Opinion: Broadening New Industries’ Market Access Is Imperative by Caixin

26 Sep 2024

The system of market access is continuously being refined. Recently, the General Office of the Communist Party Central Committee and the State Council issued the “Opinions on Improving the Market Access System,” marking the first policy document specifically addressing market access system construction at the central level. The “Opinions” include 10 provisions, many of which are noteworthy. They clearly propose “implementing broad entry and strict management, opening up fields of full competition for access, and significantly reducing entry restrictions for business entities.” Of particular interest is the proposal to improve market access for new industries such as new energy, artificial intelligence, autonomous computing, information security, intelligent rail transport, and modern seed businesses. By capitalizing on improvements in market access to activate these new sectors, it undeniably encourages grasping the bull by the horns in terms of China’s economic transformation and upgrading.

The market access system is one of the foundational institutions of the market economy, and the “Opinions” describe it as “key to promoting an effective market and a capable government.” It is an essential requirement for fair competition and influences the dynamism of the economy. One could say that the history of reform and opening up is a history of progressively liberalizing market access, which of course must be orderly and consider complex factors such as national security, productivity distribution, and strategic resource development.

Today, one way to liberalize access is to establish a negative list, covering the areas that would be off-limits or face curbs. The first item of the “Opinions” is “to improve the management model of the market access negative list.” Further reducing the items on the list is a fixed policy direction of the central government. It is understood that the revised version of the negative list has been drafted and will be submitted for approval. Since the comprehensive implementation of the market access negative list system in 2018, four versions have been released, reducing from 151 items in the 2018 version to 117 items in the 2022 version, with many access restrictions in fields such as elderly care and healthcare being relaxed.

Optimizing the market access environment for new industries and fields is of great significance for revitalizing the Chinese economy and achieving industrial upgrades. The newer the industry or field, the more necessary it is to remove restrictions and ensure equal competition, thus allowing the full flow of intelligence and talent from entrepreneurs, researchers and skilled technicians. As these new sectors emerge, government regulation and market access gradually follow suit and improve. At a time when China is committed to building an innovative nation and facing economic growth pressures, market access for new industries and fields should be particularly prudent and tolerant.

Delving further into the “Opinions,” it’s clear that the central government adopts a positive stance towards encouraging and supporting new business formats and domains. They articulate principles and pathways for the entry of new formats, emphasizing “standards-led, scenario-open, market-driven, industry-concentrated, and system-upgraded” approaches. A crucial highlight is the call for “enhancing the efficiency of entry.”

The focus of the “Opinions” on the entry of new business types is not about favoring new over old industries, nor about different rules for newcomers versus established players. Rather, it aligns with the characteristics of new business types and their relatively lax regulatory environments. For traditional industries, it’s equally important to minimize entry restrictions wherever possible, and to recognize their importance. If new industries face relaxed entry standards while old industries do not, the new sectors cannot advance in isolation. Market entry should be industry-specific and comprehensive, avoiding any handicaps.

Now, regulators must understand the necessity and urgency of optimizing market entry for new business types, while considering potential resistance. Implementing broad access for new industries is tantamount to accumulating future economic momentum for China. Recent success stories in China’s economic transformation, notably the new-energy vehicle sector, underscore this approach, thriving largely due to relaxed entry standards and government support.

The effectiveness of the “Opinions” largely depends on whether relevant departments and local governments can break down vested interests and act in coordination. Some localities appear to liberalize superficially but subtly impose barriers in environmental protection, health, security, quality inspection, and fire safety. Since 2021, the National Development and Reform Commission, China’s top economic planner, has established a system for collecting and reporting typical cases that contravene the market entry negative list, involving discriminatory entry policies and discrepancies between allowed and actual practices. However, local governments may also irresponsibly relax entry standards, heedless of local resource endowments and engaging in hasty expansion, which clearly contradicts the central government’s intentions for perfecting market entry systems.

Market entry is merely the first step; the sustainability and expansion of new business types also rely on supportive systems. The importance of integration post-entry is paramount, necessitating administrative approval reforms. During the press conference held on Aug. 30 by the State Council Information Office to discuss the “Opinions,” officials mentioned efforts in Hainan province to optimize the market entry environment for commercial aerospace. The first two commercial rocket launch pads in Hainan are nearing completion, marking a significant exploration in the sector. However, the challenge remains to break away from traditional military management styles and explore regulatory models suited to commercial industry.

The release of the “Opinions” can be seen as a significant achievement in implementing the spirit of the “further comprehensive deepening of reforms” from the Third Plenum of the 20th Party Congress. It is expected to inject new vitality into the Chinese economy. There is great anticipation that the improvement of market entry will activate and bolster new business formats, playing a pivotal role in enhancing China’s new economic drivers and advantages.