In order to give a relatively complete and objective description of the current conditions in 2001 in which the government was adapted to marketization, the following will be an analysis on the reforms carried out by the government to adapt to the needs of marketization since 1992 when establishing a socialist market economy was determined as our goal, focusing mainly on the size of the government and government's control over economy, so as to understand the influence of governmental behavior on market economy.

(Ⅰ)Measuring the Government Size

Under the conditions of a market economy, as far as the relationship between the government and the market is concerned, a smaller size of the government will be favorable to the free operation of the market. But, when confronted with market failure, the government should not remain inactive. The government should be appropriately sized to maintain a certain degree of intervention in economy. Internationally, economic freedom is often used in measuring the market-oriented development. The two well known reports on research of economic freedom, the Index of Economic Freedom compiled jointly by the Heritage Foundation and the Wall Street Journal of the United States, and the Economic Freedom of the World Annual Report by Fraser Institute of Canada, both used the size of the government in measuring the government's intervention in market economy, and both of them believed that the size of the government and the degree of marketization are in inverse relations, i.e., the greater the size of the government, the lower level of market-oriented development of economy. We will borrow the methods they used, based on the data from the years between 1992 and 2001, to measure the size of China's government in terms of the government revenues, the government institutions and staff, government expenditures, government investment and government subsidies, and to analyze, after 10 years of reforms since 1992 when the establishment of a socialist market economy was determined as our goal, the changes in the Chinese government's size and their impacts on the market economy.

1. Government Revenues

It was the government that initiated the process of marketization. For this reason, the government must raise huge amounts of funds in promotion of the reforms and in promoting, developing and maintaining social stability. The Chinese government raised its funds through a diversity of revenue sources, which may be divided into three major parts, namely, budgetary, extra-budgetary and non-budgetary sources. The fiscal budgetary revenues consist of taxes, super-taxes, revenue funds, special revenues and regulation charges. The extra-budgetary revenues include administrative charges, government fund revenues and other miscellaneous revenues. Extra-budgetary revenues are distinctly different from budgetary revenues in that they are widely scattered, and that they are complicated in structure, unstable in availability and have special purposes in use. Non-budgetary revenues mainly include social securities funds, government raised funds, funds obtained by unauthorized replacing of system funds, "private coffers" accumulated from "revenue creating" activities and funds raised by rural township governments etc. In the governmental revenue system of China, budgetary revenues accounted for about 60 percent, and have always been the mainstay of the government revenue. With the improvement in government control according to standardized market rules, extra-budgetary and non-budgetary revenues will be gradually reduced and will be managed within budget.

The proportion of government revenue in GDP represents the share directly controlled by the government and forms the government's influence on national economy. The proportion of government revenue has always accounted for about 20 percent of the GDP since 1992, in which year the percentage was 42 percent however. The drastic decline in the proportion of the government revenue was due to the following reason: in 1992, the reform of small-sized state-owned enterprises was initiated focusing on the reform of property ownership system, and the reform of large-and-medium sized state-owned enterprises was initiated aiming at establishing a modern enterprise system. Tremendous changes took place in the way the government controls the enterprises. The government started to function in the capacity as a mere owner of the stats assets, and the state-owned enterprises were turned into microeconomic entities responsible for their own operations and losses and profits, resulting in a drastic reduction in revenues obtained by the government from the enterprises. After the year 1993, however, the decline in the proportion of government's revenue in GDP was curbed and a slight recovery was brought about, from 20.38 percent in 1993 to 25.78 percent in 2001, up by 4.95 percent. This is mainly due to three reasons: the first is the financial resources: the growth in economy and higher efficiency of enterprises brought about a wider ranges of financial resources; the second is the policies: preferential tax policies were either cleared up or their grace periods were expired; the third is the controlling, intensified tax collection effectively checked the loop-holes for tax evasions, tax arrears and short payment of taxes by enterprises were restrained. From the policy point of view, terminating all preferential tax policies that have already expired satisfied the requirement of a market economy for fair tax burden. It is beneficial to tax collection and control on the one hand, and facilitates the standardization of taxation system on the other. From the administration point of view, intensified tax collecting and controlling has the strongest impact on increasing the government revenues. Previously the ineffective tax collecting and controlling in China resulted in losses in tax revenues and a relatively large differential between the nominal tax rates and the actual tax rates. In this sense, the rise of proportion in government revenues in GDP is mainly due to the reduction in losses in tax revenues. In a word, between the years of 1992 and 1993, the proportion of government revenue in GDP dropped sharply, but in the following ten years it recovered slightly and was kept at a relatively low level.

