Differentiate, Categorize, and Sequence Reforms of Factor Markets Rather than Generalize and Urge Them

According to the difficulty of reforms and possibility for a breakthrough, the factor market reforms ought to be categorized into three types, which need to be differentiated and sequentially advanced. It is unreasonable to attempt to accomplish the total reforms at one stroke.

The first type of factor market reforms is comparatively easier than the others because of its clear reform orientation, like market-oriented financial reforms centered by market-oriented interest rate, market-oriented exchange rate, and renminbi free convertibility. Superficially, such kind of reforms is hard to advance, as it influences the benefits of the powerful vested interest groups, including the government, state-owned banks, and state-owned enterprises. However, as opposed to other factor market reforms, just because it is the country whose benefits would be influenced, the reforms were promoted in a smoother way. The fundamental tenet of CPC is to serve the people whole-heartedly, just as the Party Constitution stipulates,

the Communist Party only cares for the interests of the working class and the broad masses of the people, instead of its the special interests of its own. The Communist Party put the interests of the people in the first place at any time..., doing everything for the masses, relying on them in tasks and carrying out the principle of‘from the masses, to the masses’.25,26

Based on the above logics, as long as prompt and resolute decisions are made, the first kind of reform can take the lead in success.

The second type of factor market reforms is comparatively difficult, mainly because the legal obstacles have resulted in unclear thoughts and immature pilot experience, especially in land market reform and resource market reform. The difficulty lies in that the reform of property rights is not straightened out in the interim term. Take the land market reform as an example; because of the ill-defined relevant laws, the rights of ownership and usage of land were not effectively implemented, which led to repeated violations of farmers’ land rights. For example, the Land Management Law stipulated that “the rural land pertains to the collectives of farmers”, and that “out of the needs of public interest, the country is legally entitled to claim land expropriation or requisition and make compensation”. Concerning such provisions, the connotations of “collective” and “public interest” herein were once in obscurity. Thus, all levels of the government were able to expropriate land from farmers in the name of “collective” and “public interest”. Take another example. The “property law” stipulated that “the right to use such collectively-owned land as cultivated land, house sites, land and hilly land allotted for private use, except for those mortgageable as prescribed by any law, may not be mortgaged”. The financial function of the right to use the contracted land by farmers is restrained, which made the right to use land not available for fund-raising for agricultural production. Such reforms are related to the regulation and improvement of legislation, which is quite difficult.

The third type of factor market reforms, the labor market reforms, appears simple but is in fact the most difficulty.. The labor market reforms mainly include the reform of household registration system. As it involves great adjustment of the pattern of vested interest groups, the household registration system reform faces the resistance not only from local governments but also from the majority of urban residents. Such kind of factor market reforms is therefore the most difficult. First, the household registration system reform will add much more burden on local governments, who have not implemented incentive to promote it. Taking the household registration as the threshold, local governments can block the access of migrant workers to the urban and town public service system to reduce financial burden and utilize cheap labor to promote economic development. Upon the reform of household registration system, the government shall provide medical care, education, social security, and other public services for the newly registered residents and shall not have cheap labor, which is detrimental to local governments. Second, the reform of the household registration system will affect the interest of urban and town residents, with one of the most prominent problems in education. The children of the newly registered urban and town residents have to share the limited educational resources with those of the existing ones. Under the current enrollment quota allocation system of college entrance examination, the children of newly registered urban and town residents even directly “grab” the enrollment quota of those of the existing ones; meanwhile, the existing urban and town residents spare no efforts in preventing household registration system reform. Therefore, in advancing the reforms, it is necessary to further emancipate the minds of urban and town residents, top-level design by the central government, and have the central and local governments at all levels pay for the bill of reforms. Therefore, the household registration reform will be difficult.27

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