Greater role for the market

Reform of the government examination and approval system will facilitate economic vitality and help increase transparency

For foreign investors, doing business in China has required completing quite a lot of approval procedures, as these were a necessity for China-foreign cooperative projects. But thanks to China's recent move to accelerate streamlining the government approval items, many of those procedures have been abolished.

Among the latest batch of adjusted administrative approval items announced in July are those concerning foreign cooperation in the oil, natural gas and coalbed gas sectors, and the hiring of principals at schools jointly run by domestic and foreign partners, all of which no longer require approval.

They are only a small part of the 632 approval items that have been eliminated or transferred to lower-level governments over the last year or so. These adjustments will greatly facilitate people launching or operating a business in China. For example, after the changes, the number of investment projects that require approval from the central government ministries was reduced by up to 60 percent.

Administrative examination and approval items often involve permits that people have to get from relevant government departments before they launch a business. China has been opening-up its market to all types of investors in the past three decades and continually liberalizing its economy. But as a transitional economy born of a rigid planned-economy regime, China still has a large number of approval procedures in place, which have led to public complaints and corruption.

For instance, many people have complained that procedures to get a permit to start up a business are too complicated due to the excessive red tape that exists in the regulatory agencies.

In other words, the government has been too involved in many areas where the market is supposed to play the leading role. To make the government more efficient and prevent it from intervening in the market, administrative reform, which is centered on cutting approval power, is indispensable.

China started administrative reform many years ago, but it is only in recent years, especially since early last year, that the reform drive has accelerated.

During the National People's Congress session in March, legislators passed a plan on institutional reform and the transformation of administrative functions. It marks a solid legal step by Chinese policymakers to put an end to administrative approval procedures for certain investment activities, business registration and occupational certification.

Since then, 632 approval items, or more than one-third of existing items, have been abolished or transferred to lower-level governments, making it much easier to do business.

The achievement shows China is steadily stepping towards the goal of allowing a bigger role for the market and focusing the role of the government on social management and market regulation rather than being directly involved in market activities.

This is an unequivocal sign of the country's commitment to its institutional reform agenda. And reassuringly many local governments have been serious in implementing the central government platform.

In Zhejiang, for example, the provincial government has defined three lists of what can be done and what cannot - a negative list for business activities, a government power list and list for government fund use.

Based on those lists, people know what activities are forbidden and that all fields beyond those forbidden activities are accessible. The government, meanwhile, has also made itself bound to rule-based restrictions, making it less willful in the use of its various regulatory and fund use powers.

The clear demarcations of the three lists reduce the government's role in the direct distribution of resources, decrease its direct involvement in the micro-economy and prompt it to focus on the making of development strategies, plans, policies and standards, Li Qiang, governor of Zhejiang, told the Chinese press early this year. It will help promote fair market competition and build a clean government.

In Shandong province, some enterprises have revamped their corporate structure to cater to the changes in the approval procedures.

In Dawang township of Dongying city, an auto parts company has closed the department that was set up to apply for approvals because the procedure has become quite easy after the provincial government transferred some approval powers to the county and township authorities, according to a China Central Television report.

The reform of approval procedures is set to have a profound effect on the growth of the Chinese economy.

Statistics show that in 2013, the number of newly registered businesses reached 11.3 million, up by 19.6 percent year-on-year.

In the first half of this year, the number of employed people in private enterprises rose by more than 13 million, three times more than in the same period of 2013.

In the long run, such market liberalization reform will only further revitalize the market. Policymakers, therefore, should continue to push reform of the administrative approval system to contribute to a more sustainable economy.