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Building a high-level socialist market economic system and stimulating the endogenous motivation and innovative vitality of the whole society. This is the message conveyed by the just-concluded Third Plenary Session of the 18th CPC Central Committee.

This article attempts to use some personal experiences to explain that the market economy is the underlying color of China's economy. We need a better market economy, but first of all, we must have more determined market-oriented thinking and closed-loop thinking.

The so-called closed-loop was first proposed by Robert Kaplan and David Norton, the founders of the balanced scorecard, in 2008 as a management system that can manage both strategy and operations. It usually refers to planning, deployment, implementation, inspection, feedback, and improvement in organizational management. What I mean by closed-loop is that when we implement a policy or promote a work, the result should be as consistent as possible with the original intention and design, and be self-consistent, rather than going against one's wishes or even causing new problems.

Only with more markets can there be more vitality. Only with more closed loops can there be higher efficiency and better benefits.

On the evening of July 24, I checked into a hotel at Guangdong University of Finance and Economics. The next morning I was going to attend a seminar with Guangdong businessmen sponsored by the Guangdong Federation of Industry and Commerce.

This place is located at No. 21 Chisha Road, Haizhu District, Guangzhou. Turn left from the main entrance of the school, and there are shops on both sides of the road. There are milk tea shops such as Heytea, Mixue Ice City, Guming, Cha Baidao, 1DianDian, Cha Liyishi, and there are two Mixue Ice City. Next to Heytea is Luckin Coffee, and not far away is Kudi Coffee. There are all kinds of snack shops, snack shops, and supermarkets.

I walked to the corner of the street and entered a Tangfenshijia restaurant, where I had a bowl of pork offal noodles. The restaurant is divided into two parts, one selling noodles and fast food, and the other selling roast meat. The restaurant is very close to Xingangdong subway station and close to the university, so it does good business. The boss, who is about 40 years old, said, "The noodles are open 24 hours a day, but the roast meat is closed at night." It was already 10 o'clock in the evening, and customers were still coming in in groups of three or four. The noodles and roast meat restaurant employed eight people, including the boss, a total of nine people.

This is the Guangzhou I was familiar with 20 or 30 years ago, the so-called "urban village", bustling with people. Not far from the school gate, there are two four-wheeled vehicles parked, like the vehicles in tourist attractions, with three rows. The school charges 2 yuan to the subway station, and they leave when they are full. This is also a scene I was familiar with back then. The so-called "touts" stayed in places with a large flow of people regardless of wind or sun, and used simple transportation to carry passengers back and forth. This business is the simplest, with almost no threshold.

On a sultry summer night, I walked back and forth on Chisha Road twice. I don't know how this business district was formed, but I believe that every market player here, whether it is catering or transportation, decides what to do, how to do it, and how to set prices. The so-called "boss" is actually just a "worker" who has an additional task of managing money, and he is also helping non-stop.

For them, the profits are theirs, and the losses are theirs too. If they lose, they admit defeat, take a break, and start the next one. They may continue to do the old business ("don't do it if you're not familiar with it"), they may join a new brand or new category ("be the first to taste the soup"), or they may move to another place or industry ("moving a tree dies but a person who moves can live"). I used Baidu, Gaode, Tencent and other maps and search to try to understand the past of this place, and found that the business format of the business district is basically stable, but the brands operated by each stall often change.

What is a market economy? It is an economy that makes its own living, earns its living by serving consumers, and does not seek the market from the mayor. If the boss feels that the business cannot continue, he will close it, and if the workers feel that they can no longer bear the burden or can find a better job, they will change jobs or become their own boss. In short, the right to choose and the responsibility will not be pushed to the government.

What should the government do? Improve the overall environment, such as road traffic, water, electricity, gas, public security, and necessary health and fire inspections.

That night, the government's presence to me was like the patrolman in police uniform standing in the middle of the street at the intersection. He was a member of the order maintenance team, making people feel safe and indispensable.

What I saw on Chisha Road was actually something that has existed since ancient times. They were ordinary people doing small businesses, who were called "pulling carts and selling pulp" in "Records of the Grand Historian: Biographies of the Princes of Wei".

In September 1979, when our country resumed the registration management of individual industrial and commercial households and allowed small vendors to walk the streets and set up stalls to solve the employment problem, there were less than 10,000 individual industrial and commercial households nationwide, accounting for less than 1% of market entities.

Today, there are 124 million industrial and commercial households in China (as of the end of 2023). If one household provides employment for 2.17 people, there are about 270 million people. They are the most direct service providers for people's lives. Compared with the past, the biggest change now is that many market players work online and open stores to sell goods live.

