context: China’s past economic success was built on an open goods markets and distorted production factors, allowing the state to subsidise favoured producers with cheap land, labour and capital. The current economic slowdown is multi-factorial, including both trade conflict and over-correction in economic restructuring. It also reflects the diminishing effect of the distorted development model on growth.
Competition policies can be a key breakthrough for a new round of market reform, says Wei Jianing 魏加宁 State Council Development Research Centre researcher at an internal seminar held by economic journal Comparative Studies. Wei elaborates that
- current proposal for more government intervention is based on poor understanding of incentive and constraint mechanism of the market economy
- while people often contrast Adam Smith's Wealth of Nations and The Theory of Moral Sentiments, both actually belong to the same framework; the former discusses market mechanism and the latter, constraining factors
- three defense lines against market failure
- corporate ethics and self-restraint, for example environmental, social, and governance (ESG) evaluation; this mechanism is ineffective because of education failure
- market punishment to drive out unethical firms through repeated games and fair competition; this is ineffective because credit systems and level playing field are lacking
- government intervention; this is not to replace the market, but to eliminate obstacles to a functional market system and foster fair competition environment
- core to the competition system is competitive neutrality, including equal regulatory treatment, rights and opportunities
- three elements for competition policy: antitrust, anti-unfair competition and competition investigation
- local government and state-owned enterprises (SOEs) should be subject to more transparent budget efficiency and competition investigation—if subsidies, for example, can be justified when private companies can do better on the same thing
Current mention of competition policy mostly touches upon structural issues, such as reform in factor markets and monopolistic industries, says Wang Zhigang 王志刚 Chinese Academy of Fiscal Sciences researcher. Enterprise costs on taxes, logistics, manpower, electricity, energy and land have been reduced in recent years, but costs incurred by monopolies remain significant. Given limited policy space by local governments, promoting market reform in monopolistic industries is a necessary but arduous step, adds Wang.