Q&A on China reforms: What will a unified national market offer?

BEIJING, Aug. 29 (Xinhua) -- Consumers in the United Arab Emirates (UAE) might receive their made-in-China thermos flasks earlier than expected this summer, thanks to an endeavor they may know little about but that is poised to invigorate the Chinese economy.

Customs clearance time of the 10,000 thermos flasks bound for the UAE was slashed by half and logistics costs were reduced after customs of Shanghai and Nanjing streamlined export procedures through closer coordination.

The integration of services across separate customs districts reflects broader supportive policies in China as the country works to build a "unified national market," aiming to fully harness the potential of its vast economy amid economic headwinds.

The drive to create a unified national market has gained steam since March 2022, when China's central authorities issued guidelines urging faster progress. According to Chinese Vice Premier Zhang Guoqing, these efforts have already yielded significant results.

The latest data from the State Administration for Market Regulation show that 4,218 specific measures obstructing the establishment of a unified national market and fair competition have been eliminated since June 2023. These measures restricted market access and exit, impeded the free movement of goods and production factors, or improperly affected production costs and business activities.

"Meanwhile, there remain problems such as inadequate institutions and rules in some sectors, underdeveloped markets of production factors, and persistent local protectionism and market segmentation," Zhang stated in an article about building a unified national market.

The third plenary session of the 20th Central Committee of the Communist Party of China (CPC) last month passed a package of reform measures, including steps toward building a unified national market as part of the grand blueprint for the coming years.

Here are the implications of the unified market initiative for the Chinese economy and for businesses aiming to leverage these reforms.

WHY IS CHINA AIMING TO BUILD A UNIFIED NATIONAL MARKET

"The market is the scarcest resource globally. China's market of immense scale and tremendous growth potential serves as a great advantage for development and a solid foundation for coping with changes," said Zhang, who is also a member of the Political Bureau of the CPC Central Committee.

The CPC leadership envisions a unified national market where the underlying institutions and rules of the market are unified, market regulation is exercised in an impartial and unified manner, and connectivity between market facilities is built to high standards.

Only by building a unified national market can the size of the market be expanded, full competition be promoted, transaction costs be reduced, and the efficiency of the market be enhanced in resources allocation, according to Zhang.

"The formation and development of a dynamic domestic market can maintain and enhance China's appeal to global production factors and resources, as well as better connect the domestic and international markets," he said.

A well-developed market is also expected to grease the wheels of investment and consumer spending, addressing the acute challenge posed by the current lack of effective demand in the Chinese economy.

"The building of a unified national market does not mean a return to a planned economy" and the pursuit of market unity has been a universal trend since the end of World War II, said Zheng Yongnian, a professor at the Chinese University of Hong Kong (Shenzhen).

"One of the strengths of a modern state is owning a unified market across the nation. Today's European Union has taken a step further by establishing a supranational single market, which is crucial for the development of Europe," Zheng said.

Yang Panpan and Cui Xiaomin, senior research fellows with the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, highlighted the significance of Europe's efforts to promote the free movement of goods, people, services and money.

"To leverage the advantage of China's gigantic market, we need to move faster to clear blockages in domestic economic flows," Yang and Cui stated in a co-authored article.

According to the East Asian Institute at the National University of Singapore, building a unified national market will do good to the Chinese economy, although the process might not be easy or quick.

A more liberalized and unified production factors market will improve China's productivity, unified infrastructure can boost investment and contribute to growth, and a sound business environment with fair competition is crucial for China's sustainable development, the institute said in a commentary.

HOW WILL CHINA MOVE TO BUILD A UNIFIED NATIONAL MARKET

When outlining principles of creating a unified national market, the vice premier said it is imperative to "scientifically set boundaries between the government and the market" and promote better interplay between an efficient market and a well-functioning government.

Starting this month, China's administrative agencies and organizations legally authorized to manage public affairs must conduct fair competition reviews when formulating laws, rules and policies related to business activities.

The new rules came into effect after the CPC plenum in July pledged to review and abolish regulations and practices that impede the development of a unified national market and fair competition.

"Under the rules, local policy measures cannot include content that could restrict market access or the free flow of goods, or adversely impact production costs or business activity," said Dezan Shira &Associates, a consulting firm providing advisory to international investors.

According to the consulting firm, some foreign companies in China have expressed concerns about equal access to government bidding. They may now find reassurance in China's decision to enhance public bidding processes to ensure transparency and equal treatment for all businesses.

"A unified national market will by no means be a market behind closed doors, but one oriented to the whole world and wide open," Zhang said, adding that steps will be taken to expand institutional opening up and promote China's alignment with high-standard international economic and trade rules.

Foreign direct investment in the Chinese mainland, in actual use, totaled 539.5 billion yuan (75.7 billion U.S. dollars) in the first seven months of 2024, staying at a high level despite a year-on-year dip.

Last week, China's central authorities published guidelines on improving market access regulations, demanding "strengthened alignment" of market access policies regarding domestic and foreign investors.

Another key task of Chinese policymakers when building a unified national market is to boost domestic demand. The CPC leadership at the July plenum vowed reform measures to stimulate and facilitate non-governmental investment as well as expand consumption and reduce relevant restrictions.

An article in Harvard Business Review this week advised multinational corporations to capitalize on China's vast consumer base and other key strengths to avoid losing global revenue and strategic opportunities.

"Despite all the talk about companies 'de-risking' and 'decoupling' from China, the country still offers a market of unmatched scale with sophisticated consumers that push companies to continually improve," the article reads.