Examined from the rules for Western market economies and the growing-up of the domestic market, China has met the basic requirement to be a market economy, said Liu Xiaojuan, deputy director of the Research Office of the State Council at 2004 China Conference on Enterprise Competitiveness on September 18.

Jiang said, in terms of trade dispute, whether a country is a market economic status depends on whether market plays a fundamental role in the resource allocation. This is only the standard of rule. Moreover standard of action examines whether enterprises are acting normally in competition. Another indicator is the standard of performance.

Talking about the standard of rule, Jiang introduced the requirement of three layers: the demand in the market of consumer goods determines prices; the supply-demand relations necessarily determine the prices of factors of production; enterprises of all kinds of ownership are equal in status and property right. China has had no problem with the former two since the 1990s. The earliest official judgment, which was in 1994, said that China��s market mechanism has played a dominating role in resource allocation. The requirement on such equalities was a reform launched in mid and late 1990s and China has completed it.

In terms of standard of action, first, enterprises should shift their targets from fulfilling the plan to seeking profit. In China, the objective has been set since the contract responsibility system in urban industries in 1984. Secondly, sensitiveness to changes in the prices of factors. Upon big waves of the floor prices of one factor and another, enterprises are supposed to adjust the mixture of the input into factors. When financing costs more, interest rate rises. When the capital price is raised, enterprises should cut capital they are using and more transfer to merging labor factors. State-owned enterprises were a bit slow in such a shift in mid-1990s.

Enterprise��s budget turning from soft to hard is also an important requirement of market economy. Under hard budget constraints, financially incompetent enterprise will be ousted, whatever goal it has. After over twenty years�� of practicing the standard of action, Chinese enterprises have greatly improved themselves.

The standard of performance requires a tendency of the profits being averaged among different industries. Under planned economy, resources are arranged by the government through plans so they are stagnant among different industries, which leads to a wide gap in terms of profit among the industries. Other industries can not have a share with a highly profitable industry. However, things change a lot now. Jiang said that except special industries, seven industries saw a profit increasing by over 103 percentage points in 1985, 16 over five percentage points. This indicates a blocked transfer of factors between industries with high and low profits. The situation improved in 1995 with no industry with a profit up over ten percentage points and five with five percentage points. In 2002, no one with 10 percentage points up, five with two percentage points up, showing a relatively sharp sensitiveness of investors upon big waves of profits among industries.

No matter from Western rules on market economy or enterprise standard and performance standard, China has all reached the basic requirement for a market economy. However, as Jiang pointed out, it is hoped that China has a relatively complete market economy not only in standard of rule but also in standard of action. In a wider and deeper sense, it is hoped that the development of China��s market economy to be judged from more diversified folds, Jiang said.

By People's Daily Online