Happy National Day Holidy! For today’s episode, I want to share latest article from Jiang Xiaojuan (江小涓), She brings a distinctive perspective shaped by her experience as both a economist and policymaker, combining academic rigor with a practical understanding of how policy is made and implemented.
Jiang served as Deputy Secretary-General of the Chinese State Council between 2011 and 2018, one of the highest positions in China's policy-drafting. In this role, she has first-hand experiencce on formulating and implementing major economic policies. Prior to her government service, she established herself as a leading academic voice on industrial economics and development policy at the Chinese Academy of Social Sciences.
In her latest piece, she divides China’s reforms since 1978 into two phases. From 1978 to 2012, the emphasis was on “development-oriented reforms”发展型改革 introducing market mechanisms, opening up, and basically just to improve productivity and make economic growth. Since 2013, growth has remained a priority, but it also introduce the “governance-oriented reforms”治理型改革，whcih aims to address poverty, environmental pollution, and other social and economic challenges that accumulated during rapid growth. She argues that China now needs to focus more on “inclusive reforms”包容性改革 that let more people share in growth gains, backed by concrete institutional arrangements for social protection and public services. On the one hand, this means reducing government protection for favored firms while safeguarding private businesses’ property rights and ensuring that they can compete on equal terms. On the other hand, it means strengthening support for low-income groups, narrowing urban–rural gaps in public services, and helping workers cope with job displacement caused by industrial restructuring and artificial intelligence.
She also addresses the AI job replacement, arguing that such displacement could pose a major challenge to the existing social security system. Future unemployment could affect entire industries or groups of workers with particular skills, meaning that opportunities for reemployment in those fields could disappear just as workers lose their jobs. She argues that future social security arrangements should place greater emphasis on mechanisms for sharing economic returns, such as UBI and UBC. Her proposed response is to channel more returns from state-owned capital into public well-being and convert the capital gains generated by technological progress into assets shared by all citizens.
She believes that inclusive reform does not mean abandoning growth as a priority. It’s more like keeping economic development at the center of policymaking while responding more fully to public demand for education, healthcare, environmental protection, and a fairer distribution of income and wealth.
In her view, key of the reform is to balance three sets of competing priorities: ensuring sufficient resources for economic development while also making room for social security; encouraging local governments to pursue growth while preventing local protectionism which undermining unified national market; and allowing innovators to earn rewards while using taxation and redistribution to prevent the gains from technological progress from becoming overly concentrated.
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Below is the English ver of Jiang’s latest piece I translated with the help of AI, the Chinese ver was first published on Economists 50 Forum
Development-Oriented, Governance-Oriented, and Inclusive Reform: Advancing Development and Strengthening Institutional Foundations
By Jiang Xiaojuan
Professor at the University of Chinese Academy of Social Sciences and President of the China Industrial Economics Association
Introduction
China’s distinctive development path has demonstrated strong vitality and significant institutional advantages, with reform and opening up serving as the key engine sustaining its steady, long-term progress. China’s reforms have consistently aimed to promote development, maintaining continuity while adapting to changing times. Guided by practical needs and a focus on addressing problems, they have identified different priorities at different stages.
Looking back, China has successively advanced two types of reform—development-oriented reform and governance-oriented reform—which provided powerful momentum for building a moderately prosperous society in all respects. Looking ahead, as China embarks on a new journey toward building a modern socialist country in all respects, it must pursue inclusive reform in greater depth, establishing firm institutional foundations for nurturing and expanding new quality productive forces and ensuring that all people share in the fruits of development.
I. Development-Oriented and Governance-Oriented Reform: Succession and Coexistence
The Third Plenary Session of the 20th Central Committee of the Communist Party of China (CPC) adopted the Resolution of the CPC Central Committee on Further Deepening Reform Comprehensively to Advance Chinese Modernization (hereafter, the Resolution), setting out a systematic agenda for further comprehensive reform.
The Resolution states: “Chinese modernization has advanced continuously through reform and opening up, and it will surely embrace broader prospects through reform and opening up.”
This statement establishes the historical significance of reform: without reform and opening up, there would have been no great miracles of economic development and social stability in China. It also highlights the importance of reform for China’s future: Chinese modernization cannot be achieved without continuing to deepen reform.
Taking 2013 as the dividing line, China’s 47-year reform journey can be broadly divided into a stage dominated by development-oriented reform and a stage that places equal emphasis on development-oriented and governance-oriented reform.
1. The development-oriented stage: Unleashing and developing productive forces as the primary task
The Third Plenary Session of the 11th CPC Central Committee launched the great undertaking of reform and opening up and socialist modernization. Deng Xiaoping stated:
“The most fundamental task in the socialist stage is to develop the productive forces. Ultimately, the superiority of socialism must be demonstrated by developing productive forces faster and to a higher level than capitalism, and by continuously improving people’s material and cultural lives on that basis.”
Accordingly, the central thrust of reform was defined as unleashing and developing productive forces, promoting economic development, and improving people’s lives.
The main substance of reform was a gradual transition from a planned economy to a socialist market economy. The Third Plenary Session of the 12th CPC Central Committee, held in 1984, proposed a “planned commodity economy,” marking the formal launch of this phase of reform. Subsequently, the Third Plenary Sessions of the 14th and 16th CPC Central Committees progressively deepened the requirements for establishing a socialist market economy. The aim was to give the market an increasingly important role in allocating resources, improve the efficiency of factor allocation, unleash and develop productive forces, and promote sustained, rapid economic growth.
Development-oriented reform achieved remarkable results, bringing about a tremendous expansion of productive forces. China’s economy grew rapidly during this period, with substantial increases in several major indicators.
Between 1979 and 2012, China’s gross domestic product grew at an average annual rate of 9.8%, far above the world economy’s average annual growth rate of 2.8% over the same period. Between 1978 and 2012:
Urban residents’ annual per capita disposable income rose from 343 yuan to 24,565 yuan—an increase of approximately 70.6 times the initial level.
