A step in the right direction

Past experiences have proven that dismantling a powerful ministry can boost the reform and development of the sector it used to regulate.

The regulation and operation of the post and telecom sector was earlier under a single ministry. It was after the ministry was scrapped that China's telecom industry really started to take off and went on to pursue several market-oriented reforms.

It is reasonable to expect that China's railway sector will also develop on a healthy track after the ministry of railways becomes a thing of the past. Although, the newly incorporated China Railway Corp that inherits the commercial part of the ministry still monopolizes the railway operation business, the separation of the regulatory power and the commercial operation can help strengthen supervision and reduce the possibilities of corruption.

However that does not mean that all is well in this round of restructuring.

The biggest problem with the recent reforms is that the changes made are mostly a redistribution of the power within the cabinet. It fails to address the core issue of transferring the government power to the market and society.

The National Development and Reform Commission, often dubbed "mini-State Council" to reflect its big power in policymaking, has not been downsized this time. Instead, it has taken on the family planning policymaking.

There is no doubt the commission has too much power. It is a policymaker, a regulator and a supervisor. Its right to approve big projects, particularly, makes it an attractive place to work. Fortunately, it does not have a commercial operation as big as the Ministry of Railways, so the possibilities of the regulator colluding with businesses are slight.

It is important to review the functioning of the commission and other State Council departments to ensure that they do not have excessive powers that should instead have been in hands of the market and society.

China is by no means an enthusiastic follower of the principle of "small government, big market", as its government shoulders a lot of responsibilities, many of which could have been done by businesses, social groups and individuals. Among all the roles it plays, being an investor is the most impressive. Through the state companies it controls, the government has succeeded in fueling the economy by multiplying fixed assets.

A recent example of this was the government's 4-trillion-yuan ($640 billion; 495 billion euros) stimulus package in 2008 when the global financial crisis took a toll on the country.

However, when investment becomes a government job, it also creates a host of problems such as state monopoly, duplication of projects, wastage of natural resources, poor efficiency, imbalanced distribution of social resources and larger income gap.

All these could have been avoided in the first place if the government had left investment, especially in industries that are not related to national security or strategy, in the hands of private and foreign investors.

Past experiences show that markets often flourish when there is less government regulation.

The Ministry of Commerce's approval rights for foreign trade permits and retail licenses were scrapped in the early 2000s. The deregulation did not trigger chaos in the trade and retail markets as expected. Instead, China's trade and retail skyrocketed and its homegrown companies grew strongly to an extent that even foreign brands cannot compete against them, as seen in the China exit of several global retail giants such as Best Buy of the US and Metro of Germany. The trade and retail sectors have proven to be two of the three major economic growth engines of China in the past decade.

Now it is high time to improve the third engine - fixed-asset investment.

If the National Development and Reform Commission's power to approve infrastructure projects are curbed, the depth and breadth of the investment will certainly improve. More importantly, investment efficiency will pick up, duplication will decrease and there will be better conservation of natural resources.

Similarly, reforms should be advanced to ensure that social groups, rather than the government, get the mandate to administer some social responsibilities.

Many of the things that the government is now doing - such as healthcare, elderly care, child adoption management and services, and organ donation - can be done by NGOs and community organizations. In such a scenario, the government just needs to act as a regulator, supervisor and service buyer. Such a step will not only save money, but also help provide better services.

The author is a financial analyst in Shanghai. The views do not necessarily reflect those of China Daily. Contact the writer at michaelzhoufeng@gmail.com

(China Daily 03/22/2013 page10)