Transparent and independent information disclosure system necessary to improve market and reduce 'equality debt'

With China's economic growth slowing, more "dividends of reform" are desperately needed to boost sustainable development and extend to everybody the benefits of national economic development.

As a kind of institutional change, China's transformation from a planned to market economy has contributed about 45 to 48 percent to its economic growth over more than 30 years, bigger than any other element. For example, China's institutional reforms over the past decades, involving the form of its production organization and factors of production, have promoted optimization of its resources distribution and raised its production efficiency. Reforms in the economic field and among different State departments have played a positive role in improving market rules and boosting economic development. Also, China's bid to integrate itself into the regional and global economic systems has helped it share in the benefits of economic globalization and trade integration. Reforms conducted in some non-economic fields and informal institutional reforms have also changed stereotyped ideas, values and codes of conduct among Chinese people and made such concepts as the market and efficiency take root in their minds.

The resources and demographic dividends that have bolstered China's fast-growing economy over the past decades are now on the wane and their dwindling has even become the bottleneck in its bid for sustainable economic development. China's gross domestic product accounted for 9.5 percent of the world's total GDP in 2010, but its energy consumption was tantamount to 2.25 billion tons of oil, 4 percent higher than the United States. China's steel, bronze, aluminum and cement consumption were also far more than 9.5 percent of world's total demands. Such an economic model based on heavy energy and resources consumption is beyond China's and also the world's capacity to bear.

China's demographic dividend started vanishing in 2010, as indicated by the sixth national census, which shows the country's working-age population will experience negative growth soon. The decreasing number of redundant laborers transferring from rural to urban areas and the emerging labor shortages in some cities also signal the approach of the Lewis turning point. The declining labor supply is becoming a drag on China's economic development.

The "equality debt" produced by its stalled efforts to deepen reforms, and which has long accumulated in its economic and social development, has also become a heavy burden on China's sustainable development. For example, the reform of State-owned enterprises has failed to be advanced and the private sector has encountered bigger obstacles than in the past in certain areas. While attaching excessive importance to the pursuit of efficiency, the country has not paid parallel attention to the pursuit of fairness, which has caused inequality and injustice to spread from economic to political, social and other fields.

Due to the absence of a scientific and equitable decision-making and correction mechanism, the country has failed to strike a balance among different interests in the process of reforms and this has caused some monopolistic and interest groups to take shape. Now reforms in the economic field alone cannot resolve a wide range of deep-rooted contradictions and problems. For example, China's efforts to transform its economic development model call for the reform of its current management system that has handcuffed its economic development and improvements in other administrative management institutions. To further boost its productivity and improve its production relations, China should take bolder steps to push forward institutional reforms.

To this end, China should try to better deal with the relations between the government and the market in a bid to strike an interest balance among various groups. The government's excessive power and its excessive administrative interventions into the market will easily produce rent seeking. To avoid this, a scientific and fair decision-making and correction mechanism should be established, beginning with an open and transparent information disclosure mechanism. Past experiences indicate that market dysfunction, to a large extent, stems from information asymmetry among players. Open, transparent and independent information disclosure will help lower the country's transaction costs and improve its market efficiency. A democratic opinion environment and effective monitoring will serve as an important misconduct correction mechanism in China's bid to push forward the market economy and reforms.

China should also promote governance in accordance with the Constitution and other laws and restrict the excessive use of administrative power. Based on this, institutional reforms should be steadily advanced to ensure the enforcement of reforms in other areas. Institutional reforms will not only facilitate China's bid to push for democratization and rule of law but also serve as the only path for the country to advance toward Constitutional civilization and build a society ruled by law.

Zhao Xiao is a professor with the School of Economics and Management, Beijing University of Science and Technology, and Shi Guicun is a member of the university's Research Section of China's Economy.