Last stage of marketization<\/strong><\/p>\nThe reform of the factor market can be described as the last stage of China\u2019s marketization, which has been ongoing since the 1980s.<\/p>\n
This is because factor market reforms are deeply related to institutional reform which could not have been put into practice until now. Moreover, this is an area that had been put off for fear that movements of production factors could cause damage to the economies of certain regions.<\/p>\n
It is important to look at land reform in connection with reforms that have previously been implemented.<\/p>\n
In recent years, a major achievement has been seen in China\u2019s land system reform in rural areas, with the country conducting reform to divide the three rights governing farmland \u2014 ownership rights, contract rights and management rights.<\/p>\n
By separating the transferable management right from the nontransferable contracting right for lands allotted to farmers, the new system is aimed at facilitating distribution of contracted management rights and the development of farmland.<\/p>\n
However, land reforms have been conducted using the overwhelming authority of local governments, which tends to lead to the inefficient allocation of farmland as well as collusive relationships between local authorities and land developers.<\/p>\n
Under the factor market reforms, China aims to solve such problems and create a uniform nationwide market mechanism.<\/p>\n
Furthermore, the reform of workforce mobility is closely related to the reform of the household registration system that China has been working on.<\/p>\n
Since roughly a decade ago, the Chinese government has implemented measures including abolishing the dual structure between urban and rural areas, built up under a household registration system that strictly limits the migration of people from the latter to the former, and introducing a system of issuing temporary residence permits for migrant farmers.<\/p>\n
Still, strict hurdles are set for obtaining permits to live in large cities with a population of 5 million or more.<\/p>\n
The latest factor market reform plan calls for the simplification of procedures related to transitions of household registrations and unification of individuals\u2019 information related to public health insurance to improve data portability.<\/p>\n
But it is uncertain whether such reforms will lead to liberalization of labor transfers to urban areas.<\/p>\n
<\/p>\n
Technology and data markets<\/strong><\/p>\nAnother notable aspect of a series of factor market reforms is that it deals not only with conventional factors, like land, labor and capital, but also new factors such as technology and data.<\/p>\n
As for technology, the plan lists measures such as the setting of government standards for new technologies and skills related to professions that utilize them \u2014 including artificial intelligence, the internet of things and cloud computing \u2014 as well as building a capital market for research and development.<\/p>\n
Regarding data, the Data Security Law and the Personal Information Protection Law came into effect in 2021, which, together with the Cybersecurity Law that was enacted in 2016, offer legal systems for networks that respond to digitization.<\/p>\n
Because a system to centrally manage data is required to realize other goals in the plan such as accelerating transfers of land management rights and improving portability of household registrations, creating a legal framework concerning data is indispensable for efficient distribution of production factors.<\/p>\n
In other words, the Chinese government listing data as one of the key production factors indicates that it is placing great emphasis on promoting digitization in the country\u2019s politics, economy and society.<\/p>\n
As a matter of fact, the term \u201cdigital\u201d comes up more than 70 times in the outline of China\u2019s 14th five-year plan, released in March 2021.<\/p>\n
Moreover, the 14th five-year plan for the development of the big data industry announced by the Chinese Ministry of Industry and Information Technology later that year states the need to \u201cgive full play to the multiplier effect of data as a new factor of production, use data flow to lead the flow of technology, material, capital and talent, open up production, distribution, circulation and consumption and promote the optimal allocation of resource factors of production.\u201d<\/p>\n
The plan says the creation of systems for data distribution will \u201caccelerate the comprehensive linking of domestic and international, production and daily life, and online and offline\u201d to drive profound changes and provide support for the establishment of the new pattern of development.<\/p>\n
<\/p>\n
Common prosperity<\/strong><\/p>\nLast summer, China came up with a radical policy focusing on redistribution of wealth under the name \u201ccommon prosperity.\u201d<\/p>\n
A meeting of the CCP\u2019s Central Finance and Economic Commission held in August stated that common prosperity is an essential requirement of socialism and advocated for \u201ctertiary distribution\u201d \u2014 meaning redistribution in the form of voluntary donations by individuals and institutions.<\/p>\n