Rural residents’ annual per capita net income rose from 134 yuan to 7,917 yuan—an increase of approximately 58.1 times the initial level.
Total imports and exports rose from US$20.6 billion to US$3.8668 trillion—an increase of approximately 186.7 times the initial level.
In 2009, China became the world’s largest exporter and second-largest importer. Its international standing rose sharply: its economy climbed from 11th in the world in 1978 to second in 2010, making it the world’s second-largest economy after the United States.
In short, during the development-oriented reform stage, China made enormous advances in economic size, living standards, and openness, creating a globally recognized “growth miracle.”
2. Equal emphasis on development-oriented and governance-oriented reform: New circumstances and requirements
The Third Plenary Session of the 18th CPC Central Committee, held in 2013, adopted the Decision of the CPC Central Committee on Some Major Issues Concerning Comprehensively Deepening Reform. It defined the overall goal of comprehensive reform as improving and developing the system of socialism with Chinese characteristics and modernizing China’s governance system and capacity. “Governance” thus became another important strand of reform.
The requirements set by the CPC Central Committee and China’s national development goals called not only for continuing to unleash and develop productive forces, but also for more effective governance capacity better suited to high-quality development. From that point onward, China’s reforms followed two equally important tracks: development-oriented reform and governance-oriented reform.
An important difference between the two is that development-oriented reform places greater emphasis on “breaking”—removing the constraints of the traditional planned economy to unleash economic vitality. Governance-oriented reform places greater emphasis on “building”—constructing a systematic framework for the socialist market economy, making reform more systematic, holistic, and coordinated, and promoting comprehensive progress across different fields while continuing to develop the economy.
The equal emphasis on these two types of reform reflects both practical circumstances and guiding principles. After more than three decades, development-oriented reform had driven rapid economic growth but also allowed certain problems to accumulate, including substantial income inequality and environmental deterioration.
Calculated according to the revised rural poverty standard, China had 40.07 million rural residents eligible for poverty assistance in 2008. The national income Gini coefficient reached 0.491, indicating a relatively high level of inequality. Problems in food safety, the environment, and other areas became more pronounced, creating significant potential social risks. Unless properly addressed, these problems and risks would impede the timely achievement of a moderately prosperous society in all respects and obstruct the building of a modern socialist country.
The development and governance practices of this period required the coordinated advancement of both types of reform. High-quality development inherently requires their integration: China must continue to unleash and develop social productive forces and strengthen the foundations of economic development, while also reinforcing environmental protection and making substantive progress toward common prosperity.
The subsequently introduced new development philosophy—innovation, coordination, green development, openness, and sharing—likewise requires development-oriented and governance-oriented reform to work together within an integrated agenda.
II. Coordinating Development and Governance: The Core Issue, Market Participants, and Foundational Institutions
The Resolution calls for building a high-standard socialist market economy to provide institutional support for Chinese modernization. The following discussion examines this goal through the core issue of economic reform, the market participants in a socialist market economy, and its foundational institutions.
1. The core issue: The relationship between government and the market
1.1 The enduring central issue of reform
General Secretary Xi Jinping has stated:
“In pursuing socialist market economy reform, the core issue is properly handling the relationship between government and the market, enabling the market to play the decisive role in resource allocation and the government to better fulfill its role.”
Throughout China’s reform process, understanding how the relationship between government and the market has been handled—particularly in establishing the market’s position in resource allocation—is essential to understanding the fundamental character of reform.
The Third Plenary Session of the 14th CPC Central Committee proposed that the market should play a basic role in allocating resources under state macroeconomic regulation. The Third Plenary Session of the 16th CPC Central Committee called for giving greater scope to that basic role. The Third Plenary Session of the 18th CPC Central Committee replaced the term “basic role” with “decisive role” for the first time.
The Third Plenary Session of the 20th CPC Central Committee proposed “focusing on building a high-standard socialist market economy, giving full play to the decisive role of the market in resource allocation, and enabling the government to better fulfill its role.”
These important formulations clearly demonstrate the central place of the government–market relationship in the overall reform agenda.
1.2 Why this issue is central
In the context of China’s reforms, discussing the relationship between government and the market means addressing the crucial question of how resources are allocated.
An economy contains many different factors of production, distributed across different locations: land, capital, human capital, technology, and so forth. It also contains vast numbers of consumers seeking an enormous variety of products. Who uses these factors of production, what products they produce, and how those products are distributed to consumers are fundamental questions of resource allocation.
The government–market relationship is therefore about clarifying whether government or the market plays the decisive role in allocating resources.
Under the planned economy, government intervened directly in economic activity, allocating production factors through government plans. This created two obstacles to efficiency that were difficult to overcome.
The first was information processing. Central planning agencies had to collect and process vast quantities of constantly changing information about the entire economy. Even determining what each person wished to purchase and consume, and at what price, posed an enormous challenge. Planning agencies could not acquire this vast body of granular information, making it difficult to allocate resources to their most appropriate uses—the problem known as resource misallocation.
The second was incentives. Plans determined what to produce, how much to produce, and at what price to sell. They also determined the profits that could be distributed to each enterprise and the income each employee would receive. This arrangement lacked intrinsic incentives to increase output, improve quality, or innovate technologically, resulting in low production efficiency—the problem known as incentive incompatibility.
In a market economy, productive resources are allocated through market mechanisms.
First, prices convey a wide range of information. Prices are determined by the interaction of supply and demand. When a product is in short supply, its price automatically rises, discouraging consumption and stimulating production; the reverse also applies. This “invisible hand” can automatically and rapidly direct resources to where they are most needed, helping products and services better meet consumers’ individual needs.
Second, decentralized decision-making makes use of local knowledge. Countless enterprises and consumers can make appropriate decisions using only the information available to them locally.
Third, incentives encourage cost reduction, quality improvement, and innovation. Enterprises seeking profits and individuals seeking income have strong incentives to reduce costs, improve quality, and develop new technologies and products. Market competition’s mechanism of rewarding stronger performers and eliminating weaker ones compels enterprises to innovate continuously and improve their competitiveness.
