China Embracing: The Market And Economic

This book has the well-known Chinese economists Wu Jinglian, Cheng Siwei, Lin Yifu, and Chi Fulin on China’s economic reform after the Third Plenary Session of the 18th CPC Central Committee. Also include the prediction for the future economy by 30 economists and entrepreneurs such as Zhang Weiying, Gu Shengzu and Wang Jianlin.

The Third Plenary Session of 18th CPC Central Committee pointed out that in order to realize the Chinese dream of the great renewal of Chinese nation, we must deepen the all-round reform at a new historic starting point, the key of which is economic structural reform. The Third Plenary Session of the 18th CPC Central Committee pointed out that we must deepen economic reform focusing on the major issue that market must play a decisive role in resource allocation, and we must stick to and improve the basic economic system, improve modern market system, speed up the improvement of modern market system, macro-economic regulation system, and open economic system, accelerate the transformation of economic growth mode, set up an innovative country to develop a more efficient, more fair and more sustainable economy. This reform is a new starting point of China’s market economic construction, at which the CPC Central Committee draws a blueprint for China’s economic development.

The Beijing News was established in Beijing on November 11, 2003. It enjoys the reputation of a widely influential cosmopolitan newspaper focusing mainly on reporting current affairs.

The beginning of economic reform in a new era

Anticipate a market economy of “version 2.0”

Deal with the relationship between the government and the market

China is expected to be a high-income country in 2020

Adjustment of interest structure is the key to reform

Economist: the biggest dividend comes from reform in the next decade

Reform of leading team deserves expectation

Let private capital exert catfish effect in financial reform

Property tax is not suitable for China’s national conditions

Growth of the housing price will slow down in 2014

Retail industry undergoes the third reform

China’s economic future depends on reform

Mobile devices will be everywhere

Anti-corruption should rely on system reform

The growth rate of e-commerce will be far more than GDP

Growth is expected to maintain 8% in future

There is a huge bonus space in reform

Decline in economic growth is a necessary price

Demographic debt always after the demographic dividend

Entrepreneurs will enter a period of great changes

The benefits of China’s (Shanghai) Pilot Free Trade Zone will be clear in half a year

Internet finance is the theme of 2014

Government should use fewer economic stimulus policies

Reducing housing vacancy rate can temper price

Improvement of China’s wealth transparency

Focus of urbanization: Clearing the institutional obstacle

Urgency of the reform of income distribution

Booming budget airlines

Decentralization is the reform highlight in 2013

Investment efficiency of state-owned enterprises should be improved urgently

The dust in electric business platform competition does not fall

More enterprises to enter the agriculture is a good thing

The Decision on Major Issues Concerning Comprehensively Deepening Reforms in brief

Property tax is not suitable for China’s

national conditions

Xu Shanda

Xu Shanda, the former deputy director of China’s State Administration of Taxation, holds many offices and he has ever been an enterprise employee, researcher, and a government official. Now he is devoted to tax reform.

As a firm opponent of property tax, facing questions, he responded that his practice should not be simply taken as speaking for the rich; concerning property issues, he firstly becomes the spokesman of the lowincome group.

A science and technology graduate with good logic thinking as he is, he prefers humanity history to natural scenery and has a taste for works of arts.

Lately, he wrote an article in Century Tide to review the political wisdom of former Premier Zhu Rongji in fiscal and taxation reform in 1993. A comment of this article by Zhu Rongji said that, “vivid scene of that year leaps from the page”.

Property tax has not been approved by local governments

Q: You opposed the imposition of property tax on residential house before, but now what’s your opinion?

Xu: It has been four years since property tax was put forth. After four years’ implementation, it is proved that the property tax should not be levied. Now the pilot places for property tax are Shanghai and Chongqing, China. But until now, Shanghai municipal government has never mentioned its successful pilot of property tax, even if Chongqing mayor Huang Qifan has ever indicated the pilot is very successful in Chongqing, but the collection range there is narrowed down year by year.

In 2011, the taxable price for high-end homes was 9941 RMB per square meter; in 2012, it was changed to 12152 RMB per square meter; in 2013, a new standard of it is 12779 RMB per square meter. In three years of piloting, property tax threshold is increased by 2838 RMB per square meter. It seems illogical conclusion that the pilot is successful, while the range of collection is narrowed year by year.

Meanwhile, except the two pilot cities, no local government volunteers to be the pilot place to levy property tax. On the contrary, upon being rumored to be the pilot place, many local governments will clarify the truth immediately. Such thing ever happened in areas such as Beijing, Shenzhen, Nanjing, Hangzhou, Hunan, and Hubei. We can see that almost no local governments approve property tax. When Shenzhen was rumored to be the pilot place, its mayor cleared with three sentences: if the central government has designated Shenzhen as the pilot place, we will do our best to carry out. But until now, we have not received any directive from the central government to levy property tax in Shenzhen. Finally, local government now has no pilot project in Shenzhen.