Such distribution is regarded as being able to achieve redistribution in addition to the primary distribution \u2014 allocating the factors of production such as land and capital \u2014 and the secondary distribution made through fiscal spending.<\/p>\n
In response, Chinese tech giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. both pledged to invest as much as 100 billion yuan by 2025 to support the campaign.<\/p>\n
As can be seen in its 14th five-year plan, China\u2019s medium- to long-term economic policies have been apparently focused on goals to accelerate reforms on the supply side such as promotion of innovation and digital society.<\/p>\n
Therefore, a series of measures taken under the common prosperity policy caused some to fear that Chinese President Xi Jinping might be trying to set a new course of action to return to the basic principles of socialism.<\/p>\n
But looking at China\u2019s moves that followed, it is clear that the Xi administration continues to focus on policies to facilitate economic development through improving efficiency on the supply side.<\/p>\n
Such a view can be supported by the fact that the term \u201ccommon prosperity\u201d was mentioned only once in the government work report delivered by Premier Li Keqiang at a National People\u2019s Congress session in March.<\/p>\n
Rather, it looks like the Xi administration believes it is unavoidable for a series of factor market reforms to trigger further widening of wealth gaps and therefore put forth the common prosperity policy as a vaccine-like preventive measure to avoid being hit by public criticism.<\/p>\n
If the Chinese government is going to deploy common prosperity like a vaccine, it should be administered a number of times and it will obviously cause side effects \u2014 not to mention the education services industry, which has suffered a devastating blow from the crackdown.<\/p>\n
How should Japan\u2019s businesses cope with the Chinese economy amid such uncertainties?<\/p>\n
First and foremost, they should recognize again the fact that in China, the relationship between companies and the government is not straightforward.<\/p>\n
For instance, Alibaba already has an affiliated public welfare fund that provides money for programs to fight poverty. A huge \u201cdonation\u201d of 100 billion yuan made by Alibaba will be used through the fund to help low-income citizens and it is up to the firm to decide how to use the money.<\/p>\n
Looking at how the system works, it is difficult to say that the common prosperity policy is a return to traditional socialism.<\/p>\n
On the other hand, we must not forget that doing business in China means you are constantly under the risk of being greatly affected by changes in the country\u2019s politics.<\/p>\n
Particularly now that China\u2019s economic growth is in a downward phase and the country\u2019s \u201cCOVID zero\u201d policy is bringing about a downside pressure on the economy that is hard to predict, the factor market reforms are likely to face stronger headwinds.<\/p>\n
We should also note that both the Chinese government and companies are still at a stage of feeling their way around in regards to the rapidly progressing digitization of the society and economy.<\/p>\n
Both the government and the private sector of Japan need to discuss how they can cooperate with China from now on in cross-border data sharing and rule making.<\/p>\n
That is why in starting the discussions, it is ever more important to grasp what is really going on.<\/p>\n
<\/p>\n
Disclaimer: <\/strong>The views expressed in this API Geoeconomic Briefing do not necessarily reflect those of the API, the API Institute of Geoeconomic Studies or any other organizations to which the author belongs.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cAPI Geoeconomic Briefing\u201d is a weekly analysis of significant geopolitical and geoeconomic developments that precede the post-pandemic world. The briefing is written by experts at Asia Pacific Initiative (API) and includes an assessment of burgeoning trends in international politics and economics and the possible impact on Japan\u2019s national interests and strategic response. (Editor-in-chief: Dr. HOSOYA …<\/p>\n
How China’s plan to return the factor market will work to develop its economy by KAJITANI Kai<\/span> Read More »<\/a><\/p>\n","protected":false},"author":6,"featured_media":36396,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35],"tags":[],"class_list":["post-37042","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-api-geoeconomic-briefing"],"_links":{"self":[{"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/posts\/37042","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/comments?post=37042"}],"version-history":[{"count":4,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/posts\/37042\/revisions"}],"predecessor-version":[{"id":37070,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/posts\/37042\/revisions\/37070"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/media\/36396"}],"wp:attachment":[{"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/media?parent=37042"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/categories?post=37042"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/tags?post=37042"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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