In October p>1992, the report of the 14th National Congress of the Communist Party of China put forward for the first time that the goal of China's economic system reform is to establish a socialist market economic system. It is to make the market play a fundamental role in resource allocation under the macro-control of socialist countries. Since then, the expression "the market plays a fundamental role in resource allocation" has been widely recognized and spread. The Third Plenary Session of the 18th CPC Central Committee sublimated the role of the market in resource allocation from "basic" to "decisive". Although the word "three" is different, it is far-reaching and significant.
an important feature of Adam Smith's competitive market economy, the originator of economics, is that the market will produce as many useful goods and services as possible with its resources under the condition of complete competition and no market failure. In other words, the market is the most efficient in resource allocation. His classic saying is: With the invisible hand, those who pursue their own interests in a perfectly competitive economy can most effectively promote the interests of the public.
an ideal market economy means that all goods and services are voluntarily exchanged in currency at market prices. This system can get the maximum benefit from the resources available in society without government intervention. However, strictly speaking, Adam Smith should be the originator of microeconomics, that is to say, the role of the "invisible hand" he invented is mainly in the microeconomic field, that is, in the economic behavior of manufacturers, enterprises and individuals.
The communiqué of the Third Plenary Session of the 18th CPC Central Committee pointed out: "We must speed up the formation of a modern market system in which enterprises operate independently, compete fairly, consumers choose freely and consume independently, and goods and factors flow freely and exchange equally, and strive to eliminate market barriers and improve the efficiency and fairness of resource allocation." It embodies the essence of the above economics. Its foundation must make the market play a decisive role in resource allocation.
Market economy is an economic system in which production and consumption are mainly decided by individuals and enterprises. In the past, the requirement that "the market plays a fundamental role in the allocation of resources" mainly meant that "the invisible hand" played a role in the fields of sufficient supply and complete competition, provided that "the visible hand" extended to the field of microeconomic activities under the macro-control of the state. This is also one of the factors that the basic role of the market has not been fully played. After the market has been sublimated from "basic role" to "decisive role", it is required that the market fully play its role in all microeconomic fields. The flow, exchange and transaction of all factor markets are completely determined by the "invisible hand" and the "visible hand" completely withdraws from the microeconomic field.
the market plays a decisive role in the allocation of resources, which mainly refers to the flow, transaction, combination and allocation of production factors such as labor, capital and land. This allocation is the most efficient and the pursuit of benefits. A means or transmission mechanism to play the decisive role of market allocation of production factors is price tools, including commodity prices, interest rates, stock prices, real estate prices, exchange rates and so on. In the market, it is the price that coordinates the decisions of producers and consumers. Higher prices tend to discourage consumers from buying and stimulate production at the same time; While lower prices encourage consumption and inhibit production. Price plays a balanced role in the market mechanism.
The Third Plenary Session of the 18th CPC Central Committee demanded that "the market plays a decisive role in the allocation of resources", which will have an impact on the general commodity prices, house prices, oil prices, interest rates and exchange rates in China in the future.
for general prices, the main means to control inflation in the future is market regulation, especially the interest rate of monetary instruments. The price-fixing measures and price control measures that were often used in the past will not be used unless absolutely necessary.
for housing prices, the means of regulating real estate will change substantially. In the past, the control measures with strong administrative colors such as purchase restriction and price limit will gradually fade out. Tax collection and credit regulation are the main economic means. At the same time, the government will follow the law of market supply and demand, and increase housing supply as the main means to balance the market and curb housing prices. Furthermore, the government should do a good job in the supply of affordable housing, and the market price of commercial housing will play a decisive role.
for refined oil prices, the current semi-market and semi-planned pricing mechanism will gradually be determined by market pricing. Of course, the premise is to liberalize the market, including oil exploration, transportation, import and retail markets. The premise that the market plays a decisive role is that supply and demand are diversified, and no enterprise can control market supply and price, rather than monopoly.
under the condition that "the market plays a decisive role in resource allocation", interest rates and exchange rates will also be gradually and thoroughly marketized. It will not be long before the last bastion of interest rate-the upper limit control of deposit interest rate is banned, and the floating control of upper and lower limits of exchange rate will be gradually abolished. As the most important price formation mechanism of financial resources, interest rate and exchange rate will gradually play a decisive role by the market.
in short, the role of the market in resource allocation has been sublimated from "basic" to "decisive", which is another clarion call for a perfect and efficient market economy!