Since reform and opening up began, properly handling the government–market relationship has primarily meant reducing government intervention in resource allocation, allowing the market to play a basic—and subsequently decisive—role, improving the efficiency of society’s resource allocation, accelerating economic development, raising living standards, and strengthening national capabilities.
General Secretary Xi Jinping has stated:
“The market determining resource allocation is a general law of the market economy. A market economy is, in essence, an economy in which the market determines resource allocation.”
The achievements of the past 47 years demonstrate that reform has greatly mobilized the initiative of all types of market participants and workers, fully unleashed productive forces, and delivered rapid economic growth and substantial improvements in living standards.
1.3 New requirements: Advancing development and governance together
In explaining the Resolution, General Secretary Xi Jinping stated:
“Focusing on the core issue of properly handling the relationship between government and the market, the draft resolution gives prominence to building a high-standard socialist market economy and sets out arrangements for key areas and critical aspects of economic reform.”
Properly handling this relationship remains the core issue in building a high-standard market economy.
In its section on building a high-standard socialist market economy, the Resolution states:
“We must better leverage the role of market mechanisms, create a fairer and more dynamic market environment, optimize resource allocation efficiency and maximize returns, both unleash vitality and ensure effective regulation, better maintain market order and remedy market failures, facilitate flows within the national economy, and stimulate society’s endogenous drive and innovative vitality.”
Why does the government–market relationship remain central? Because some reform tasks proposed many years ago remain unfinished, while economic and social development has generated new circumstances and problems that must also be addressed.
(1) Fully realizing the market’s decisive role requires deeper reform across more dimensions
From an economic theory perspective, “giving full play to the decisive role of the market in resource allocation” has two key dimensions.
The first concerns the rules of resource allocation: does the market or the government play the leading role?
The second concerns the behavior of market participants: do enterprises behave more like firms in a planned economy or firms in a market economy?
In terms of allocation rules, a typical planned economy places the principal aspects or stages of investment, production, distribution, pricing, and forms of ownership under government control. In a typical market economy, these are governed primarily by market mechanisms.
At a minimum, assessing these rules requires examining five questions:
Are product prices determined by the market or by government?
Have product markets developed a competitive environment in which supply exceeds demand?
Are factor markets competitive, and are factor prices market-determined?
Are market entry and exit determined by market forces?
Do competitors receive equal treatment, regardless of ownership type or geographic origin?
Since reform and opening up began, China has made significant progress in building its market economy, although progress has varied considerably across these dimensions. At present, supply exceeds demand in the product markets of the vast majority of industries, competition is relatively extensive, and prices are generally market-determined. Reform in the other three areas needs to accelerate, especially the market-based allocation of production factors and market entry and exit.
Factor markets are the foundation of the entire market system. At present, the market’s decisive role in resource allocation has yet to be fully realized. The Resolution emphasizes the need to:
“Improve factor-market institutions and rules, facilitate the smooth movement of production factors, allocate resources efficiently, and fully unleash market potential; establish a unified urban–rural market for construction land; improve the foundational institutions for the sound development of capital markets; and develop nationally integrated markets for technology and data.”
In short, the prices of all production factors should be market-determined, their movement autonomous and orderly, and their allocation efficient and fair. In particular, all types of economic entities should receive equal treatment. Markets should determine where resources are allocated on the basis of efficiency and risk assessments, enabling market participants to make reasonable decisions about factor use.
Fair market entry and an exit mechanism that eliminates weaker performers are fundamental to market-based factor allocation. They allow production factors to flow toward stronger enterprises and improve allocation efficiency.
At present, local market fragmentation continues to impede market access, while various subsidies interfere with fair competition and the elimination of weaker performers. These deep-rooted institutional constraints must be removed to unleash additional growth potential and develop productive forces.
Improving enterprise exit mechanisms is equally urgent and important. This is reform aimed at enabling weaker performers to leave the market. Rewarding stronger performers and eliminating weaker ones is a basic function of effective market allocation. Yet China has long lacked effective institutional arrangements for the latter.
To preserve employment and output in the short term, some local governments rescue enterprises that should otherwise exit, allowing inefficient firms to remain in the market. Strengthening corporate bankruptcy mechanisms and personal bankruptcy arrangements, and improving enterprise exit procedures, can substantially enhance the quality of economic development. These are important reforms requiring urgent progress.
In short, the market must play its decisive role at every stage—entry, operation, and exit—if total factor productivity is to improve effectively.
(2) Better government performance means stronger governance
Government must play an active role in a socialist market economy. Emphasizing its role is an important feature of China’s reform.
The Resolution describes this role in vivid terms: government must both “unleash vitality” and “ensure effective regulation.” Unleashing vitality means reducing intervention so that the market can play the decisive role in resource allocation. But what should effective regulation cover?
First, it should remedy market failures.
Market failures include the inability of market mechanisms to address negative externalities generated by market participants and the monopolies that competition may produce.
A typical negative externality occurs when an enterprise earns profits from production while society bears the costs of its pollution. Because incentives and constraints are misaligned, the market cannot resolve the problem by itself; government regulation is necessary.
Competition may also give rise to monopolistic enterprises. Such firms can use their market power to charge consumers high prices, harm consumer interests, and undermine competition through unreasonable practices. Government must therefore regulate monopolies and unfair competition.
Second, government should uphold social fairness and justice.
China is a socialist market economy, in which ensuring that all people share in the fruits of development is an inherent requirement. Government must play an active role in this regard.
Market allocation can lead to polarization in the distribution of social wealth, requiring stronger redistributive policies. As economic growth continues, society is also expressing more diverse and demanding expectations concerning basic education, essential healthcare, minimum-wage protection, social security, and employment protection.
A high-standard socialist market economy must achieve a substantial improvement in the extent to which development benefits are shared across society. This will strengthen public support for reform and build the shared understanding and practical momentum needed to deepen it.
