China strives to clear barriers while building open market

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The role the Chinese government has played in leading economic development is outstanding, yet the backlash from such practices is impeding sustainable development of the economy, prompting the government to give the market more say in allocating resources.

China is aimed at building a united and open market system with orderly competition to enable the market to play a "decisive role" in allocating resources, according to a policy document announced by the Communist Party of China (CPC) Central Committee on Nov. 15.

The document -- officially named "the decision on major issues concerning comprehensively deepening reforms" -- was approved by the Third Plenary Session of the 18th CPC Central Committee that ended on Nov. 12.

Experts say elevating the status of the market from "basic" to "decisive" in allocating resources is a significant breakthrough, indicating that the economy will focus on the role of the market rather than the government.

Former World Bank chief economist Justin Yifu Lin said the move would help clear distortions and bottlenecks in the economy, and boost development through comparative advantage.

Electrolytic aluminum is one of many industrial sectors with production overcapacity though the government has been trying to restrain its expansion for the past decade.

Statistics from the China Nonferrous Metals Industry Association showed that China currently has a production capacity of electrolytic aluminum of about 27 million tonnes a year, far exceeding the actual annual demand of some 20 million tonnes.

Liu Libin, deputy director of the Henan Provincial Nonferrous Metals Industry Association, blamed the new round of expansion in the sector on unbalanced industry policy, characterized by differentiated electricity prices.

Liu said, the cost of electricity contributes more than 40 percent to the price of electrolytic aluminum. An extra cost of 0.1 yuan per kilowatt-hour leads to a 1,400 yuan jump in the final price of one tonne of such product.

Due to variations in electricity prices in various regions ranging from 0.36 yuan to 0.64 yuan per kilowatt-hour, China's electrolytic aluminum makers are in a market situation with unfair competition, Liu said.

Almost all newly added capacity has to cope with the highest electricity prices, putting them at a disadvantage in the market.

Liu added that this resulted in some enterprises being knocked out of the market, although they are leaders in industrial technologies.

Liu said the government should avoid excessive administrative intervention with the prices of the basic resources. Instead, it should help create a fairer market environment.

"Because of the prevailing role of local governments, the current overcapacity situation has deviated from normal under the market economy," said Feng Fei, who heads industrial economic research at the Development Research Center of the State Council, China's cabinet.

"The market's role in controlling production capacity and restraining excessive capacity has malfunctioned," Feng said.

The CPC document called for improvements to the mechanism in which prices are mainly decided by the market.

"The market should be left to decide the price of anything whose price can be decided by the market, and the government should not make any improper intervention," the document said.

Liu said the signals of economic reforms released at the session were exciting and beyond people's expectations.

"To eradicate market barriers and put in place a fair market environment is crucial for industrial development," Liu said.

China will push forward with pricing reforms on sectors such as water, oil, gas, electricity, transportation and telecommunications, the document said.

Lin said the CPC session had made unprecedented efforts to elaborate the relationship between the market and the government, and this has offered new opportunities for realizing scientific macro control targets.

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