The Necessity and Key Points of Building a Unified Big Market
Dec 27-2024
*This article is based on a speech by Zhao Bo, Tenured Associate Professor of Economics at National School of Development at Peking University and deputy editor-in-chief of China Economic Quarterly .
Since the reform and opening up, China's economic growth rate has remained high for many years. From a macroeconomic point of view, the main reason for the decline in China's economic growth rate over the years is the decline in total-factor productivity. China need to rely more on improving total-factor productivity to drive its economy in the future.
The Importance of Total-factor Productivity
How can total-factor productivity be improved? This is one of the most important challenges facing China's current economic growth. Technological progress, government management, rule of law reform and whether the market system can be further improved are all related to this. Improving total-factor productivity is at the core of developing new quality productive forces. Improving total-factor productivity is based on three main aspects: first, innovation; second, sustainable transformation and upgrading of the economic structure; and third, building a unified national large market that includes both traditional factors of production such as labor, capital and land, and intangible factors such as knowledge and technology.
Key Points for Accelerating the Construction of a Unified Large Market
I. Improving the basic market system and the market for production factors
Given the current economic situation, we still have much to do for the improvement in insisting on giving full play to the decisive role of the market in resource allocation. How can the decisive role of the market in resource allocation be further enhanced? This concerns the problems of financing-dilemma in the capital market and the registration system of urban and rural households in the labor market. Despite the continuous liberalization of the household registration system, there are still serious barriers in some megacities, which severely restrict the flow of talents and the development of human resources. Protectionism prevails in the product market, where apparently fair bidding and tendering procedures are in fact full of discrimination and barriers. The same is true of the land market.
II. Building a unified social security system
The social security system is the most important stabilizer of a modern socialist country, such as unemployment insurance, maternity insurance, medical insurance and the pension system. The market has limits, so these insurances are not only components of social security, but also parts of the risk-sharing mechanism.
China's pension security system was initially coordinated at the county level, which later became unsustainable due to population mobility and imbalances in regional economic development. A centralized pension transfer system was established in July 2018, and the coordination of pension accounts has now been upgraded to the provincial level. The current situation of pension accounts varies greatly from province to province, and it will be difficult to maintain them without re-coordinating pensions and relying solely on transfer payments.
III. Optimizing social security and reducing regional disparities
What are the directions for reforming the social security system? First, the number of people covered should be increased. The current coverage of urban, rural and municipal pension insurance needs to be improved. The second is to unify the pension contribution standards. At present, pension contribution standards are not uniform across localities, and this disparity may be exacerbated by increasing population mobility. Therefore, setting up a nationally unified basic pension account and having the central government directly manage pensions in the social security fund is the most appropriate method.
Future Outlook
At present, China's economic development is facing great difficulties and there is an urgent need to find new growth drivers. Accelerating the construction of a unified large market can go a long way in solving the problem. Turning to innovation-driven construction and upgrading of the unified big market is a sure way forward.