China's opening up 2.0

From state to private

Ever since the Third Plenum in 1978, China's opening up has always had two fronts, one externally and the other internally, said Deng Xiaoping, the architect of Chinese economic reforms.

Having inherited a command economy where everything was managed by the state, China over the years granted the free market an ever prominent role to play.

This year's plenum decision said that the free market's role will be "decisive," recognizing the private sector's indispensable role in fostering economic growth and job creation.

The private sector contributed over 60 percent of gross domestic product and new hires in 2012, according to statistics.

China will abolish all forms of unreasonable regulations and eliminate hidden barriers against the private sector, opening a wide range of businesses once dominated by state-owned enterprises (SOEs), the decision said.

China has eliminated hundreds of administrative approvals as part of efforts to reduce intervention in the economy, and implemented a negative list approach in a pilot Shanghai Free Trade Zone opened in late September.

Unlike a positive list approach, in which nothing is allowed before governmental approval, the negative list approach allows anything unless specifically prohibited, said David Dollar, a senior fellow with the John L. Thornton China Center of the Brookings Institute.

"The overregulation of routine business creates a lot of opportunities for corruption and makes the economy less efficient, " he said.

The professional services company KPMG noted the decision also conveyed encouraging signs for reforming SOEs in land use, loans, and industrial policies, which are marred by inefficiency and create dysfunctions in the role of the market.

China shall actively develop a diversified ownership economy and allow more SOEs and other ownership enterprises to develop into mixed ownership enterprises. Non-state shares will be allowed in state capital investment projects, the decision said, effectively opening SOE shareholding to private enterprises.

"It is reasonable to believe that within a decade, private capital will play more important roles in areas dominated by SOEs, such as banking and infrastructure, as well as medical facilities such as hospitals," KPMG predicted.

"It is highly likely that another golden decade in China is just around the corner," said KPMG.