In 1978, when China's total population reached 960 million, the government alone could no longer solve the employment problem, so it began to open up the market and let the market play a role. Roughly speaking, among the 1.41 billion people today, there are 740 million employed people, 470 million in urban areas and 270 million in rural areas. Among them, there are 290 million migrant workers, 170 million working outside the province and 120 million working locally. There are 184 million registered business entities nationwide, including 58.268 million enterprises, most of which are small and medium-sized private enterprises, and 2.23 million professional farmer cooperatives. It can be seen that most of the employed people in China make a living in the market, there is no iron rice bowl, and there is a certain volatility and instability in employment.

Employment is the foundation of people's livelihood, especially for a country like ours with a huge population, insufficient natural resources per capita, and relying mainly on various forms of labor for development. Without a market economy, most people do not find their own jobs, but the government provides them with stable jobs. Is this possible?

Therefore, we must establish a consensus that the market economy is the foundation of the people and the basic foundation of employment.

If the duty of civil servants is to serve the people wholeheartedly, then working hard to improve the market economy and create more jobs is a great political achievement. High standards and socialism are mainly used to promote the better development of the market economy. This is the basic situation. If this closed loop of self-reliance and self-help is broken, the foundation will be unstable, and no matter how "correct" it is, it will be difficult to implement it.

On the morning of July 25, when I arrived at the seminar, a woman from Foshan, who was the chairman of an investment company and an IT company, gave me a bouquet of flowers on behalf of the students. She said it was made by her flower shop. Many of her friends felt that business was not good, and the closure rate of restaurants was very high. Her flower shop was okay, she worked very hard, the flowers were very unique, and she had many repeat customers.

I said, "I'm writing an article on how to overcome difficulties. When you're stressed, how do you deal with it?" She immediately turned on her phone and showed me her running data at the school stadium at 6 a.m. that day: 6.66 kilometers, 45 minutes and 47 seconds, 419.3 calories, 7,603 steps...

This is a typical Guangdong boss, who works very hard at running several businesses at the same time.

When I was working in Guangzhou more than 30 years ago, I often saw such scenes: working in the "grandfather's" unit during the day, setting up a stall at the Quzhuang Night Market at night, or cashiering in the snack bar I opened. I always remember that when I lived on Shuiyin Erheng Road, I often went to a restaurant called "Yipinxiang" for dinner. The owner was an employee of Guangzhou Customs. After work in the evening, he would sit behind the cash register.

In 2021, I wrote an article titled ", about a driver I met while taking a taxi in Guangzhou. He was born in the 1990s and is a local of Guangzhou. He started his clothing business after graduating from high school and has a clothing stall in Zhonghua Plaza. He also bought a Tesla and drives a private car. He said: "The clothing business is very volatile, but I have to do it, so I let my wife take care of it. Driving is a bit hard, but it is very stable. After accumulating some income, I will see what business I can do."

From Guangzhou Baiyun International Airport to the hotel in Tianhe, he was telling me how to do business. I received several phone calls on the way, all about economic matters. He felt that I was closer to business, and added me on WeChat when I arrived. In fact, he knows more about microeconomics than I do.

A large number of market economic forms are formed spontaneously and randomly under the guidance of the invisible hand. If you want to correct it, you must be particularly careful and grasp the right degree. The word "moderate" is very good, which means to be suitable, adaptive, and appropriate, because too much is as bad as too little. We can certainly hope that the market economy will become more formal, serious, and correct, but we must see that the market economy is like the ocean, and like the interconnected natural ecology, it also has the function of self-evolution. If there are too many and too high norms and requirements for it, or even divide it into different levels and treat it differently, it will be difficult for it to move towards vitality and prosperity.

We can reflect the government's planning will at certain stages and in a few key industries (which is often necessary), but we absolutely cannot prevent the market from playing a decisive and dominant role in most industries over a long period of time.

Our predicament today is over-expansion and oversupply, but before the market mechanism was established, the predicament was poverty, embarrassment, and lack of choice.

After all, there are two worlds of difference between the old and the new.

Some time ago, I received an "Overview of the Science and Technology Innovation Board's Operating Performance in 2023" from a friend from the exchange. I have written many articles praising the establishment of the Science and Technology Innovation Board for its huge boost to China's technological innovation.