For example, as second- and third-generation migrant workers increasingly integrate into urban life, their demands for equal opportunity and access to social benefits are growing stronger. This requires faster reform to ensure equal exchange and two-way flows of production factors between urban and rural areas, supporting their shared prosperity and development.
2. Joint development of two types of market-compatible enterprises
Moving from planned resource allocation to a system in which the market plays the decisive role requires more than changes to laws and regulations. It also requires changes in the behavior of market participants.
The behavior of competing enterprises is fundamental to the quality of market competition. A healthy market economy requires the rapid growth of enterprises whose conduct is consistent with the principles governing its operation.
2.1 Private enterprises: Natural participants in a market economy
Private enterprises are rooted in the market environment and are natural participants in a market economy. Their choices and budget constraints are determined by market mechanisms.
On the one hand, they pursue profits and long-term sustainable development as their core objectives while also taking account of various social responsibilities. On the other, they face relatively hard budget constraints and generally cannot obtain the same government support as state-owned enterprises.
Inefficient and uncompetitive firms are forced out of the market, allowing competition to reward stronger performers and eliminate weaker ones. The condition of the private sector therefore determines whether market mechanisms can function effectively. Without a well-developed private sector, the socialist market economy cannot operate effectively.
In the early years of reform and opening up, private enterprises were predominantly small and medium-sized. Their short decision-making chains, flexible incentives, and ability to change direction quickly allowed them to respond rapidly to market changes. Large numbers expanded swiftly in industries such as light manufacturing and textiles, where supply was limited, demand was pressing, and technological barriers were relatively low.
In recent years, the private sector has continued to expand, with marked improvements in its overall strength, innovative capacity, and competitiveness. It has moved beyond its earlier pattern of having many firms that were generally small, technologically unsophisticated, and of relatively low overall quality.
Private enterprises have rapidly improved their technology and product quality, reaching leading positions in some fields. By the end of January 2025, the number of private enterprises recognized as national high-tech enterprises had risen from 28,000 in 2012 to 420,000, while their share of the total had increased from 62.4% to more than 92%. Private enterprises have become a major force in scientific development and technological innovation.
New-energy vehicle and battery manufacturers, predominantly private firms, have attained technological capabilities that lead domestically and, in some cases, internationally. Most leading enterprises in the platform economy and artificial intelligence are also privately owned.
The CPC Central Committee attaches great importance to private-sector development. In November 2002, the 16th CPC National Congress explicitly proposed the “two unswerving commitments”: to unswervingly consolidate and develop the public sector, and to unswervingly encourage, support, and guide the development of the non-public sector. The CPC Central Committee has consistently upheld these commitments.
Since the 18th CPC National Congress, the CPC Central Committee with Xi Jinping at its core has continued to improve the theories, principles, and policies supporting private-sector development, establishing an institutional framework for encouraging, supporting, and guiding it.
The Third Plenary Session of the 18th CPC Central Committee stated:
“Both the public and non-public sectors are important components of the socialist market economy and important foundations for China’s economic and social development.”
It also made clear that “the property rights of the public sector are inviolable, as are those of the non-public sector.”
In 2023, the CPC Central Committee and the State Council issued the Opinions on Promoting the Development and Growth of the Private Economy. On February 17, 2025, General Secretary Xi Jinping attended a symposium on private enterprises and delivered an important speech, strengthening private businesses’ confidence and motivation.
In May 2025, the Private Sector Promotion Law of the People’s Republic of China came into force, writing the “two unswerving commitments” into law and providing firm legal safeguards for private-sector development.
Looking ahead, institutional arrangements must be further improved to create a fair, impartial, and trustworthy environment for the private sector and stabilize enterprises’ expectations.
In market access, areas related to national planning and investment—including competitive segments of infrastructure, major national technological research programs, and investment in future industries—should be equally open to all types of enterprises. Firms should be selected according to uniform criteria such as technology, scale, and performance, rather than ownership.
In fair competition, no enterprise should receive preferential access to production factors or market opportunities. No enterprise should obtain special benefits through protection from competition. All should face the market’s selection mechanisms on an equal footing.
In legal protection, the lawful rights and interests of enterprises under all forms of ownership must be equally protected. Equal treatment is particularly important in antitrust and administrative enforcement. Special emphasis should be placed on preventing and correcting the use of administrative or criminal measures to intervene in economic disputes. Violations of property rights and legitimate interests should be subject to the same liabilities, criminal classifications, and penalties, regardless of ownership.
Promoting high-quality private-sector development also requires avoiding a cycle in which policies and laws first create unfair competition and corrective measures are then introduced to repair the damage.
Some problems facing the private sector are the accumulated result of long-standing institutional, operational, and policy factors. It is inappropriate to wait for problems to accumulate and then rely on concentrated rectification campaigns to improve the environment.
Private enterprises still face explicit and implicit constraints in accessing production factors. Arbitrary fees, fines, and inspections, as well as improper property seizures, continue to occur. Judicial protection also requires further improvement when private enterprises become involved in economic disputes with government bodies or state-owned enterprises.
Unless these deep-rooted, long-term institutional problems and irregular uses of administrative power are addressed at the institutional level, temporary campaigns to improve the business environment will have limited lasting effect and may undermine private enterprises’ expectations and confidence.
At the same time, the private sector has its own shortcomings to address. Enterprises need to improve governance structures and management systems, strengthen compliance, and prevent corruption-related risks.
2.2 Better realizing the irreplaceable backbone role of state-owned enterprises
While vigorously developing the private sector, China must also consolidate and develop the public sector.
After years of reform and innovation, the state-owned economy has become much better adapted to the socialist market economy. In particular, recent initiatives to deepen and enhance state-owned enterprise reform have produced increasingly substantive results.
Market-oriented operating mechanisms have improved significantly. Boards of directors have essentially been established wherever required, with external directors generally constituting a majority. For state-owned enterprises in competitive sectors, profits and long-term development have become primary motivations, and their behavior increasingly resembles that of modern enterprises in a market economy.
As market participants in a socialist market economy, state-owned enterprises must also perform certain special functions.
