In the ongoing process of transforming the mainland's state-dominated economy into a free-market system, the central government faces several fundamental challenges.
One of them is extracting itself from day-to-day decisions that would be more efficiently made by businesses themselves. Another is encouraging private investors to take a more active role, especially as government investment cannot be expected to meet all of the country's needs for new infrastructure, job creation and economic growth.
This would have to include addressing private sector complaints about an uneven playing field, most importantly concerning a systematic bias towards state-owned companies in access to markets and working capital.
If last week's State Council decision on overhauling mainland investment rules takes hold, it should address many of these concerns. But as far-reaching as the proposals are, their effectiveness hinges on the government's ability to follow the broadly defined intentions with detailed regulations. It will also require the co-operation of local officials, many of whom will be reluctant to give up the substantial approval powers they wield.
The plan includes allowing private businesses to make their own investment decisions in all but the most sensitive areas. Government approvals would be made far less complicated than they are now, reducing the possibility that red tape gets in the way of rational allocation of resources. Banks would be asked to take more responsibility for loan decisions.
The state's involvement would be greatly reduced, with regulation of the market achieved through macroeconomic measures such as interest rate adjustments and tax policy. There are also calls within the plan for new ways to hold local governments and officials accountable for those investment decisions they do make, as well as to encourage private investment in utilities and infrastructure.