Property tax originally is local tax, but it is not approved by local governments, and practice has proved this to be true, because for many years no local government except the two pilot places is willing to levy property tax.

Q: Why?

Xu: Originally, there are three objectives in the pilot to reform property tax. The first objective is to increase local government revenue, but now we can see that it doesn’t make any difference to it, because the property tax income for governments in Shanghai and Chongqing is not decent, let alone, this taxation can deal with revenue problems of local governments. The second objective is to reduce China’s household income gap, but practice proves that it doesn’t work. The third objective is to lower housing price, but the fact is that obviously the housing price in Shanghai and Chongqing is rising, rather than decreasing.

The above are the three objectives proposed by proponent to pilot property tax, but none of the three objectives has been realized, so it is not unreasonable that local governments are not willing to pilot property tax. So I don’t agree to enlarge pilot area for property tax, on the contrary, I think that this practice should be stopped in the two pilot places. Collecting residential property tax is unsuitable to the conditions in China.

The beginning of economic reform in a new era

It is clear that China’s market economic construction has come to a new start. At this juncture, by convention, the Beijing News tries to look into China’s economic future at the end of the year.

The Third Plenary Session of the 18th CPC Central Committee responded to the market’s expectation on reform. In the Third Plenum Communique, the word “reform” has been mentioned 59 times, far more than ever before, which shows the difficulty, urgency and determination of reform.

Where should the reform start from? Opinions vary. This conference responded to this by putting forth 15 key points of reform such as “Improving modern market system”, which declared the start of economic reform in a new era. To be more specific, looking ahead, we expect to have China’s market economy system further updated, and this expectation is worthwhile.

It was in 1994, when the Third Plenary Session of the 14th CPC Central Committee was held, that China’s market economic system began to be established. After 20 years’ development, the dividends of the new economic system have undoubtedly benefited the great majority of Chinese people and profoundly transformed the structure of the world economy. Though in the last 20 years many problems have accumulated in the process of China’s marketization process, and tremendous differences exist among people benefiting from reform, yet it is believed that China’s move to market economy is irreversible. Therefore, it is urgently required that we should resolve problems in reform with greater determination and start the new era of reform.

By looking back, we can say that the construction of China’s market economy in the past 20 years is the fundamental cause underlying China’s continuously rapid growth to the world second largest economy; however, we cannot deny that the rapid growth is not only the dividends from transition into market system, but also closely related to the “dividends from globalization” as China has joined the WTO and has been actively involved in the world economic system. The world gradually becomes “flat” for China with fading advantage of backwardness. It is a top priority to begin updating the imperfect market economic system.

To update, we need to face up to the problems existing in the current market economic system and deal with them one by one.

To sum up, though the old planned economic system has been transformed into the market economic system, the remains of the former one are still hindering market-oriented reform.

For example, in our economy, we can see that planned economy still prevails but takes “review and approval” as a cover-up. Review and approval still exists for a grand aim that has never been achieved; much worse, it has become a means to rent-seeking. For example, the construction of every steel mill should go through a series of review and approval, but the result of this is that we set up a market with overcapacity. Another example is that, from the central government to the local governments, a specific plan for the industry is made, but at times, we are faced with the reality that the industrial structure should be readjusted. But we rarely meet such troubles in less-regulated industries.

One reason for these problems is that the role of market in resource allocation is restricted to some extent, and the relation between market and government is not well coordinated. Another reason is that market in China is still not unified.

In the Third Plenary Session of the 18th CPC Central Committee, the top priority of economic system reform has been pointed out clearly that we should strike a balance between the role of the government and that of the market and make sure that market plays a decisive role in resource allocation so as to set up a unified and open market system with orderly competition. This response is also a conclusive rescue to the ills of China’s market economic system over the past 20 years. In that sense, we should give due respect to market and get it to play its role deserved and operate openly under the rule of laws. All this is a starting point to update China’s economic system.

Take Chinese economist Wu Jinglian’s word, we can say that previous market economic system in China is an old 1.0 version, whereas after the Third Plenary Session of the 18th CPC Central Committee the version has been updated to 2.0 version, under which the property rights should be protected adequately, prices should be very open, government’s right to manage market should be clearly defined, monopoly and local protectionism should be eliminated, and private capital and state-owned capital should be equally treated.

In order to achieve these aims, we must “properly deal with the relation between the government and market” just as has been pointed out in the Third Plenary Session of the 18th CPC Central Committee. As to the relation between government and market, the former should decentralize its power to the latter. In addition, it has been declared in this session that we must unswervingly strengthen and develop the public economy, and also unswervingly encourage, support and guide the development of the non-public economy, and treat state capital and private capital alike. All these measures are the indispensable steps to update market economic system.

This Third Plenary Session can be regarded as a blueprint for China to deepen all-round reform. But the so-called blueprint is just a starting point in our new journey of economic reform.

Chief editor of Economic Information Department of the Beijing