China accelerates market-based reforms

In pursuit of greener growth, China is steadily incorporating resources and environmental factors into the market framework as tradable production inputs, ensuring their value is more visible across the economy.

The latest move came in late May, when Chinese authorities unveiled a high-level guideline to accelerate the development of trading markets for carbon emission rights, water utilization rights and pollution discharge permits.

According to the guideline, by 2027, China will have established a basically complete carbon emission and water trading system, and a more well-functioning trading system for pollution discharge rights. The guideline also envisions more vibrant markets, better price formation and stronger support for national environmental goals through efficient flows and allocation of resources and environmental factors.

The latest reform builds on the principles laid out in October 2022, when the Chinese leadership pledged to improve the system for market-based allocation of resources and environmental factors, and accelerate the R&D, promotion and application of advanced energy-saving and carbon emission reduction technologies.

Analysts noted that China faces rising pressure from limited per capita resources, tightening environmental constraints and growing demand driven by rapid industrialization and urbanization. As a result, the role of resources and environmental factors as essential economic inputs has become increasingly prominent, making efficient, market-based allocation a pressing national priority.

"Resource scarcity and limited environmental carrying capacity are fundamental conditions in China," said an official with the National Development and Reform Commission, highlighting the urgency of using market mechanisms to break resource and environmental bottlenecks.

The new guideline, the official added, is expected to promote the notion that "resources and environmental factors carry value," guiding their orderly flow, optimized allocation and more efficient use, thereby fostering green, low-carbon development and supporting the growth of new quality productive forces.

Under the reform plan, China seeks to promote a unified framework for quota allocation and trading rules, while preserving the flexibility needed to address the specific nature of different environmental rights and major policy transitions.

Beyond regulation, the document also called for greater involvement from financial institutions. Financial entities are encouraged to develop green financial products, such as loans, insurance and bonds linked to resources and environmental factors.

Experts have hailed the policy as a landmark step toward systemic ecological reform in China. Wang Yi, a researcher at the Chinese Academy of Sciences, described it as a "top-level design" to fix overlapping compliance and double counting, adding that it marks a shift toward more integrated, system-level ecological governance.

Li Zhong, deputy director at the energy research institute under the Academy of Macroeconomic Research, said the reform reflects China's regional diversity, noting that the document explicitly calls for a phased approach, adjusting market structures according to local environmental characteristics and the readiness of market conditions.

Xinhua - China Daily