The Resolution calls for state capital to be concentrated in key areas and directions: important industries and critical fields related to national security and the lifelines of the economy; public services, emergency-response capabilities, and public-interest fields affecting the economy and people’s livelihoods; and forward-looking strategic emerging industries.
These are areas in which private enterprises have limited willingness to participate or lack the necessary capabilities.
First, in innovation, state-owned enterprises should shoulder major responsibilities and take the lead, serving as sources of original technologies and leaders of modern industrial chains.
Their technological innovation capabilities continue to improve. From 2022 to 2024, centrally administered state-owned enterprises spent more than 1 trillion yuan annually on research and development for three consecutive years. In 2024, their R&D intensity rose to 2.8%.
Major innovations have emerged in human spaceflight, lunar and Mars exploration, deep-sea and deep-earth exploration, satellite navigation, nuclear power, new-energy technologies, and large aircraft manufacturing. State-owned enterprises have played important roles in these achievements.
Second, they should proactively undertake urgent and difficult tasks, playing a crucial role in responding to major risks and challenges such as epidemics and natural disasters, and in supporting major national events.
An evaluation system for the fulfillment of their strategic missions should be established to guide centrally administered enterprises in coordinating their economic, political, and social responsibilities and fully realizing their strategic support role.
Third, state-owned enterprises should continue strengthening their role in industries and fields critical to national security and the national economy. This includes ensuring supplies of important energy and resources, expanding domestic exploration and development, increasing reserves and output, and improving the deployment of state capital in overseas energy resources and critical strategic minerals.
They should also play an important role in developing key infrastructure hubs and new forms of infrastructure.
The next stage should continue to deepen state-owned enterprise reform, shifting budget constraints from “soft” to “hard” and ensuring equal participation in fair market competition. Reform should strengthen their core functions and competitiveness.
At the same time, the layout and structure of the state-owned economy should be optimized, enabling state-owned enterprises to fulfill their irreplaceable role and fully demonstrate the strategic, security-related, foundational, and patient-capital characteristics of state capital and state-owned enterprises.
3. Foundational institutions: Giving equal weight to development and governance, strengthening confidence, and stabilizing expectations
The Resolution makes systematic arrangements for further comprehensive reform, including reforms of foundational and economy-wide importance.
General Secretary Xi Jinping has emphasized:
“Build a unified national market, deepen market-oriented reform of production factors, and develop a high-standard market system. Improve the foundational institutions of the market economy, including property-rights protection, market access, fair competition, and social credit.”
These institutions are important because they provide the basic safeguards for the effective operation of a socialist market economy. They are necessary prerequisites and inherent requirements for allowing the market to play its decisive role in resource allocation and enabling government to better fulfill its role.
3.1 Property-rights protection
A high-standard socialist market economy should have clearly defined and strongly protected property rights.
The Resolution calls for “improving the property-rights system and ensuring equal and lasting legal protection for the property rights of all forms of ownership.”
Compared with earlier formulations, the addition of “lasting” is significant. It is especially important for strengthening confidence in the private sector’s long-term development and encouraging long-term investment.
Scholars in China and abroad generally recognize a significant positive relationship between property-rights protection and long-term investment.
Effective legal protection of the property rights of economic organizations under all ownership forms, as well as those of individual citizens, can enhance investors’ sense of security regarding their property and wealth, stabilize market expectations, strengthen society’s confidence in long-term development, and stimulate entrepreneurship and innovation.
By ensuring that secure property supports stable expectations, such protection establishes a firm institutional foundation for sustained, healthy economic and social development and lasting national stability.
Accelerating improvements in property-rights protection requires fair treatment and protection of all types of property rights.
At this stage, China should provide equal and lasting legal protection for non-public-sector property, abolish unreasonable provisions affecting it, and remove hidden barriers.
Particular attention should be paid to protection through law enforcement and the judiciary. Mechanisms for appeals, reviews, retrials, and other remedies in business-related property cases should be improved. Channels for resolving property disputes involving government should be made more accessible. The use of administrative or criminal measures to intervene in economic disputes should be prevented and corrected.
Violations of property rights and legitimate interests should incur the same liabilities, criminal classifications, and penalties, regardless of ownership. Mechanisms for identifying and correcting wrongful business-related cases should be strengthened, as should punitive compensation arrangements.
In institution-building, China should accelerate the enactment and revision of laws and regulations concerning rights in rem, creditors’ rights, equity interests, and other property rights. It should clarify ownership, improve the bundle of rights associated with property, and legally protect the various rights derived from ownership.
3.2 Market access
Entering the market is a prerequisite for businesses to participate in economic activity and the first threshold they must cross. How entry requirements are set, administered, and updated are all questions that must be addressed.
At present, local protectionism is a major cause of market fragmentation.
To promote local employment and development, some local governments prioritize local enterprises in market and investment opportunities through explicit or implicit entry barriers, unfair competition policies, and discriminatory government purchasing practices, while disadvantaging enterprises from elsewhere.
Such conduct obstructs the free movement and market-based allocation of goods and production factors across wider areas, undermines fair competition, and prevents optimal resource allocation.
On July 1, 2025, at the sixth meeting of the Central Commission for Financial and Economic Affairs, General Secretary Xi Jinping stated that advancing the unified national market requires “five unifications and one opening”: unified foundational market institutions, unified market infrastructure, unified standards for government conduct, unified market regulation and enforcement, unified factor and resource markets, and continued expansion of opening up both internally and externally.
These requirements establish the basic institutional framework for a unified national market. They identify a practical path for addressing difficult issues such as local protectionism, market fragmentation, and disorderly competition, while removing deep-rooted institutional and operational barriers.
In 2024, the Guidelines for Building a Unified National Market (Trial) were released, special initiatives to standardize business-related law enforcement were pursued, and the market-access negative list was further shortened.
Through both building new arrangements and removing old barriers, a more efficient, well-regulated, fairly competitive, and fully open unified national market is taking shape.
3.3 Fair competition
Fair competition is a core requirement of a market economy, and institutions safeguarding it are essential to improving resource allocation efficiency.
