In this condition, the "three represents" theory of Party General Secretary Jiang Zemin will guide China's economic reform.

The Three Represents theory stipulates the Party must always represent the development trend of China's advanced productive forces, the orientation of China's advanced culture, and the fundamental interests of the overwhelming majority of the people in China.

The core meaning of promoting the productive forces is to conduct reforms to make the economic and political systems and the various policies better cater to the requirements of the modern market-driven economy.

A major content of the reforms is a shake-up of the ownership system that made the economy transform from a single-ownership to a mixed-ownership economy. It has bolstered national economic prosperity in the past two decades.

During that period, every step of the reform has been followed by a new round of robust economic growth.

We first recognized the role of the non-State economy in economic development. Later we endorsed the mixed economy composed of multiple economic elements and the mixed-ownership economy.

Past experiences show that it is of vital importance to accelerate the development of the mixed-ownership economy and increase its proportion in the national economy to achieve sustainable economic growth.

Mixed-ownership economy breaks the limitations of single ownership and makes the economy more dynamic.

It is conducive to absorbing social capital to enrich the property rights structure of State-owned enterprises, which will improve their operational efficiency.

In a mixed-ownership economy, the proportion of State-owned enterprises will decrease, helping to shake off some administrative interferences in the management of enterprises.

We should thus further reform our economic system and develop the mixed-ownership economy, which meets the requirement of a modern market-oriented economy and helps maintain sustainable economic growth.

The reform is in the interests of the people. It will improve people's income levels by maintaining fast economic growth.

The ultimate goal of the reform is to achieve common prosperity of all people.

In the process of achieving this goal, a small portion of the population who have better professional capacity and are honest in operating their businesses have become rich after the country adopted the reform and opening up policy of the late 1970s. This helps break the "share-alike" income distribution system of the old planned economy.

At the current stage, we should expand those comprising the "medium income level" group. The "medium income level" group includes those with fixed family assets and a stable income above the average income level of the population as a whole.

It is a severe challenge for the country to expand the medium income level group. China has long been an agricultural nation, the rural population comprises more than two thirds of the whole population and there is a wide gap between the living standards of rural and urban residents.

Policies should be devised to increase the income of this low-income group so that a majority of them can be better off.

This should be our middle- and long-term policy target in perfecting our income distribution system.

A market-oriented mechanism should be adopted in reforming the system.

It should be reformed to recognize the claim of laborers to their labor property right, so they can use this right to share in the income distribution.

In this process, we should re-assess the labor and labor value theories. Production factors such as capital, technology and managerial know-how should be considered as factors of income distribution.

What the government should do to expand the medium income level group is to employ taxation, fiscal and financial means to balance income distributions between different social groups.

It must perfect the taxation system and ensure the taxation of high-income groups. It must also accelerate the establishment of a comprehensive social security system and improve employment to guarantee the stable income of the laborers.

In pushing forward the reforms, we will encounter many social and ideological problems.

Most of them, such as the conceptual conflict between "rule of man" and "rule of law" and between "government-oriented" and "market-oriented," are closely related with the old, feudal culture. We must promote advanced culture to guide the solutions to the problems.

New concepts of reforming the current administrative system should be introduced.

The traditional top-bottom mandatory managerial system played an important role in the old planned economy period. But now that China has adopted the reform and opening up policy for two decades, economic and conceptual changes have made it unable to meet the requirement of social development. Changes must be made to cater to new social conditions.

The power of government in resource distribution should be weakened to fully bring out the role of the market mechanism. Mechanisms should be created to make laborers able to obtain the resources by their abilities within the framework of the law.

The one-way managerial mechanism of the government should be changed into a cooperative mode of management. And the traditional "State-centered" societal concept should be replaced by the concept of a "citizen-centered" society.

It is also important to actively and steadily carry out reform in the political system. The most urgent task is to define the government's role within the framework of democracy and law and prevent power abuse and interference in business activities.

Some public powers have been used by some people to grab personal and departmental interests. The vested interests have become an obstacle to further reforms and distorted market rules. More dangerously, their infamous activities have been taken for granted by some as part of normal market rules.

If such systematic and conceptual problems are not solved, our socialist market economic construction will meet severe difficulties.

The author is executive director of the Hainan-based China Institute for Reform and Development.

(China Daily November 4, 2002)