promoting green growth to conserve resources and protect the environment; and (vii) strengthening international and regional economic cooperation.
Stepping up innovation and industrial upgrading. Selected policy measures include (i) strengthening enterprise incentives for innovation through deepening enterprise reform and promoting market competition; (ii) establishing/improving institutions needed for a well-functioning market economy; (iii) strengthening the protection of intellectual property rights; (iv) stepping up public support for basic science and technology research; (v) increasing public spending on education to narrow the gaps with advanced and upper-middle-income countries including those in tertiary education; (vi) expanding vocational and technical education to improve the quality of the labor force; and (vii) developing and implementing a sound strategy for moving toward a knowledge-based economy.
Deepening structural reform. This requires further steps in reforming enterprises, labor and land markets, the financial sector, and the fiscal system.
• Enterprise reform. Selected policy measures include (i) further developing the private sector and ensuring private firms and SOEs compete on an equal basis; (ii) strengthening corporate governance of SOEs, including moving toward a system where the arm’s length control by the government is supported by robust auditing, monitoring, and performance evaluation; and (iii) strengthening market regulation of natural monopolies including setting up special bodies to regulate pricing and service quality.
• Labor market reform. Selected policy measures include (i) reforming the hukuo system to reduce barriers to labor mobility especially from rural areas and the agriculture sector to urban areas and nonagriculture sectors; and (ii) developing and expanding the coverage of labor market institutions, such as employment protection legislation, minimum wages, collective bargaining, and unemployment insurance, while ensuring a proper balance between employment security and labor market flexibility.
• Financial sector reform. Selected policy measures include (i) making the financial sector more market-based by allowing demand and supply to play a greater role in determining interest rates, opening up to private sector participation, and making state-owned banks truly commercial entities; (ii) enhancing financial safety by strengthening regulation and supervision and developing an effective financial safety net, including mechanisms for debt resolution and deposit insurance; (iii) developing capital markets, including interbank lending, corporate bonds, equities, contractual savings, and financial futures and derivatives; (iv) broadening access to finance, especially for micro-, small- and medium-sized enterprises and rural households; (v) making the exchange rate more flexible; and (vi) creating conditions for greater capital account liberalization.
• Land market reform. Selected policy measures include (i) developing the rural land market by strengthening and clarifying the legal framework and developing market institutions and services, such as surveyors and valuation, brokerage, land exchanges, and mechanisms for dispute resolution; and (ii) making land acquisition for urban use fairer and more transparent, to protect the interests of the rural population without constraining urban development.
• Fiscal reform. Selected policy measures include (i) shifting the composition of fiscal spending more toward providing public goods and services, promoting social equity, and addressing market failures; (ii) strengthening revenue mobilization by bringing off-budget funds into the budget, increasing personal income taxes as a share of GDP, completing the value-added tax reform, reforming property taxes, strengthening asset management of SOEs and increasing dividend payment, raising public awareness of tax payment responsibility, and strengthening tax law and enforcement to reduce tax evasion; (iii) reforming intergovernmental fiscal relations by better aligning expenditure responsibilities and revenue sources at various levels of government, increasing the fiscal transparency and accountability of local governments, and enhancing the effectiveness of fiscal transfers to lagging regions; and (iv) strengthening fiscal management by establishing a comprehensive budget system to cover the government budget, the state-owned asset budget, the social security budget, and off-budget funds.
Expanding services and scaling up urbanization. Selected policy measures to expand services include (i) reducing entry restrictions in services and promoting competition from the private sector; (ii) promoting the development of high-value services such as finance, transport and logistics, marketing, management consulting, computing and information technology, accounting and legal services, and research and development (R&D); and (iii) eliminating policy biases against services. Selected policy measures to scale up urbanization include (i) reforming the hukuo system, in particular delinking social services and welfare entitlements from the hukuo; (ii) improving the legal system governing the acquisition of rural land for urban development—to ensure both social equity and economic efficiency; (iii) improving city administration, including aligning expenditure and revenue responsibilities of local governments at all levels; and (iv) promoting green and inclusive urbanization.
Reducing income inequality. Selected policy measures include (i) reducing urban/rural income gaps by creating more urban jobs, giving migrant workers equal entitlements to social services and welfare, and increasing rural incomes through investing in rural infrastructure, public services, and agriculture R&D; (ii) reducing regional income gaps by continuing to implement the great western development strategy, promoting industrial migration from coastal to inland provinces, and improving the effectiveness of fiscal transfers to lagging regions; (iii) increasing government spending on and ensuring equal access to public services, including establishing an integrated social security system; (iv) increasing personal income taxes as a share of GDP by broadening the tax base and making the tax system more progressive, including measures such as lowering the income threshold at which the top tax rate is applied and moving toward a system in which taxes are collected on the basis of consolidated incomes; and (v) strengthening governance, eliminating social exclusion, and preventing corruption.
Promoting green growth. Selected policy measures include (i) reducing the resource intensity of growth through structural transformation, industrial upgrading, and the development of services; (ii) improving resource allocation efficiency and reducing waste through sound pricing systems—for energy and water resources in particular—and strong incentive mechanisms, including fiscal and tax measures; (iii) strengthening government regulation and enforcement to control and reduce pollution, including introducing emission taxes; (iv) introducing emission permit trading to reduce the cost of emission reduction; (v) promoting innovation and investing in renewable and clean energy sources; and (vi) increasing public awareness of the importance of green growth and environmental protection to induce behavioral and cultural change.
Maintaining macroeconomic and financial stability. Selected policy measures include (i) strengthening regulation and supervision of financial institutions and markets; (ii) carefully managing financial sector reform, in particular capital account liberalization; (iii) ensuring fiscal sustainability and stability; and (iv) strengthening fiscal management of local governments by ensuring revenues are aligned with expenditure needs, drawing off-budget funds into budgetary management, and establishing an effective reporting, monitoring, and surveillance system.
Strengthening international and regional economic cooperation. Selected policy measures include (i) taking into account the effects of domestic economic policies beyond its borders in decision making; (ii) actively participating in the Group of Twenty (G20), Asia-Pacific Economic Cooperation (APEC), Association of Southeast Asian Nations Plus Three Countries (ASEAN+3), and other multilateral, regional, and bilateral economic cooperation and policy coordination forums; (iii) further increasing reliance on domestic consumption as well as demand from emerging markets—both within and outside Asia—as sources of growth through deeper structural reform and closer South–South economic cooperation; and (iv) playing an active role in contributing to global public goods, such as addressing climate change.
This development