Only fair competition can enable stronger firms to succeed and weaker ones to exit, optimize resource allocation, and encourage sustained innovation and competitiveness.
Fair competition requires sufficiently competitive markets.
First, competition policies and legal frameworks should be established and improved, and antitrust and anti-unfair-competition rules effectively implemented.
Second, China should create a stable, open, transparent, and predictable competitive environment. Market information disclosure systems should be improved, the newly revised Interim Regulations on Enterprise Information Disclosure implemented, and enterprise disclosure practices standardized, allowing all firms to compete with adequate information and equal legal protection.
Third, the competitive pressures associated with the platform economy should be addressed comprehensively. A categorized and tiered antitrust review mechanism for business concentrations should be established and improved, alongside rules governing fair competition in the digital economy. Competition review and assessment systems should be explored for emerging market forms such as internet platforms, algorithms, and large AI models.
Fair competition also requires government to refrain from unreasonable market intervention.
When market participants allocate resources according to market rules, industrial overcapacity will generally not become extreme. Those that continue investing believe they possess stronger competitiveness and can use innovation to combine production factors more effectively, improve quality, lower costs, and raise efficiency.
Such competition allows efficient firms to displace inefficient ones and high-quality products to replace outdated products, improving resource allocation across the industry.
Government intervention, however, may use preferential policies to bolster enterprises that lack genuine competitiveness, preventing the market from rewarding stronger performers and eliminating weaker ones.
Strong firms relying on their own capabilities and weak firms supported by government assistance may then coexist. New firms keep entering while existing firms are not effectively selected out, inevitably aggravating overcapacity.
For most industries, the fundamental purpose of policy and law should be to provide all enterprises with fair market access, equal competitive standing, and equal legal protection.
Maintaining market unity first requires consistency in fiscal and taxation arrangements. The central government should standardize local investment-attraction rules and clearly define and strictly enforce the limits on fiscal subsidies, tax refunds, land-transfer concessions, and other preferential policies.
Illegal or unauthorized preferential treatment should be strictly prohibited. Local investment promotion should shift from competing to offer the most generous concessions toward competing to provide the best business environment and the most effective reforms.
3.4 Social credit
A market economy rests on extensive specialization and cooperation. Market participants engage frequently in transactions, exchanges, and partnerships, making contract performance, honesty, and trustworthiness especially important.
These factors determine the costs and effectiveness of social and economic interactions and the orderliness of economic activity. China therefore needs to accelerate the development of a social credit system deeply integrated into every aspect and stage of the national economy.
A new credit-based regulatory mechanism should be strengthened, with credit supervision covering the full chain and life cycle of business activities.
A tiered and categorized regulatory system should be established and improved: enterprises with good credit should face less interference, while those with poor credit should receive closer supervision. Rewarding trustworthiness and penalizing breaches of trust can improve businesses’ awareness of integrity and compliance.
At the same time, credit-restoration mechanisms should be improved for enterprises that actively rectify problems and establish compliance systems. A differentiated, tiered approach with phased removal of restrictions should allow and encourage businesses to rebuild their credit conveniently and efficiently.
III. Inclusive Reform: Promoting Social Harmony Through Institution-Building
Sharing the fruits of development helps promote social harmony. Sharing is an essential requirement of socialism with Chinese characteristics.
The Resolution emphasizes:
“Remain committed to a people-centered approach, respect the people’s principal position and pioneering spirit, respond through reform to the people’s concerns, and ensure that reform is for the people, relies on the people, and delivers benefits shared by the people.”
Efforts to share development gains have achieved some results in recent years. Experience shows, however, that policy adjustments not embedded in durable institutions have limited scope and strength and are subject to fluctuations.
Over the long term, achieving and sustaining a relatively stable level of shared development requires inclusive reform. Institutions must ensure that the public can fairly and reasonably share in the benefits of economic development and social progress, including in rights, opportunities, processes, and outcomes.
The World Bank’s 2018 report, Poverty and Shared Prosperity: Piecing Together the Poverty Puzzle, states that inclusive development centers on addressing social exclusion through institutionalized public policies, ensuring that everyone shares in development gains, removing unequal opportunities, and preventing social stratification from becoming entrenched. A comprehensive social protection system provides an important institutional safeguard.
Since the 2008 financial crisis, the Organisation for Economic Co-operation and Development (OECD) has paid increasing attention to persistent inequalities in growth, income, and wealth distribution within and between member countries. It has encouraged a shift from emphasizing economic growth alone toward greater inclusiveness, ensuring that growth’s benefits are more widely shared.
China’s further comprehensive reform should strengthen inclusiveness, dismantle institutional barriers to inclusive development, and establish supporting institutions that combine equality of opportunity with fairness in outcomes.
1. Accelerating reforms that support common prosperity: Promoting harmony through shared benefits
Since reform and opening up began, China’s economic strength has increased rapidly, living standards have continuously improved, poverty alleviation has achieved tremendous results, and urban social protection has steadily strengthened.
Overall, however, common prosperity requires a relatively high degree of sharing across society. At a minimum, this entails two basic conditions: relatively small income gaps between individuals and groups, and relatively small disparities in the basic public services provided by government.
Aggregate data indicate that this is a formidable task. Measured by the Gini coefficient, the most commonly used indicator of income inequality, China’s income gap narrowed steadily from 2008 to 2015 but has remained relatively large and stable since 2016. Within this overall pattern, the urban–rural income gap has narrowed slightly, while income inequality among urban residents has shown some tendency to widen.
Large income disparities not only directly undermine fairness and sharing but also constrain development. At present, the key constraint on China’s economic development has shifted from the supply side to the demand side. Large income gaps leave some residents without sufficient purchasing power.
Accelerating reforms to improve income distribution can therefore promote both sharing and development. There are two main directions for inclusive reform, both requiring faster research and stronger implementation.
The first consists of policies to narrow personal income gaps.
