Market-based Reform of Production Factors in China

Author Name Chi Hung KWAN (Consulting Fellow, RIETI)
Creation Date/NO. August 2022 22-P-020
Research Project Studies on Transformations of International Systems and their Impact on Japan's Mid- & Long-term Competitiveness
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First Draft: August 2022
Revised: February 2023


China has been transitioning from a planned economy to a market economy since the end of the 1970s, and in this process, the marketization of production factors has lagged behind that of goods and services. As a result, the efficiency of production factor utilization is low. In response, the Chinese government has placed top priority on “market-based reform of production factors.” As a master plan, in April 2020, the Central Committee of the Communist Party of China and the State Council jointly issued their “Opinions on Improving the Systems and Mechanisms for Market-based Allocation of Factors of Production.” The Opinions show the direction of market reform not only for such conventional production factors as land, labor, and capital, but also for new production factors such as technology and data. The aim is to improve productivity and promote industrial upgrading by facilitating the mobility of production factors and the determination of factor prices by the market. To this end, in addition to barriers impeding the movement of production factors between economic entities such as firms, those between ownership systems, between urban and rural areas, between regions, and between industries must also be removed. At the same time, it is necessary to deregulate market entry and exit of firms, which play a major role in allocating production factors. In carrying out these reforms, the barriers that exist as a result of the public ownership of land and enterprises need to be overcome.