China’s market interference keeps it from achieving a ‘unified domestic market’, economists say

Experts break down what they see as challenges to Beijing’s recently announced aspirations to build a single market, including an ‘administrative monopoly’

Hurdles to realising a single unified market in China, like those seen in the United States and European Union, remain high due to favouritism and local protectionism

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An “administrative monopoly” in China is among the factors that economists believe are standing in the way of Beijing’s plans for a “unified domestic market”. Photo: AP

Published: 2:00pm, 13 May 2022

Political interjection in China’s economy serves as a fundamental stumbling block to achieving a mega “unified domestic market” in the country, Chinese economists warn while calling for a better levelling of the playing field for all types of companies.

As central leadership has been ramping up efforts to make the national economy less dependent on the outside world, Beijing last month announced plans to build a “unified domestic market”. Under the strategy, the world’s second-largest economy would also become a bigger magnet for global firms and investors, with additional emphasis on more efficient production, distribution, circulation and consumption.

Such moves are being made against the backdrop of rising complaints among foreign business communities and private firms who say that extensive market-access barriers, local protectionism, an opaque regulatory system and discriminatory enforcement continue to hinder their activity in China.

Favouritism shown toward state-owned enterprises has resulted in mismatched resources and a distorted industrial structure that has become “a very serious problem” standing in the way of a single market, said Shi Jinchuan, an economics professor at Zhejiang University.

He argued that state-owned players can leverage their “special political positions or resource advantages” to freely get into industries that other types of companies have developed, but it remains “very difficult” for non-state firms to enter sectors occupied by state enterprises.

“A very important task in speeding up the building of a unified domestic market is … to let private companies have fair market access, let them all enter and withdraw from the market and industries freely,” Shi said at a webinar held by the China Macroeconomy Forum (CMF) on Saturday.

That sentiment was echoed by Lu Ming, an economics professor at Shanghai Jiao Tong University who noted that local authorities were still being incentivised to maximise economic growth and attract investment, and that they had a predilection for guiding more resources, including financing and land, to local companies – especially large, state-owned ones.