The priority is to accelerate institutional arrangements that raise the incomes of low-income groups. One focus of tax reform internationally in recent years has been reducing personal income tax burdens on low- and middle-income workers and households to make taxation fairer and more inclusive.
Given the characteristics of China’s current tax system, special additional deductions for personal income tax need further improvement.
Tax preferences for high-income earners should also be gradually eliminated. Local governments should not offer overt or covert tax concessions on the grounds that enterprises relocate, invest locally, establish venture capital funds, or launch new businesses.
Income from bringing rural collectively owned commercial construction land onto the market and making use of idle housing should be prioritized for improving rural residents’ social protection. Like urban residents, they should no longer need to rely on land as their social safety net. This would provide relatively low-income groups with more effective and stable protection.
Employment-first policies should be further improved. Particular caution is needed regarding technologies that simply replace labor, and related tax policies should be considered. For example, special taxes or levies could be imposed on certain robots and AI applications with clear job-displacement effects, with the proceeds earmarked for supporting displaced workers.
In short, meaningful progress toward common prosperity requires reducing the Gini coefficient below 0.4 and bringing the urban-to-rural income ratio below 2.0. This is an extremely challenging task, and sufficiently strong institutional arrangements must be put in place.
The second consists of policies to equalize basic public services.
At the modernization stage, improvements in quality of life increasingly depend on a greater supply of higher-quality public goods.
In China, substantially raising low-income groups’ incomes in the short term is difficult, making the expansion of widely accessible basic public goods particularly important.
First, social protection should be strengthened for groups whose coverage and benefits are relatively limited. Rural residents’ pension benefits, for example, are low and urgently need to be raised to a level appropriate to China’s stage of development and the requirements of common prosperity.
Second, reforms should be studied and advanced to fully incorporate urban residents without local household registration into urban public-service systems. Long-term residents from elsewhere should enjoy the same rights and treatment as residents with local registration.
Urban subsidized-housing reform should be advanced to cover all permanent residents.
Even when personal incomes differ, society’s level of sharing and harmony will improve substantially if citizens can enjoy high-quality, equal basic public services wherever they live, without major disparities in access to childcare, education, remuneration for work, healthcare, elderly care, housing, and assistance for vulnerable groups.
2. Accelerating social protection reform for the AI era: Promoting harmony through broadly shared technological benefits
Artificial intelligence is advancing faster than expected, bringing major changes to the relationship between innovation and employment.
AI’s disruptive and transformative effects on employment differ significantly from those of technological progress over the past several centuries. Even within the continuous technological progression from networking to digitalization to intelligent systems, the employment effects vary.
Networking primarily provides connections that make information transmission more efficient. Digitalization maps the physical world into the digital world, providing a basis for evidence-based decision-making. Both primarily empower people.
Intelligent systems are different. They possess some capacity to perceive, reason, make decisions, and act, enabling them to carry out relatively complete workflows and entire tasks.
For this reason, intelligent systems can rapidly replace some people’s work.
A U.S. study indicates that employment remained broadly stable during the networking and digitalization eras. Since 2022, however, although demand for high-knowledge, high-skill positions has remained steady, recruitment for entry- and mid-level white-collar jobs has slowed noticeably and even declined after August 2025. University graduates have felt the most direct effects.
At present, the jobs most likely to be replaced are standardized, repetitive roles centered on text, data, and information processing. Relevant positions in internet services, software, and call centers, for example, are particularly exposed.
AI is, of course, also creating new jobs. Overall, however, it is creating more new jobs than it is replacing.
If AI-driven job displacement continues, it may pose major challenges to existing social protection systems.
Earlier social protection systems underwent a transition from a “residual” model to an “institutional” model. Residual protection primarily assisted vulnerable groups. During industrialization, however, social protection became institutionalized.
The mobility of industrial society, wage employment, and separation from permanent productive assets such as land meant that citizens generally needed social protection at some stage of their lives. Countries therefore widely established five major forms of social insurance: pensions, healthcare, unemployment, occupational injury, and maternity insurance.
In the AI era, people may move frequently between employment and unemployment. Unemployment can affect entire industries or skill categories, leaving large numbers of people with the same occupational or technical background out of work simultaneously. Opportunities for reemployment may disappear at the same time.
If this trend continues, technological progress could generate a systemic social problem.
Social protection systems should, as far as possible, avoid encouraging dependency or unwillingness to work. In the AI era, however, neither individuals nor society as a whole can readily determine which skills or efforts will prevent unemployment. Hard work and continuous learning may not necessarily be sufficient.
Social protection should therefore become more universal.
Two widely discussed ideas warrant study: universal basic income (UBI) and universal basic capital (UBC).
UBI proposals advocate providing all citizens with an unconditional fixed cash payment, without means testing or work requirements.
UBC proposals advocate allocating each citizen a share of public capital so that everyone can participate in the capital returns generated by technological progress.
Their underlying logic is that AI may replace routine jobs on a large scale, continuously reduce labor compensation’s share of national income, and leave traditional, after-the-fact social assistance unable to offset technological unemployment.
UBI establishes a minimum income floor to meet the basic needs of people without work. UBC gives people rights to capital returns from AI industries, allowing everyone to share in part of the technological dividend.
Countries and some international organizations are actively discussing and studying these two inclusive social protection models as possible responses to AI’s employment impact. So far, however, no country has begun full-scale implementation. Increasing numbers of governments recognize that UBI’s universal income floor and UBC’s mechanism for sharing returns deserve attention.
China possesses substantial state-owned capital, alongside start-ups that continue to raise large sums in capital markets.
Using a greater share of returns on state-owned capital to improve people’s livelihoods, and converting a reasonable proportion of the capital gains generated by technological progress into assets shared by all, would help address employment challenges in the AI era and strengthen public acceptance and support for AI development and application.
3. Accelerating reforms that balance different interests: Promoting harmony by building consensus
An important feature of the modernization stage is that people’s aspirations for a better life become more diverse, as do their expectations regarding how society’s resources should be allocated.
At this stage, it becomes even more important to balance different interests, build consensus, and promote social harmony. Three relationships require particular attention.
