China cuts red tape to better balance govt, market forces

The Chinese government has taken a series of measures to promote non-governmental and market forces since the beginning of this year, unlocking greater potential of its economy to break the development bottleneck.

These measures include streamlining administration by dismantling and merging ministries and cutting or readjusting administrative approval items.

Removing administrative procedures suggests that the Chinese government will reduce direct involvement in resource allocation and focus on building a regulatory framework to support market allocation of resources, said Ryan Rutkowski, a China research analyst with the Washington-based Peterson Institute for International Economics.

Rutkowski pointed out that the Chinese government's new measures will remove the transactions cost involved in resources allocation and private investment, allowing resources to flow to firms and sectors that provide the highest risk-adjusted returns.

"This will ultimately improve productivity and increase economic output," he noted.

Rather than a large-scale stimulus plan, the Chinese government has taken a lighter but proportionate and targeted approach to optimize the allocation of resources and provide support to economic transformation and upgrading, from the removal of the floor limit for banks' lending interest rates to cutting taxes for small and micro enterprises.

Calling it "a good sign," Rutkowski said the Chinese policymakers "are looking at the right things and trying to find an equilibrium growth level to support rebalancing.

The proposed establishment of Shanghai free trade zone is also taken as an important step forward.

The Indian Economic Times said the establishment of the FTZ was to explore new paths and models for China to open up, to push the pace of transformation of government functions and reforms of the administrative system.

How to better coordinate the role of government and market in economy is always a topic for government regulators and researchers.

China's new leadership has got a deep understanding that the government needs to adjust its role to face the challenge posed by the economy, said Australian economist Guo Shengxiang.

Meanwhile, China, in order to explore its own way, can also learn and draw lessons from other countries that have also been fine-tuning their approaches.

The International Monetary Fund said in its "2013 Spillover Report" that if China is successful in economic rebalancing in the coming years, it would add about 1.5 percent to global GDP.

Michael Pettis, an expert on China's economy with Carnegie Endowment for International Peace, said that the determination of the Chinese government to restructure "bodes well for an orderly rebalancing which will benefit most of the world."