Although China's government revenue is calculated on a different basis from that of other countries, since there are some incomparable factors (for instance, China's government revenue includes not only the budgetary, but also the extra-budgetary and non-budgetary revenues), when compared with other countries' proportion of government revenue in GDP (usually above 30 percent), China's proportion of government revenue in GDP is relatively low. The reason this proportion is kept low lies in the fact that the functions of the government has changed since the initiation of market-oriented reforms, where the market has become the basic means for allocation of resources. In addition, China is currently experiencing economic take-off, the principal function of the government is to regulate the economy and to provide public goods, and is therefore not able to conduct re-distribution of revenues on a large scale like the developed countries. Higher efficiency resulted from improved tax policies and taxation system led to an expanding size of the government revenue. However, when compared with other countries, the size of China's government revenue is still relatively small.

2. Government Institution and Staff

The sizes of government institutions and the number of government staff are also frequently used as criteria for judging the size of the government. The more institutions within the government and the more staff members working for them would mean the large the size of the government. All the past reforms in government institutions were aimed at cutting down the size of the government. Since 1998, in order to adapt the administrative system to the needs of the market economy system, a new round of reform of governmental institutions with greater magnitude was conducted successively from the State Council to local governments. This round of reform was the largest in scale since the founding of the People's Republic of China with the strongest magnitude and covered the widest fields. The reform emphasized the change of governmental functions by clearly distinguishing the roles of the government and of the enterprises; the numbers of institutions together with the staff working for them were to be reshuffled and trimmed to the extent that they were compact but highly efficient with consistent powers and responsibilities. The comprehensive economic departments and the law enforcing and monitoring departments were to be given the priority of being reinforced; the specialized economic departments were to be cut down in number by means of mergers. The State Administration of Domestic Trade, the State Administration of Coal Industry, the State Administration of Machinery Industry, the State Administration of Metallurgy, the State Administration of Petrol and Chemical Industries, the State Administration of Light Industry, the State Administration of Textile Industry, the State Administration of Building Material Industry and the State Administration of Non-Ferrous Industry were cancelled. After the institutional reforms, the number of existing component departments of the State Council was reduced to 29 from the former 40, and the number of staff members working for ministries, commissions, offices and administrations under the State Council was reduced to 16, 500 from the original 33,000. Organizations within the departments were cut by one quarter. Propelled by the institutional reforms in the State Council, local governments at various levels conducted corresponding trimmings, further defining the responsibilities and authorities. The average number of institutions on the provincial level was reduced to 40 from the previous 55, an average reduction of about 20 percent, and the number of personnel was reduced by an average of 47 percent, or a total of 74,000 persons. After this institutional reform of the government, the number of government staff accounted for 4.56 percent of the total employment in 2001, while previously the percentage was 5.16 percent. The government staff accounted for 13.9 percent of the total urban employment in 2001, compared to 17.86 percent in 1992.

