VII. Further Deepening Reforms and Opening

Wider to the Outside World

To gradually bring the system of socialist market economy to completion and to stimulate structural readjustment and economic growth, we will press ahead with reforms and open wider to the outside world.

Deepening the reform of state-owned enterprises to enable them to compete as equals in the market economy. The key issue in this regard is to accelerate the establishment and improvement of a modern corporate structure. We need to encourage large and medium-sized state-owned enterprises to adopt the share-holding system and to change their operating procedures by listing their shares on the stock market, setting up joint ventures with foreign investors, or holding each other’s shares. The state must hold a controlling stake in strategic enterprises that concern the national economy and national security, but not necessarily in others. We need to energetically explore effective ways to manage state assets. The legal person system of governance for enterprises must be fully developed and implemented. The supervision and control of state-owned enterprises in particular need to be established and strengthened, and the role of the board of supervisors needs to be fully developed. Enterprises need to further reform their personnel, labor and income distribution systems in order to improve the mechanisms that provide incentives and restraints and to strengthen scientific management. In the course of readjusting the industrial structure, we must adhere to the principles of “advancing in some aspects while retreating in others” and “focusing on certain tasks while putting others aside” and promote strategic readjustment of the overall arrangement of the state-owned sector of the economy. We need to continue to relax control over small and medium-sized state-owned enterprises to enhance their vitality. More efforts need to be made to separate the functions of government from those of enterprises, and the functions of government need to be transformed to reduce administrative oversight and approval. Chambers of commerce, trade associations and other such intermediary agencies are encouraged to play appropriate roles. We need to further reform the management systems of industries such as electricity, railways, civil aviation and telecommunications, and introduce a mechanism for competition. The reforms need to improve the relations between the government and enterprises so as to meet the requirements of a socialist market economy. The ownership system needs to be further improved. We need to uphold the dominance of the public sector of the economy, let the state-owned sector play the leading role, develop various forms of collective undertakings, and support, encourage and guide the healthy development of private and individual sectors of the economy.

Overhauling and regulating market order, and expanding the market system. This is an urgent task to ensure normal operation of the economy and an important measure to strengthen the socialist market economy. We must improve laws and regulations concerning markets and enforce the law strictly. We need to improve oversight mechanisms and employ advanced technology to improve market supervision. We must persist in cracking down on criminal activities such as producing and marketing fake and shoddy goods, tax evasion, tax fraud, obtaining foreign currency through deception, and smuggling. We need to overhaul the construction market, reorganize and standardize the financial order, strengthen financial discipline, tighten audit supervision, standardize the operation of intermediary agencies, break up monopolies by departments or industries, eliminate regional barriers, and improve management and supervision of industrial safety. We need to establish as soon as possible and improve an integrated national market system that is standardized and encourages fair competition. We need to focus our efforts on the development of markets for production factors, especially capital, foster work ethics that stress honesty and trustworthiness, and accelerate the establishment and improvement of a nationwide credit system.

Enhancing macro-control, and deepening reform of the finance, taxation, banking and investment systems. We need to gear our macroeconomic policies to the changing economic situation. In the near future we will continue to implement a proactive fiscal policy to increase investment and stimulate consumption. We need to conduct financial affairs according to the law, strengthen tax collection and management, and improve supervision of government financial affairs. We will step up the reform of replacing fees with taxes and the reform of the budget system, and adjust and improve the system of fiscal expenditures in order to gradually set up a public finance framework compatible with a socialist market economy. While expanding domestic demand and checking the trend of deflation, we need to be on guard against possible overheated economic growth and inflation. We will continue to implement a prudent monetary policy and regulate money supply in timely fashion to keep the Renminbi stable. We need to carry out a comprehensive reform of the wholly state-owned commercial banks in the light of modern banking principles and bring the role of the policy banks into full play. We need to develop medium-sized and small banking institutions, standardize and improve the securities market, and safeguard the interests of investors. We need to expand the insurance industry, improve supervision of financial institutions, implement a system of strict evaluation of financial operations and management, implement a system of accountability, improve financial services and the quality of financial assets, and guard against and defuse financial risks. We also need to deepen the reform of the investment system, adopt a system under which legal persons are responsible for all investment projects, a public bidding system, a project supervision system, and a contract management system, and strengthen the mechanisms for restraining investment.

Doing a better job in opening to the outside world in the light of economic globalization. First, we should lose no time in preparing for China’s entry into the World Trade Organization and fulfilling our tasks in the transitional period. We need to take effective measures to change the methods of government administration and enhance the competitiveness of Chinese enterprises. We need to deepen the reforms in order to establish a system of foreign trade and economic cooperation compatible with international norms and suitable to domestic conditions. We need to step up the work of revising relevant laws and regulations. We also need to train professionals who are well acquainted with regulations governing international trade. Second, we need to expand import and export trade, with emphasis on the export of high-quality goods and technology. We need to optimize the mix of export commodities by expanding the share of high and new technology products, raising the technological content and added value in traditional commodities exported in large quantities, and expanding the scale of the service sector. We need to standardize the regulation of processing industries and increase the value-added increment of such trade. We need to vigorously promote market diversification and open new markets for our exports. In import trade we need to emphasize advanced technology, key equipment and important raw and processed materials that are urgently needed in China. We need to take an active part in multilateral trading partnerships and international and regional economic cooperation. Third, we need to make better use of foreign funds. We need to open up the service sector to foreign investment step by step. We need to encourage foreign investors, especially transnational corporations, to invest in high-tech industries and infrastructure, and encourage them to set up research and development centers in China and to participate in the restructuring and renovation of state-owned enterprises. We need to support eligible enterprises to become listed on overseas stock markets and further improve the investment climate. We also need to explore new ways to utilize more foreign investment, such as acquisition, merger, risk investment, investment funds, and investment in securities. Fourth, we need to implement a “going outside” strategy, encouraging enterprises with comparative advantages to make investments abroad, to establish processing operations, to exploit foreign resources with local partners, to contract for international engineering projects, and to increase the export of labor. We need to provide a supportive policy framework to create favorable conditions for enterprises to establish overseas operations. We also need to strengthen supervision and prevent the loss of state assets.