China Urged to Build Up Market Economy in Body and Soul

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Last updated at: (Beijing Time) Wednesday, December 25, 2002

China Urged to Build Up Market Economy in Body and Soul

Given its 1.3 billon population and about 700 million labor forces, the impact coming with China's industrialization upon the whole global economy will be unparalleled. But China must further marketize itself institutionally to maintain its sustainable economic growth.

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China must further marketize itself institutionally to maintain its sustainable economic growth.

China is now acting a key role in the third wave of industrialization of the world economy.

Given its 1.3 billon population and about 700 million labor forces, the impact coming with China's industrialization upon the whole global economy will be unparalleled, Wu Jinglian, a renowned economist with the Development and Research Center under the State Council, was quoted as saying by the Beijing-based China Economic Times.

There were in the modern world economic history two similar happenings that have dramatically changed the global economic landscape, according to Wu.

The first round of industrialization tide occurred from the mid-1800s to early 1900s, when such countries as Germany and Japan finished their industrialization processes, greatly pushing forward the world economy.

After the 2nd World War, another batch of emerging industrial countries, typically including the "four Asian small dragons" (the Republic of Korea, Chinese Taiwan, Hong Kong and Singapore), formed the second industrialization wave, whose repercussions to the world economy can be sensed even today.

Now, China is leading the third wave, Wu said.

China's deep involvement into the world industrial system will greatly reduce the overall production cost of nearly all manufacturing industries in the world, Wu said.

This might have explained why over four-fifths of the strongest companies in the world have opened their workshops or representative offices in China.

China has the potential, at least in terms of its relatively complete and systematic industrial and technical basis and the cheap and well-trained laborers, to contend for the "world manufacturing center", despite the roaring doubt.

Analysts are estimating that China's gross domestic product will continue growing at a speed of between 7 to 8 percent per year for another 40 to 50 years.

However, in the institutional imperfections lies China's soft belly, Wu said.

The institutional faults of China's 23-year-old market economy tend to incur higher transaction cost within the economy than the well-developed Western countries, despite the much lower production cost here in China, and eventually sap the economic vitality of China.

Despite the market-oriented reform and opening-up efforts since 1978, China has yet to establish itself solidly on the basis of market.

While correcting the so-called "market failures", governments at various levels habitually turn to their familiar administrative commands rather than the innate laws of the market.

The market system itself has yet to be further developed: On the one hand, some necessary markets, for example a nationwide market for property right trade, do not take shape yet; on the other hand, the existing markets need to be standardized, for example by clearing up the various monopolies, frauds and wanton administrative interferences.

The most worrisome problem is the weak legal foundation and consequently the lack of a solid and predicable political system in China.

"A market economy is a system built not merely in an economic sense, but also with a corresponding political connotation, or first of all a rule-of-law spirit," Wu said.

This is what Chinese entrepreneurs must focus on, if they really want to improve their competitiveness, the newspaper quoted Wu as saying.

By PD Online Staff Forest Lee

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