3. Government Consumption Expenditures

Government consumption expenditure refers to the expenses made by the government as a consumer in purchasing the final products and services, including expenditures on law system, regulation administration, fire fighting, police, national defense, education, science, culture and public health related matters. Appropriate government expenditure provides the economy with services such as national defense, education and macro economic control for the economic stability and long-term development. The proportion of China's government consumption expenditure accounted for 13.11 percent of the GDP in 1992, which rose to 13.58 percent in 2001 showing that the variation in the proportion of government consumption expenditure in GDP has been negligible over the past 10 years. Compared with other countries, the proportion of China's government consumption expenditure in GDP is relatively low, as in United States, the government expenditure accounted for 16 percent of the GDP in the 1990's; that of Western Europe and Canada accounted for about 20 percent of the GDP. The same figure is usually even higher in Nordic welfare countries. The government consumption expenditure in other developing countries is also high.

4. Government Investment

Under the system of the market economy, the existence of "market failure" necessitates the government investment in the public goods fields such as public utilities and public services. As a developing country and due to historical reasons, China's economic base and technological levels are relatively underdeveloped. Economic developments at various localities are extremely unbalanced. The government has thus to assume its historical responsibility, namely, apart from investing in the above-mentioned "market failure" areas, it has to invest in the "bottleneck" industries that have restrained the development of economy, especially in transportation, post and telecommunications as well as agriculture, energy all raw material related industries, and has to invest in backward areas as well in order to eliminate inter-regional inequality. As China is in transition to a market economy, fluctuations in economy are inevitable. The government investment therefore has also the function of regulating the total social supply and demand, and adjusting for the invigoration of the national economy.

China's government investment mostly concentrates in areas such as social infrastructure, public services, part of the significant capital industrial projects, as well as the investment for the development of national defense, and aerospace and high-and-new technology industries. Industries and departments in this category include: the infrastructure departments such as railways, highways, maritime transportation, civil aviation, ports and harbors, post services and telecommunications, and supply of electricity; public services and public securities departments such as treatment of rivers and water courses (anti-flooding and drainage), environmental protection, water supply and sewage systems, gas supply and heating system for the urban areas, administering the national land, protective forestation, science and technology, education, culture, public health, sports, national defense. public security and judiciary systems; high-and-new technology industries such as aerospace, micro-electronics and biological engineering; a few projects of major significance relating to the deployment of labor forces and the regional development; projects of the infrastructure industry that require huge amounts of investment and that are highly risky.

5. Government Subsidies

As an important means for effective state intervention and regulation of social economic life, government subsidies are practiced worldwide. In market economy countries, subsidies, either as a fiscal policy or a pricing policy, exist on a widespread scale not only in developed countries, but are also found in large quantities in economically less developed countries. China's government subsidies are mainly price subsidies and subsidies to make up for the losses in state-owned enterprises. Price subsidies are macro control expenditure, a means by which the government regulates the revenues all stabilizes the prices. Subsidies for making up for losses of state-owned enterprises are a deduction made by the government from fiscal revenues to be used as expenditure for making up for the losses in state-owned enterprises. In total government subsidies, the price subsidies rose to 71.19 percent in 2001 from the 41.96 percent in 1992, while subsidies for making up for losses in state-owned enterprises dropped to 28.81 percent in 2001 from 58.04 percent in 1992.

The Chinese government's subsidies to prices mainly include subsidies for prices of grains, textiles and edible oil, subsidies for stabilizing prices, subsidies for meat and some other types of price subsidies, of which the subsidies for prices of grains, textiles and edible oil are the mainstay, while the latter three types of subsidies add up to less than half of the former. China's subsidies were initially for alleviating the pressure of price rise in a limited number of bulky products that injured consumers' interests. On account that the marketization of prices would lead to the rise in prices and inevitably affect the interests of the consumers, while market allocation of resources is mainly aimed at improving the efficiency without considering the stability of the society, then the government would have to be responsible for the external instabilities caused by such price rises. With the market mechanism improving for the better, the proportion of China's price subsidies in GDP witnessed a continuous decline. In 1992 the proportion of government price subsidies accounted for 1.21 percent of the GDP, by 2001 it dropped to 0.77 percent. Since the scope of price subsidies is extremely limited and the amount is accordingly small, therefore, in the field of commodity transactions, the market prices started to become the main signal for resource allocation in 1992. In 2001, prices determined by market accounted for 95 percent of both the total social consumer goods retail sales and the total agricultural product purchase volume.

