor selection, create more social wealth, and generate more wealth. "Work-based distribution” is incentives after the work, while the property rights system is incentives prior to the works. Property rights incentives are the most significant incentive; the so-called improvement of property rights system is to improve ownership and ownership of the contracting, usage, management, lease and income rights.
It is worth noting that Yang Weimin made an important explanation on the reform of property rights system and ownership that often caused confusion and great controversy in China. He said that the reform of the property rights system is not completely equivalent to the ownership reform. The ownership reform is the change of ownership, and the reform of the property rights system can be without touching about ownership. The growth of private enterprises is the result of ownership reform, but the reform of state-owned enterprises and rural reforms is the reform of property rights system on the basis of not touching the public ownership. Yang Weimin emphasized that "if we are too entangled in public or private ownership, state-owned enterprise reform and rural land reform will not be able to go deeper". At the same time, property rights system reform and market-oriented reform must be synchronized in order to be effective. Property rights are clear, resources can flow, and the market can determine resource allocation. On the contrary, without synchronicity, even if the property rights are clear, the government will still intervene excessively in the market, effective allocation of resources will not be realized and there will not be an increase of the total factor productivity.
Anbound research team believes that the information disclosed by Yang Weimin's speech is quite important. The following points deserve attention: (1) China will continue to deepen reforms in the future. Among them, the state-owned enterprise and rural land are the two key areas of reform in the future. (2) The key to the reform of state-owned enterprises and rural land is the reform of the property rights system. China will promote reforms with the “ex-ante incentives” of “property incentives” as the core, which is different from the institutional reforms that used to adjust production relations. (3) Not touching ownership is an important system embodying the socialist system and public ownership. However, under the basic system of ownership, the property rights system and ownership reforms will be separated. This distinction will provide political space and interpretation for China's property rights system reform. This also means that China will increase the reform of the property rights system without touching ownership. (4) The reform of the property rights system should be carried out simultaneously with the market-oriented reform. The reform of the property rights system will release market resources more vigorously and strengthen the market to allocate the resources. In fact, this is completely consistent with the contents of the Third Plenary Session of the 18th Central Committee, and it also provides another important policy package for the implementation of the reform resolution since the 18th Chinese National Congress.
According to the tracking research of Anbound scholars, under the current situation, the Chinese market sees many pessimistic and wait-and-see attitudes in the deepening reforms. Whether China can make breakthroughs in property rights reform and whether it can promote state-owned enterprise reform in the competitive fields in the context of strengthening state-owned enterprises remain doubtful.
The current situation indicates that the reform’s progress is indeed not ideal. The stronger the state-owned enterprises are, the more they are reluctant to give up the market and they still have access to many policy-oriented and preferential resource allocations; private enterprises are not optimistic about participating in mixed reforms, and the large-scale investment participation of a few private enterprises behave more like warlords. Many private enterprises are hesitant about this; under the downward pressure of the economy, private enterprises generally have insufficient confidence in the future development, and these are all the reality now.
However, one should also see the trend. If the state-owned enterprises are stronger yet the private enterprises are weaker, what will happen to the Chinese economy? Without a doubt, it will get worse. History has proved that if the Chinese economic system is supported by state-owned enterprises, it is undoubtedly fatal. Many decision-makers should be able to understand that state-owned enterprises simply are not reliable when there are major incidents. Some people look at state-owned enterprise reform from the perspective of ownership and politics. Although politics is very important, if economic imbalances affect the economic, social, and political stability, reforms will have to be conducted. Therefore, China should still believe in the possibility of deepening reform. History has proven that a strong private economic system will become not only an important force that can support China's economy but also an important force supporting its socialist market economy system. It should be emphasized that these have already been written in the Constitution and the Central Government’s documents, especially in the documents of the Third Plenary Session of the 18th Central Committee have clearly confirmed the content of China's reforms. As Anbound has pointed out many times, the key to China’s deepening reform is to do the necessary things properly.
Final Analysis Conclusion:
The key task of China's deepening reform in the future is to implement the established reform tasks. The reform of state-owned enterprises and rural land systems based on the reform of property rights system are expected to become important reform areas, and specific reform policies with breakthroughs will come into existence.
