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The Decisive Role of the Market in Resource Allocation

(On Governance)

Updated:2019-04-16 |

The Decisive Role of the Market in Resource Allocation

At the third plenary session held in November 2013, the 18th CPC Central Committee stated that the market should play a decisive role in resource allocation. Letting the market determine resource allocation is a general law of economics, and it is also the essence of a market economy. So the process of refining a socialist market economy must abide by this law.

Efforts are needed to address such problems as the imperfections in the market system, excessive government interventions, and supervision that falls short, so as to maximize benefits and optimize efficiency by promoting the mechanisms which rely on the market to allocate resources.

The idea of letting the market play a decisive role in resource allocation is a continuation and extension of the concept of letting it play a “fundamental role,” a concept which had been used for the previous 20 years. This new formulation helps the entire Party and entire society to correctly understand the relationship between the government and the market; it helps transform the mode of economic development; it helps transform government functions; and it helps constrain negativity and corruption.

The market is, of course, an “invisible hand” as well as a “merciless whip.” It creates competition and initiative in socioeconomic activities, but at the same time, its spontaneity and blindness can result in market failures, making it necessary for the government’s “visible hand” to play a role. The government’s responsibility and function are primarily to maintain macroeconomic stability, to improve and optimize public services, to ensure fair competition, to strengthen market oversight, to maintain market order, to foster sustainable development, and to promote joint prosperity, thereby compensating for market failures.

To let the market play the decisive role in resource allocation and the government play its role better – this is a major issue both in theory and practice. An accurate understanding of this issue is significant to furthering reform and promoting the sound and orderly development of the socialist market economy.