But when I looked at the overview carefully, I found a small problem. When it talked about the "total revenue of the Science and Technology Innovation Board has been steadily increasing, and the operating quality has continued to improve", it used the data of 5% year-on-year growth in operating income in 2023, and the data of a total net profit attributable to the parent company of 76 billion yuan, but did not explain how the profit in 2023 compared with 2022.

A check shows that the net profit attributable to the parent company of the Science and Technology Innovation Board in 2022 was 113.6 billion yuan. That is to say, the overall profit has dropped a lot, and this is still the case when there are 67 new listed companies on the Science and Technology Innovation Board in 2023.

The overall profit decline of the Sci-Tech Innovation Board companies is quite normal in my opinion, because Sci-Tech Innovation itself is risky. The overall terminal market demand is not strong now, which will affect the use scenarios and scale of the products of Sci-Tech Innovation Board companies. But why do we need to hide such data? Probably because positive growth is correct, and no growth seems to be incorrect.

In 2023, the net profit attributable to shareholders of all companies on the Science and Technology Innovation Board will be similar to that of Kweichow Moutai (74.7 billion). This fact tells us that from the perspective of providing returns to investors, excellent companies in traditional industries are very valuable.

When I was conducting research in local areas, I heard the frustration of many leaders and enterprises: General manufacturing and general services are now regarded as traditional industries, and there is almost no possibility of listing. The A-share market has basically closed the door to listing for industrial belts engaged in ordinary industries. So the question is, what should be done if the companies that are listed in the right direction of the exchange have their performance decline, or even falsified their performance, and they are still issued with such a high price-to-earnings ratio?

Many leaders in developed areas have told me that they work very hard in cutting-edge science and innovation fields such as semiconductors and biopharmaceuticals, which require great patience, a strong accumulation of science, education and human resources, and continuous government investment. Now most cities and development zones in the country are engaged in semiconductors, biopharmaceuticals, and artificial intelligence. It seems that if they don't engage in them, they will not be advanced. Will the final result be "a mess" again?

For quite some time, various regions have been enthusiastically promoting the "new three things", one of which is photovoltaics. At present, the entire industry is seriously oversupplied and loss-making. In the words of the honorary chairman of the Photovoltaic Industry Association, the photovoltaic industry has already formed a situation of overdue payments, triangular debts between enterprises are increasing, and the ability of some local governments to fulfill their investment policies is at risk of decline. Photovoltaic companies themselves are also facing cash flow risks. "If the trend of prices being lower than costs for a long time continues, there may be major risks such as product delivery failure and even product quality."

On the afternoon of July 24, in Wenzhou, a group of photovoltaic industry leaders held a closed-door meeting, many of whom I know. They are all private enterprises. In theory, private enterprises are like a milk tea shop, and their life and death are determined by the market. If they are successful, they will develop, and if they are not, they will be cleared out. It is not that complicated. Why did it become like this?

Li Xiande, founder of JinkoSolar, did not attend the meeting, but wrote an article and posted it on the official Weibo account. He said that the flowers are the same every year, but the "difficulties" are different every year. "Everyone has summarized the reasons for the current situation in the industry: local governments and capital are too involved, there is no respect for patents, there is too much talk about technology stories that do nothing, new disruptors leave a mess, and anti-globalization is more fierce than imagined..."

The chairman of a photovoltaic enterprise said that the best and fairest way to achieve this round of capacity clearance is to leave it to the market. Local governments should not save some backward production capacity, and should not force local banks to prolong the life of enterprises that have already encountered problems. If it is really left to the market, the capacity clearance will be very fast. Another enterprise representative said that some local governments have highly tied photovoltaic development to government performance. At the beginning, they strongly attracted industrial investment and even personally participated in capacity development. Now they are personally involved in relieving difficulties and saving capacity. Their reason (not shutting down) is that it will affect performance, employment, and tax revenue.

Li Xiande said: "In a theater, only two kinds of people are needed, actors and audiences. The producers are the actors, and the users are the audiences. The rest of the people, those who are irrelevant, should be cleared out as soon as possible to restore the purity of the industry and give enterprises autonomy." "Don't call on enterprises to speed up the elimination and shutdown of backward production capacity, and then exaggerate every little action taken by enterprises." The meaning of this statement is obvious, that is, local governments should not intervene in micro-business activities.

I know that in many places, the government has been so "active" that it subsidizes enterprises according to the amount of investment in a production line or the amount of production capacity. Therefore, many photovoltaic companies have set up large-scale layouts in various places, trying to squeeze out the subsidies in each place. All places do this, and the government has GDP in the short term, and because it is "new quality", it feels very proud, and enterprises also feel that they have taken advantage, but in the end it is a collective fallacy, and no one can live well.

