Building a Unified Domestic Market is of Strategic Importance

The COVID-19 pandemic and the conflict between Russia and Ukraine have profoundly changed the political，economic，and financial landscapes both home and abroad. Against this backdrop，China issued a guideline CPC Central Committee and the State Council on Accelerating the Establishment of a Unified Domestic Market (hereinafter referred to as “the guideline”). The guideline is of far-reaching strategic significance. Building a unified domestic market is an inherent requirement and fundamental support of the new development pattern，a backbone of China’s economic high-quality transition，and the only way to a high-level socialist market economic system.

Answers the Call of the Time

The decision to build a “unified domestic market” is based on a comprehensive analysis of the external situation and domestic market. Externally，in recent two decades，China’s foreign trade dependency on the external market (the share of total imports and exports of GDP) dropped significantly from 68% in 2006 to 30% in 2021. After the 2008 financial crisis，the thought and policies of “anti-globalization” spread across the international arena. Since Donald Trump took office in 2016，the United States has been constantly stirring up trade conflicts. In 2020，the COVID-19 pandemic added more fuel to the fame，damaging globalization. Domestically，market segmentation brought by local protectionism and regional barriers has hindered the market for internal demands from expanding its capacity. In the early days of reform and opening up，the central government was delegating power to accelerate the transition from a planned economy to a market economy. In this context，local governments gained fiscal autonomy and also legislative autonomy to formulate market rules. As promoters of the local economy，these governments tended to direct a bigger portion of the limited subsidies to support local enterprises and attract foreign investment. They wanted to bring in more revenues and boost GDP in this process because GDP was used to evaluate their performance by the central government. Years of efforts and competition among local governments have improved the local economy and livelihoods，but have also aggravated “local protectionism” and “regional barriers”，which then shifted from the goods sector to the service industry and factors of production. “Segmentation issues” such as lack of coordination，repetitive work，overcapacity，resource waste，and company monopoly have hampered the corporate move to expand the market and the industrial endeavor to integrate，hence obstructing regional coordination and the nation’s balanced development. These issues stand in the way of an unimpeded domestic economic cycle，a smooth flow of factors，and an expanded market capacity of internal demands.

Building a unified domestic market is not restoring the old track of equalitarianism and the planned economy. It is setting up unified market regimes，factors，resources，and supervision，along with connected trade platforms and channels for logistics and information exchanges. In this way，we can break “market segmentation” brought by local protectionism and regional barriers. This is another “deep reform” of the economy. According to the guideline，the unified domestic market is the goal of the country’s socialist market economy. With coordinated policies，rules，and implementation，the market will be a place for no discrimination，and full，equal competition. In this open place，regions，markets，and industries are interdependent. They fulfill their due duties，coordinate together，and reinforce each other. Under this circumstance，goods and factors can adjust themselves with the price system，and flow freely across different regions，markets，and industries. “Segmentation issues” such as market lockdown，local protectionism，and regional barriers can be eliminated，enabling the optimal allocation and smooth flow of national resources. To sum up，this unified domestic market is integrated，holistic，open，transparent，and competitive.

The guideline is solution-oriented and has listed priorities from six aspects to reach “in with the new and out with the old”. In terms of the “in with the new”，the guideline requires unifying five things: basic market rules，high-standard market facilities，factors and resource markets，high-level goods and services，and equal market supervision. In terms of the “out with the old”，the guideline requires regulating market foul play and intervention. Specifically，unifying basic market rules means upholding an equal competitive system and improving the social credit system. Unifying high-quality market facilities means crafting a modern circulation network，improving market information exchange channels，and upgrading the trade platforms. Unifying factors and resource markets means improving the urban-rural land and labor market，developing a unified capital market，cultivating unified technologies and data markets，and building a unified national energy market and ecological market. Unifying high-level goods and services means improving the quality，standard and measurement system，and consumer services.

Carries Multiple Layers of Strategic Value

Building a unified domestic market facilitates the dual circulation of the domestic and international economies. In terms of the internal circulation，the unified domestic market can address “segmentation issues” in key areas and links，removing old blocks and speeding up the internal circulation. In terms of the dual circulation，the unified domestic market acknowledges the external circulation and boosts the economic globalization underpinned by the internal circulation，thus enhancing China’s voice and competitiveness while connecting the domestic and international markets. Having the ability to address many problems and weaknesses，the unified domestic market can also bring in more middle- and high-level international factors and resources.

Building a unified domestic market helps to realize balanced regional development and common prosperity. In this market，each region can maximize its competitive edge by tapping into the local conditions. For example，the eastern and southeastern coastal region develops the manufacturing industry，the central region agriculture，and the western region industries related to natural resources. All products from these regions are traded on the unified market. The faster the eastern develops，the more resources the central and western regions purchase，the higher the price of resources and the income of the residents of the central and western，and finally，the closer to common prosperity.

Building a unified domestic market serves and safeguards the high-quality transition of China’s economy. Once this market takes shape，people’s upgraded demands along with simpler and more efficient flows of talents，capital，resources，products，credit system，and data will maximize the efficiency of factor allocation，thus greatly enhancing productivity. In this market，China’s institutional strength can play a bigger role，attracting researchers for middle- and high-end manufacturing and ultimately laying a solid foundation for the high-quality transition of industries and the economy.

Building a unified domestic market expands the market for internal demands. Among the 1.4 billion people in China，400 million are of the middle-income group. The per capita disposable income increases steadily，and the consumer market is yet to reach the biggest size and full potential. In the past，bureaucracies held up the economy. In particular，in the market for production factors，land quotas and the household registration system thwarted mobility，influencing the establishment of unified markets for goods and factors，and hindering the connectivity of goods and people. Therefore，the market for internal demands faces difficulty in expanding its capacity. However，once the unified domestic market is formed，these problems will be solved and the capacity expansion will be in full gear.

Building a unified domestic market propels enterprises to be “strong and specialized” instead of “big and general”，and be more competitive internationally. With the measures stated in the guideline，foul play that checks the development of enterprises will be removed，enabling more SMEs to join the level playing field and take advantage of economies of scale and scope. Going forward，several arduous tasks need to be done. First，reforming mechanisms and regulations to address “segmentation issues” such as regional isolationism，local protectionism，regional barriers，various blockades and industrial monopoly. Second，improving the institutional system for equal and lawful protection of all ownership economies，implementing a unified market access system，improving the the fair competition system and the policy implementation mechanism，and making the competitive mechanism fairer and more transparent. Third，streamlining the government，delegating power，and improving government services for a better business environment. Fourth，delivering a unified market through openness. We need to adjust and improve domestic rules through the implementation of mature international rules such as RCEP and CPTPP. Once aligned with the world’s trend of economy and trade，we can better facilitate the flow of the dual circulation of the domestic and international economies.

The author Lian Ping is the Chief Economist of Zhixin Investment and President of Zhixin Investment Research Institute

The author Luo Huanjie is Senior Researcher at Zhixin Investment Research Institute