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Harnessing China’s Competitive Streak

China’s State Council recently unveiled a blueprint for capital-market reform until 2020, in which it identifies two key objectives: to support fair market processes and to protect investors. But success will require better management of three types of competition in China.

HONG KONG – China’s State Council recently unveiled a comprehensive blueprint for capital-market reform until 2020, in which it identifies two key objectives: “to support open, fair, and integral market processes, and to protect investors, particularly the legal rights of small investors.” Achieving these goals, as the blueprint recognizes, will require policymakers to weigh market autonomy against state authority, innovation against stability, investor protection against caveat emptor, and the temptation of rapid reform against the need for pragmatism. Can it be done?

From a policy perspective, the goal should be to strike a balance between competition (which spurs growth-enhancing innovation but can also generate instability) and cooperation (which promotes long-term social cohesion but can also lead to stagnation). In doing so, China’s leaders must account for three levels of competition: inter-enterprise competition, inter-sectoral competition, and competition among the interests of citizens, businesses, and the state.

The implementation of a competition framework for enterprises is a work in progress. In 2008, the government enacted an anti-monopoly law aimed at preventing anti-competitive or “monopoly” agreements among enterprises, minimizing abuse of market dominance, and blocking mergers and acquisitions that would eliminate or unduly restrict competition.

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