I have talked about science and technology innovation and photovoltaics. In fact, the innovation and competitiveness of companies in these industries are quite good, and many of them are at the forefront of the world. So I am not trying to deny these industries. What I want to express is that the selective and preferential market economy that we are used to is increasingly inconsistent with economic laws and the requirements of the central government. Moreover, the more support and money are given to an industry, the more problems it often proves in the end. Either there is a serious oversupply, and a lot of investment funds are wasted in the "clearing", or like the "big fund", the previous main responsible persons are almost all seriously violating laws and disciplines and have been arrested.

Moreover, if scientific and technological innovation enterprises take or raise too much money and pin all their hopes on government-led procurement, it will be difficult for them to become truly strong.

Finally, I want to talk about one more issue. Socialism emphasizes equality, but we now have discrimination against many industries that exist legally and are legally established. In the past, it was real estate, the Internet, education and training, and now it is finance. Many celebrities who like traffic have recently disparaged the financial and securities industries, which seems to be insufficient to show their wisdom. Whatever problems these industries have, they will be solved, but there seems to be no place in the world where such key and pillar industries as real estate and finance are actually condemned by thousands of people on the Internet. If we "fix" them all at once without considering the consequences, will we be okay? What about the thousands of industries related to them?

If, except for a few industries, most industries become problematic, have problems whether right or wrong, and have to undergo major adjustments and surgery, and there are no industries prepared to take over and replace them, we will most likely continue to wait and see: we have been looking forward to vitality, but why is it so difficult to come?

In fact, there are many industries where no one has discussed whether they are right or wrong, advanced or not, and they are developing well, and consumers are also very satisfied.

For example, new tea drinks. I have researched this market many times. Starting more than a decade ago, some grassroots entrepreneurs in Guangdong, Jiangsu, Zhejiang, Shanghai, Chengdu, Changsha and other places have adopted on-site mixing methods to replace the previous powder brewing and pearl brewing, and new tea drinks have thus begun. According to incomplete statistics from Meituan Group Buying, as of August 31, 2023, there are about 515,000 new tea drink stores in operation.

Tea + milk/fruit + taste particles, such a simple innovation has created a big market: there are 3 to 4 million employees working in the stores alone. If we count the planting and processing of upstream raw materials, it involves the employment of tens of millions of people. According to data from Zhushi Consulting, in the first three quarters of 2023, a total of 10.5 billion cups of drinks were sold in domestic freshly brewed tea shops. By this calculation, more than 38.46 million cups of tea drinks will be sold nationwide every day.

Ten years ago, the unit price of some new tea brands was 20 to 30 yuan. In 2023, the average customer price of tea drinks nationwide will be about 10.5 yuan. This is market regulation. When I first started paying attention to new tea drinks, I was exposed to Heytea and Nayuki's Tea, which were mainly direct-operated stores. Now the trend is franchising. In the past few years, Mixue Bingcheng opened a lot of franchise stores. It seems that in this year, Bawang Chaji suddenly rose again. Moreover, many coffee shops, restaurants, and supermarkets now have "pan-tea drink" scenes.

I have great respect for new tea drinks, online car-hailing, food delivery, and express delivery, and have written many positive articles about them. The government has not made any plans, but has relied on the power of the market to solve a considerable number of employment issues, and their services have also made people's lives more convenient and better.

I believe the government has seen and remembered the contribution of this new economy. Not long ago, the chairman of a property management company in Shenzhen that manages more than 200 million square meters told me that when he attended a government meeting on social work, he found that "why more than 200 communities still don't allow couriers to enter" became an important topic. During the epidemic, Shenzhen also made special arrangements for couriers. It was heartwarming.

Of course, in today's world where "high-tech" is emphasized, new tea drinks will not be in the eyes of the Shanghai and Shenzhen Stock Exchanges. Therefore, Nayuki's Tea and Chabaidao are listed in Hong Kong, and Mixue Bingcheng, Guming, and Shanghai Auntie have also submitted IPO applications to the Hong Kong Stock Exchange. Around the new tea supply chain, many hidden champions have been created, and it is estimated that the A-share market, with its increasingly high threshold, will not invite them.

The document of the Third Plenary Session of the 18th CPC Central Committee pointed out that it is necessary to give better play to the role of the market mechanism, create a fairer and more dynamic market environment, optimize resource allocation efficiency and maximize benefits, and both "let it go" and "control it."

