How did the Chinese miracle occur? (final part)

3. Corruption. The most dangerous type of corruption is the family members of officials conducting businesses, because if it is dealt with improperly, then it causes crony capitalism. This is why combating corruption is the key to whether socialism with Chinese characteristics will be successful.

Corruption in China needs to be dealt with properly. Western style "constitutional reform" is impractical. The regional disparity in development will easily lead to separatist interest groups in standoff with each other. This will not solve corruption but cause the government to malfunction. China should learn from Singapore in its successful battle against corruption based on institutional innovation.

4. Environmental pollution. Environmental protection is becoming a pressing issue. One has to admit that pollution is an endogenous problem in modern industrial development. However, how a government enforces environmental protection still matters.

Lack of standards and effective enforcement is a bottleneck in China's environmental protection. In many cases, imposing fines on polluters could replace governance. Environmental protection in China cannot yet rely on the market's own desire, but on government reform that will bring about better organization and operation procedures in environment regulators.

5. The market order in China has deteriorated, which has caused worry. Pollution, unsafe food and drugs, market fraud, disputes over land and group petitions have emerged. These are periodic problems in development also experienced by Western countries. The problem is whether deepening marketization will bring an end to such troubles.

Clearly, the market itself is unable to solve its endogenous problem, but has to turn to the rule of law and proper governance.

6. Polarized income and unfair wealth distribution. In China, the Gini Coefficient, a gauge to measure income distribution, has deteriorated to the current 0.474 from 0.317 at the beginning of reform. Though the figure is still better than those of the major powers and Brazil, another developing country, the Chinese government should narrow the income gap.

Likewise, improving the income gap cannot entirely rely on the power of the market economy. The measure, apart from suppressing the off-the-books income, should target unfairness in wealth distribution.

Such problems have originated from China's development, hence increased marketization may not fully solve these issues, nor is China's socialist market economy a tread stone for improvement.

What China really needs is a thorough and sincere conclusion of past experiences, from which the leadership can better understand the pros and cons in the current Chinese market economy versus a regular market economy, before coming up with a resolution for continued institutional innovation.

As is known to many, reform initiated some 30 years ago aimed to break the shackles of a planned economy while creating a market. The next round of reform will be labeled "reshaping the government," in which optimizing governmental organizations and workflows will lead to a new type of market economy that features the market and the government in complement to each other.

(The end)

Shi Zhengfu is director of Center for New Political Economy, Fudan University and chairman of Comway Capital Group.

The article was translated by Chen Boyuan. Its original unabridged version was published in Chinese.