Explainer | Will a unified domestic market be a trump card to tackle China’s economic growth problems and US threats?
- China first proposed the idea of a unified domestic market in 2013 before Beijing released guidelines on accelerating its establishment in April 2022
- A unified domestic market is intended to enable a more efficient and smooth flow of production factors, including labour, goods, capital and data
China has proposed the establishment of a unified domestic market amid efforts to offset the impact of external factors, including weak overseas demand, financial volatility and sanction threats, which threaten the overall economic recovery amid weak market sentiment.
But what is the progress of a plan that was first mentioned in 2013 before Beijing stepped up its efforts last year?
What is China’s unified domestic market plan?
The concept of a unified domestic market was first officially proposed in a top-level 2013 reform document, which focused on removing regional protectionism and encouraging competition.
China speeds up inward economic push with plan for ‘unified domestic market’
The unified domestic market is intended to enable a more efficient and smooth flow of production factors, including labour, goods, capital and data.
The guidelines are regarded as a foundation to prop up President Xi Jinping’s new development outlook, which focuses on the quality of economic growth, more secure development and increased innovation.
Why does China want a unified domestic market now?
China is already the world’s largest consumer goods market, with spending on consumer goods and catering reaching 44 trillion yuan (US$6.2 trillion) in 2022.
It is also the world’s top buyer of iron ore, crude oil and industrial metals.
The move to establish a unified domestic market is widely believed to be a response to fast changing domestic and international environments.
Externally, the move is a way to deal with the US trade war and ongoing decoupling endeavours, as China has to consume more when overseas demand is shrinking amid high tariffs and disruptions caused by the coronavirus.
What is China’s dual circulation strategy and why is it important?
The strategy places a greater focus on the domestic market, or internal circulation, while placing less reliance on its export-oriented development strategy, or external circulation, but without abandoning it altogether.
A unified domestic market is also a way to keep foreign investors onshore, as its market of 1.4 billion potential consumers, including around 400 million people in the middle class group, represent huge business opportunities.
What are the key tasks of building a unified domestic market?
The primary task of last year’s guidelines are to encourage competition, lower institutional costs, boost efficiency and productivity, elevate tech innovation and promote international cooperation.
Specifically, the government campaign includes plans to implement unified market access standards, fair competition, a social credit system, intellectual property rights protection and the free flow of labour and data.
What do investors think of China’s unified domestic market strategy?
Foreign businesses and private companies have long been complaining about varying enforcement of regulatory standards and different entry barriers in China.
This is especially true because state-owned enterprises are often seen to enjoy hidden advantages in government procurement, bank lending and bidding.
“For businesses as a whole, enforcement of laws and regulations were the fourth most cited challenge for member companies,” the chamber said.
“[China needs to] ensure uniform enforcement of laws and regulations across different provinces and cities.”
According to research by Wu Qunfeng, an academic at Peking University’s School of Economics, a commodity will be taxed by an additional 3. 8 to 19. 6 per cent when it crosses different provincial borders.
Companies also have to face the impact of a less circulated labour force under China’s hukou system, which allocates public services to citizens based on their place of birth.
This means increased costs for companies considering bringing in talent from other provinces.
When will China’s unified domestic market be finished?
It is widely viewed as a long-term plan, and while some of the tasks have started, progress has been slow.
China’s top economic planner, the National Development and Reform Commission, launched a public consultation on the reform of the social credit system at the end of last year, saying it would help optimise the business environment.
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China’s cabinet, the State Council, said in mid-May that it will implement a new appraisal and incentive system for officials.
Previously, officials preferred to favour local enterprises in order to obtain promotion, which has long led to the prevalence of local protectionism.