What is the market mechanism? I think, first, supply and demand must match, second, input and output must be efficient, and third, it is a culture of making a living, practicing, and taking responsibility for the results. In the final analysis, the market economy is a responsible economy. Even if it fails, shareholders will admit defeat. Under the market mechanism, market players will fully consider the actual demand before investing. Market players will carefully calculate the relationship between input and output to see whether they can obtain positive returns higher than the cost of capital throughout the life cycle of products and services, rather than "making decisions on the spur of the moment, expressing their opinions on the spur of the moment, and walking away without caring about the consequences."

Market economy is also a kind of culture. I feel that today we need to re-educate and re-enlighten market-oriented thinking. In 1983, when Hu Yaobang met with representatives of the National Conference on Advanced Commendation for the Development of Collective Economy and Individual Economy to Resettlement Urban Youth Employment, he made a speech entitled "How to Distinguish between Honor and Dishonor", proposing that it is honorable to engage in individual labor, be self-reliant, and operate honestly; while it is dishonorable to work but not work, work but not work hard, and work hard but not produce results in state-owned enterprises.

In the past period of time, the popularity of civil service examinations has reached an unimaginable level. In comparison, except for a few industries, market-oriented employment is considered "inferior". Even some entrepreneurs I know consider it a good idea for their children to become civil servants. They think it is safe and gives them face and status in society. Doing business with them is hard, tiring and risky. In fact, this is worrying. As mentioned earlier, most employment in China still depends on the market.

Market-oriented thinking also means that we should pay attention to performance evaluation and input-output ratio in everything we do, even non-profit public services. We have built many parks, but we build walls and tear them down; we have built many community hospitals, but we don’t spend time running them well, so everyone still has to go to the top three hospitals; we have just built a batch of schools and kindergartens, but we are facing a shortage of students; we have run many cultural undertakings with the support of administrative power, and some newspapers and periodicals even go directly from the printing factory to the recycling station... All of these are "correct", but the country is not an endless treasury after all, and "correctness" also needs to consider the cost.

All these places where "investment is not economical" and "only focusing on construction without considering operation" have great room for saving and lean improvement. Some public services cannot be pushed to the market, but market-oriented performance thinking and efficiency awareness cannot be ignored.

Now all regions are facing financial difficulties, and the central government's annual fiscal transfer payments to local governments have reached 10 trillion yuan. This is not small, but it still exceeds the expenditure. There are many reasons, including a large amount of inefficient investment, large-scale political achievement projects, large-scale investment subsidies, and some aspects that only talk about welfare without properly calculating the accounts. As for various forms of formalism, policy contradictions between departments, and arbitrary administrative law enforcement, they have directly dampened the enthusiasm of market players.

Inappropriate investments in many areas by various regions are due to the lack of careful calculations in advance using market-oriented and closed-loop thinking. The parties involved thought that assets were political achievements, but in fact they accumulated debts for their successors and future generations that would be difficult to repay locally.

Therefore, inefficient investment and ineffective input really cannot continue.

At the end of this article, I would like to talk about two choices that I think are very correct.

First, China's first administrative regulation on fair competition review, the "Regulations on Fair Competition Review", will come into effect on August 1. The regulations propose that equal opportunities should be guaranteed in terms of market access and exit. In terms of the flow of commodity factors, free entry and exit should be guaranteed. In terms of affecting production and operation costs, fair competition should be guaranteed to "prevent some operators from obtaining unfair competitive advantages by relying on certain special policies"; in terms of affecting production and operation behaviors, business autonomy should be guaranteed and the business autonomy of enterprises should be effectively maintained.

Second, Vice Premier He Lifeng recently pointed out in a signed article that developing new productivity is a long-term task and a systematic project. We must develop new productivity according to the specific conditions of each region, not ignore or abandon traditional industries, not rush into it, not rush for success, and give full play to the role of the government and the market. We must not overstep our authority or be absent, and we must not work behind closed doors. I agree with these five "cannots".

These signals seem to indicate that a high-level market economy does not mean a high-sounding market economy. First of all, it should be a market economy based on the rule of law, equality, freedom, fairness, and autonomy. It should be a market economy that adapts to local conditions, seeks truth from facts, and is pragmatic.

If we can move in this direction, and all departments truly reach consensus, coordinate, and make scientific and moderate adjustments, the market ecology will gradually recover, the confidence of market players will be restored, the vitality of the Chinese economy will return, and we will still be able to play a big game and ultimately win.

No.5896 Original first article | Author Qin Shuo

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