Beijing has made a “unified national market” crucial to its goal of “building a high-standard market economy” by 2035, counting on it to maximise the potential of the country’s production capacity, boost domestic demand and counter external challenges that appear to be multiplying.
Following the third plenum, a major economic conclave that concluded on Thursday, China has resolved to build a unified market for its factors of production – resources like land and labour used to generate goods and service value – according to Han Wenxiu, executive deputy director of the general office of the Central Financial and Economic Affairs Commission.
“China’s economy is a big economy, with huge domestic demand potential and internal circulation,” said Han at a Friday press conference, elaborating on conclusions drawn after the plenum’s end the day before.
The twice-a-decade gathering – officially the third plenum of the Communist Party’s 20th Central Committee – has typically set the tone for economic policy over the next five years and beyond.
“As long as we run our affairs well, we can ensure smooth circulation and stable and long-term development of the national economy,” Han said.
China, which set its annual target for gross domestic product growth at “around 5 per cent” in March, reported lower-than-expected year-on-year GDP growth of 4.7 per cent for the second quarter on Monday. A protracted crisis in the property market and weak domestic consumption were named by analysts as persistent drags on the economy.
A communique summarising the findings of the plenum acknowledged China must stay “firmly committed to accomplishing the goals for this year’s economic and social development”, a departure from a third plenum tradition of focusing on long-term goals.
Beijing has been stepping up efforts to rebalance its economy to focus more on the domestic market and consumption – in contrast to the old model where exports were the primary driver – partially in response to geopolitical tensions that have forced a pivot inward.
But slower income growth, along with stagnation in the real estate sector, have dampened the desire of households to spend.
Insufficient demand is one of several issues on the docket for the world’s second-largest economy to solve, Han said.
“Facing the new international environment … we must fully tap the potential of domestic demand, make full use of the advantages of the large-scale domestic market and give full play to the basic role of consumption and the key role of investment,” he added.
A critical component of Beijing’s plan to boost domestic consumption is creating a “unified national market” that can ameliorate local protectionism to allow for the free flow of capital and other production factors.
This market would include countrywide exchanges relating to power, land use, technology and data under consistent rules and standards, Han said. Traditionally, these markets have been regional, with each area seeking to maximise its own benefit from the flow of resources.
While this idea has existed in some form or another since the 1990s – and more attention has been paid to the concept in recent years – progress has been slow as different rules between regions continue to act as roadblocks.
Han added the country will expand consumption in the long term by increasing household property incomes through multiple channels, elevating the income of low-income groups and steadily expanding the size of middle-income groups.
Currently, China’s consumption is heavily influenced by policy and investment rather than organic consumer demand, according to a Thursday report from research firm Rhodium Group.
The slow growth of China’s household spending could limit long-term GDP expansion by 3 per cent, it said.
“Beijing must transfer resources away from the government and the wealthy and toward lower-income households,” the firm said. “Consumption growth will remain tethered to household income growth and constrained by income inequality.”
Comprehensive reforms to improve income distribution and enhance social security are essential for fostering a more sustainable consumption-driven economy, Rhodium said.
“Rebalancing the economy towards consumption will require significant policy shifts and long-term commitments.”