First, China must properly handle the relationship between keeping economic development at the center and advancing work in other areas.
During the building of a moderately prosperous society, economic development was an urgent public aspiration and a matter of broad consensus.
During socialist modernization, people’s demands become more diverse. Material resources and government attention must inevitably be distributed across a wider range of fields, including education, healthcare, and the environment.
Yet every resource is finite. Society should therefore be guided toward a shared understanding of the importance of economic work, ensuring that substantial resources remain directed toward economic development.
At the same time, other fields also require progress and should receive resources and development opportunities according to public preferences and their own underlying requirements.
Second, China must properly handle the relationship between motivating local governments and building a unified national market.
The domestic and international political and economic environment is complex and challenging. For some time to come, local economies will continue to face multiple pressures, particularly in innovation-driven development, the circulation between production and consumption, and fiscal and tax operations.
Local governments must therefore be fully motivated to promote development and encouraged to manage economic work creatively in ways suited to local conditions.
At the same time, local efforts to stimulate growth may produce policies that undermine the unified national market.
Examples include restricting enterprises from relocating elsewhere; using qualification requirements and other explicit or implicit entry barriers to block products from other regions; granting unauthorized fiscal subsidies, tax refunds, and land concessions to attract investment; and abusing administrative power to exclude or restrict competition.
A unified national market is essential to leveraging China’s vast market size and improving resource allocation efficiency. Local practices that benefit one area at others’ expense weaken the country’s overall development potential.
China must therefore encourage local initiative while preventing conduct that undermines market integration. Achieving this balance requires sophisticated leadership and well-designed institutions.
Third, China must properly handle the relationship between encouraging innovation and safeguarding social fairness.
Innovation is a major source of new growth, and technology entrepreneurs are its most important driving force. They can earn substantial returns from innovation and become a significant part of the high-income population.
Increasingly, however, innovation takes the form of highly intelligent applications that employ relatively few people. In other words, it may generate a small number of exceptionally high earners while benefiting only a limited number of ordinary workers. More innovation may therefore be accompanied by greater income polarization.
Common prosperity is an important feature of Chinese modernization, and appropriate institutions and policies must safeguard its achievement.
This is a difficult issue on which consensus is not easy to build.
For example, narrowing income disparities would ordinarily call for more progressive taxation, with higher earners paying more. In practice, however, local governments seeking investment and economic growth often grant tax concessions to investors, holders of technological achievements, and executives of large corporations.
Such practices have a rationale from the perspective of attracting resources and promoting local growth, but they work in the opposite direction from common prosperity.
The relationship between these objectives must therefore be handled carefully, rather than pursuing one while neglecting the other.
4. Accelerating reforms for institutional opening up: Promoting harmony through mutual benefit
In the early years of reform and opening up, China’s overall industrial competitiveness was relatively weak. Within the international division of labor, it developed a typically vertical relationship with advanced economies.
Developed countries used their advantages in capital, technology, branding, and management to occupy medium- and high-end industries and high-value-added activities. China relied on lower labor costs and mainly engaged in lower-value-added activities such as processing and assembly.
Today, China and developed countries have established a horizontal division of labor in some industries. They cooperate and specialize within the same industries and product categories, with broadly comparable technologies and product standards.
Competition does not necessarily mean confrontation. Developed countries’ industries compete with one another, yet their countries can still cooperate.
As a major supplier with strong competitiveness across a broad range of products, China has enormous scope for both competition and cooperation with other countries.
During the period of vertical specialization, China’s relatively weak industrial competitiveness led it to rely heavily on preferential export policies, giving its opening up a policy-driven character.
Going forward, China should work to shift from policy-based opening up to institutional opening up.
The Resolution states:
“Proactively align with high-standard international economic and trade rules, make rules, regulations, management practices, and standards compatible in areas such as property-rights protection, industrial subsidies, environmental standards, labor protection, government procurement, e-commerce, and finance, and create a transparent, stable, and predictable institutional environment.”
These seven areas are central to high-standard international economic and trade rules. They are also key areas in which China falls short in aligning with international standards.
For example, property-rights protection is critical to building an innovative country.
For a long time, China primarily improved its industrial technology and overall competitiveness by introducing foreign technologies. Today, it is moving increasingly close to the global technological frontier.
Innovation resources now flow across borders on a highly globalized basis. Venture capital, scientific and technological talent, and innovation markets are deeply integrated into global systems.
Innovation resources tend to concentrate where the institutional environment for venture investment and entrepreneurship is more favorable. Weak intellectual property protection, or insufficient penalties for infringement, counterfeiting, fabrication, and fraud, will discourage innovators from investing and establishing businesses in China.
Similarly, in industrial subsidies, China has proactively adjusted export tax rebate policies for some competitive industries in response to changes in domestic industrial strength and the international competitive landscape.
The positive significance of institutional opening up lies in creating a more transparent and impartial environment and enabling Chinese industries to compete with those of other countries under fairer rules.
For many years, for example, China offered preferential export policies because its products were relatively uncompetitive internationally.
In recent years, China has recorded large trade surpluses. Although these mainly reflect the underlying competitiveness of its industries, their prolonged continuation may hinder the development of mutually beneficial international economic and trade relations. Reducing subsidies for export products is therefore necessary.
The essence of institutional opening up is to give markets a greater role in cross-border resource flows.
Policies should no longer favor one direction of activity over another. Instead, they should treat two-way cross-border flows of goods and production factors equally—including equal treatment of exports and imports, inward foreign investment and outward investment, and domestic and foreign-invested enterprises.
In conclusion, further comprehensive reform should begin with the goal of building a modern socialist country. It should not shy away from important and difficult reform requirements. Instead, China should identify the principal tasks of development-oriented, governance-oriented, and inclusive reform in a realistic manner that keeps pace with changing circumstances, providing firm institutional foundations for advancing Chinese modernization.
China's factory employment index fell to 48.4 while production strengthened in September. Jiang's proposed income support could help sustain household demand, making consumer-company sales a useful test next quarter.