6. Inter-Government Transfer Payment

The system of inter-government transfer payment is commonly practiced by all countries that have adopted the tax sharing fiscal administration system. This is an effective method in solving the vertical unbalances between the central and local financial authorities and the horizontal unbalances between the financial authorities of various localities, and for standardizing the distribution relations between the central and local financial authorities. The basic purpose of transfer payment is to achieve a relative balance in the development of economy, ensuring fairness and efficiency. As far as efficiency is concerned, a relative balance in the development of economy may on the one hand reduce invalid flow of resources and cut down the transaction costs; on the other, it may promote competition between the backward areas and the developed areas, enhancing the overall efficiency of resource allocation by market so as to bring about accelerated economic growth and increase in the gross volume of economy. Where fairness is concerned, relative balance in the development of economy is a necessary condition for achieving social fairness. Only when relative balance in economic development is realized can the backward areas afford to provide elementary public services to the local residents, and can the central government make regulations between the backward and developed areas for the realization of social fairness.

Since the implementation of the tax sharing fiscal system in 1994, a transfer payment system mainly characterized in the form of returning tax revenues has preliminarily taken shape in China. This is an important step towards the transfer payment under a public fiscal system. China's inter-government transfer payment is embodied in five forms: i.e. the administrative allowances, the annual final fiscal accounts, the returning of tax revenues, the ad hoc allowances and the part specified in the Interim Procedures For Transfer and Payment (i.e. the standardized part). As stated above, the proportion of China's government revenue in GDP is on the lower side. Confined by the limited fiscal ability, the central government is not capable of offering sufficient amount of founds for use in transfer payment, resulting in the relative small size of China's inter-government transfer payment, which accounted for 6.27 percent of the GDP in 2001. At the same time, the development of economy is extremely unbalanced among different areas of China. The transfer payment from the central government to the localities can only ensure that the local governments can afford the lowest national standards in basic public services. In order to achieve balanced development of economy among areas and raise the efficiency of market in allocation of resources, it is necessary to expand the scale of transfer payment to a suitable extent.

(Ⅱ)Government's Economk Administration

Under a market economy, the basic principle for the government's economic administration is to let the market solve any problem that can be solved by the market. The government's main role lies in the fields where the market fails or lacks strength. In 1993, the Decision on Several Issues Concerning the Establishment of a Socialist Market Economy System by the Central Committee of the Communist Party of China pointed out that "Changing the functions of the government and restructuring the government institutions are the urgent needs for establishing a socialist market economy system. The government's function in controlling the economy is mainly to formulate and implement the macro control and regulating policies, to build the infrastructure and to create a good environment for the development of economy. Meanwhile, it is necessary to cultivate a market system, monitor the operation of the market and maintain fair competition, regulate the social distribution and organize the social security system, curb the increase in population, protect the natural resources and biological environments, manage the state assets and monitor the operation of state assets, to realize the country's economic and social development goals. The government shall apply economic, legal and necessary administrative measures to controlling the national economy, instead of directly intervening the production and operational activities of the enterprises". This statement generalized China's understanding of the government's economic functions, and at the same time indicated the general direction in which the government's function shall be changed.

The government's administration of economy is by itself an enormous and extremely complex subject. The following discussions are focused on the marketization related issues only. There are six issues in all: the establishment of a macroeconomic control system, the reform in the administrative examination and approval system, tax burdens, the government's administration of prices, the government's administration of production, as well as the maintenance of the market order.

