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Factor Market Reform: A Hard Nut To Crack


China’s Central Party Committee and State Council has issued a set of guiding opinions (link in Chinese) on “setting up a better market-oriented production factor allocation mechanism” on April 9.
This is the first Central Committee document to address factor markets in a systematic, integrated way.
Factor markets have been on the back-burner for decades, and made a priority at the 19th National Party Congress in 2017, but little progress has been made. The document’s release at this time illustrates that “desperate times call for desperate measures,” notes Zhong Zhengsheng, head of Caixin subsidiary CEBM Group.
The document calls to “remove institutional barriers that hinder the free flow of factors, expand the role of the market in factor allocation, improve factor markets and promote their construction, and marketize the prices, flows and efficient, fair allocation of factors.”
This is not remotely an easy task, but conducting foundational reforms such as these can give Beijing more bang for the buck on direct fiscal stimulus, which is poised to expand in the months to come.
We don’t have space here to fully unpack the document, which touches on everything from land, labor and capital to technology and data. Many aspects are not new, but bring together key points from disparate documents previously issued by an array of other ministries. 
The primary highlights, however, are land and labour reformexploring and promoting conversion of different land use types in different industries, and increasing land supply for mixed-industry useexploring establishment of a national trade mechanism for construction land and supplementary agricultural landexploring and promoting mutual recognition of hukou in the Yangtze River Delta, Pearl River Delta and other megacities, relax hukou restrictions in all cities excluding megacities and pilot household registration based on residence.
Part of the reason land reform has progressed relatively slowly in comparison to other areas is that it is foundational to China’s economic model – the transition from land-based development towards a new model of innovation-driven growth is the single most challenging aspect of China’s economic transformation, argues preeminent land rights scholar Liu Shouying. 
The reform also plays into Xi’s signature rural revitalization initiative, creating a more interactive relationship between cities and the countryside, and taking the pandemic as an opportunity to push through challenging reforms.
The hukou reforms accomplish a similar goal, tearing down restrictions on labor mobility between rural and urban areas, and addressing long standing inequalities in the allocation of public resources, which under the hukou system are tied to one’s place of birth rather than residence. 
Fully unrolling the system will take years, however, as it entails fine-grained, rolling changes in the division of responsibilities between central and local governments.

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