China Focus: Market reforms reshape China's economic landscape

China's market-oriented reforms have reshaped the economic landscape, allowing private companies to compete with and, in some cases outperform, state-owned enterprises.

The latest release by global communications group WPP and Millward Brown offers a glimpse of the shift, which shows the rise of "market-driven" brands and a slowdown among state-owned enterprises.

Listing China's top 100 most valuable brands, the report put internet service company Tencent and online retailer Alibaba in the top two positions, leapfrogging long-time leader China Mobile, which had held the top spot since the ranking was launched in 2011.

REFORM INITIATIVES

As pledged in late 2013, China will give the market a "decisive" role in allocating economic resources.

Abolition of registered capital requirements for new firms has caused rapid growth in new company registrations. Tax reduction schemes to replace turnover tax with value added tax has benefitted small and medium-sized enterprises. The opening up of more state-run sectors to private capital has helped increase private-sector involvement in the economy.

In a tone-setting economic conference in December, the country targeted nine areas for focused reform efforts for 2015 -- the capital market, market access for private banks, administrative approval process, investment, pricing, monopolies, franchising, government purchasing and outbound investment.

Progress has been made during the past three weeks, but much work is left to be done to broaden these reforms.

MAJOR CONTRIBUTOR

Under the government's reform initiatives, the private sector currently generates more than 60 percent of the nation's economic output and more than 90 percent of new jobs each year.

The world's second largest economy grew 7.4 percent in 2014, marking the weakest annual expansion in 24 years. Despite the slowdown, the private sector had stabilized employment as the country managed to create 13.22 million new jobs last year, beating the government's target of 10 million for the year.

Meanwhile, private companies also demonstrated higher economic momentum in investment and trade compared to state-owned companies.

The private sector accounted for 64.1 percent of all urban fixed asset investment last year and saw investment growth up 18.1 percent, higher than the national average growth of 15.7 percent.

Official data also showed export value of Chinese private companies rose 19.1 percent in 2013, 11.2 percentage points higher than the nations's average export growth for the year.

Private companies have also driven innovation-led growth, with the likes of Alibaba and Tencent bringing revolutionary changes to shopping, travel and wealth management. The firms have also become among China's best known international brands by competing in overseas markets.

EMERGING CHALLENGES

As the private sector plays a more important role in the Chinese economy, challenges old and new need to be addressed, economists said.

"The core challenge facing the private sector is still market monopoly. Luckily, the government has been working toward easing market access to industries such as the tertiary industry," said Kuang Xianming, director of the research center for economy under the China Institute For Reform and Development.

Kuang said another challenge is to balance the roles of the government and the market.

The government has to constrict its omnipresent power by cutting red tape and simplifying administrative procedures for business, which will unavoidably affect the vested interests of some, Kuang said.

Meanwhile, analysts say an efficient market supervision and management mechanism must be established to insure market transparency and fairness. It should make it so market players are obliged to comply with laws as China is comprehensively promoting rule of law.

In an effort to promote market transparency, the State Council passed a regulation last year that demands companies publicly disclose information. Endi