Reaping efficiency gains through product market reforms in China
The impressive emergence of China’s economy is set to lose some momentum as the country
catches up with more advanced economies and its rapid ageing also weighs on it. However,
China can still reap the “reform dividend”, especially with measures to keep up the
sustained growth of productivity. Reforms that enhance competition in product markets
are among those that can potentially bring about significant productivity gains. China
has been lowering the burden on start-ups and simplifying administrative procedures
for a while already, achieving significant progress, though more procedures could
go online and a one-stop shop is still to be implemented across the country. State
ownership remains dominant in most network industries and there are many SOEs even
in commercially-oriented industries such as retail or catering. SOEs enjoy implicit
government guarantees and are the main beneficiaries of administrative monopolies,
i.e. exclusive rights granted by regulations. In addition, they also benefit from
various subsidies, sometimes leading to low-level, repetitious investment, excess
capacity and waste of public money. A more level playing field would bring about efficiency-enhancing
competition by private and foreign firms. Some network industries such as electricity
and gas have recently accelerated their opening up and competition is developing in
some segments. Digitalisation is a promising candidate to lift China’s long-term growth
potential. Competition, in particular competitive pressure from foreign counterparts
when there are few domestic players could be an important source of efficiency gains
in digital services. China has been a frontrunner in business digitalisation for a
while already, but the outbreak accelerated also the provision of e-government services.
While strengthening of IPR protection and promoting innovative ways of financing are
welcome steps to nurture innovative industries, generous tax exemptions – which by
OECD standards do not constitute good tax policy - reduce the availability of public
funds for other priority areas.
Published on May 19, 2022
In series:OECD Economics Department Working Papersview more titles