1. Establishment of a macroeconomic management system

The Chinese government has preliminarily established a framework of macroeconomic control system that mainly works by indirect means. A control and regulation mechanism has taken shape in which the three major systems of the state planning, the fiscal and taxation and the financing are conditioning each other interactively. The state economic development plan emphasized that it was on a macroscopic, strategic and policy-related level mostly for forecasting and directive purposes, and on such grounds the mandatory planning quotas were basically cancelled. The fiscal and taxation system is in transition to the public finance under the conditions of modern market economy, in which a new fiscal and taxation system with the tax sharing system as the crucial part has taken shape. The financial system is, according to the needs for developing a market economy, structuring a modernized system of financing institutions, a financial market system and a financial control, regulation and administering system. Fiscal policies and monetary policies are applied in a combined way to regulating the economic operation, to ensure steady growth in economy. When the development of economy is over-heated, appropriate tight fiscal and monetary policies are implemented so as to successfully realize the "soft-touch down" of the national economy; when the economy is losing its growth impetus, positive fiscal policies, such as increased issuance of constructional treasury bonds for stimulating the construction of infrastructure will be implemented in order to expand the internal demand. At the same time the monetary policy is brought into play. Various monetary policy instruments are utilized in a comprehensive way, like, utilizing the instruments such as regulatory interest rates and the deposit reserve rates, open market operations and credit policies in changing the amount of money supply.

2.Reforming the Administrative Examination and Approval System

Full round reform of the administrative examination and approval system is to be implemented, in order to establish an administrative control system that fits well with the market economy system, pushing forward the change in the government's function. In 2001, the State Council endorsed the Opinions for Carrying Out the Reform in the Administrative Examination and Approval System. Its main purpose was to thoroughly clear up economic and business related issues subject to administrative examination and approval by relevant departments of the State Counci1 and the governments at the provincial level. In November 2001, the State Planning Commission cancelled the requirement for examination and approval for the projects that do not require investment by the central government, the projects that are encouraged by the state industry policy and the total amount of investment is below norm, the projects that are funded by local governments and are subject to examination and approval by local planning authorities, and the projects the funds required by which are raised by enterprises at their own discretion. The first batch of the projects the examination and approval of which are cancelled include: urban infrastructure construction projects, agricultural, forestry and water reservation projects that do not require investment from the central government, social undertaking projects to be constructed by the localities and enterprises with funds raised by themselves, real estate development and construction projects and business and trade facility projects. With regard to other projects that should no longer be subject to examination and approval, consultations with relevant departments are underway, and the list of such projects will be publicized as soon as possible. Concerning the projects that remain to be examined and approved, concrete measures were put forward in order to simplify the procedures, raise the efficiency and establish a supervising and restraining mechanism. In the same year, the State Economic and Trade Commission cancelled the requirement for examination and approval of 30 items in the first batch. The Ministry of Finance cancelled 7 items relating to enterprise assets and financial matters that required administrative examination and approval previously. Apart from projects relating to economic development, long-term social security programs and well deployed public welfare and infrastructure projects, all other required examinations and approvals will be cancelled step by step. Wherever the market regulation works, wherever the services by the intermediary organizations are available and wherever the enterprise can make its own decision, the market shall have the say. The reform of the administrative examination and approval system made it possible for the market to play its role and stimulated the transformation of government's functions..

3. Alleviation of Tax Burden

Government taxation must benefit economic development. The issue of tax burden must, therefore, be taken into consideration when formulating taxation policies. Too light tax burden will weaken government functions, while too heavy tax burden will smother economic development. In formulating the taxation policy, the government must strive to make tax burden fair and reasonable. Whether tax burden is fair and reasonable or not is reflected in two aspects: first, it is reasonable in terms of taxpayers' bearing ability; second, taxes must be impartially levied from all types of taxpayers. If tax burden is not fairly shared, tax payers may resort to various measures to fit the lighter the burden and evade the heavier one, causing obstacles in market transactions, detrimental to the establishment of the market economic order.

The mainstay taxes in China's existing taxation system are turnover taxes and income taxes, of which, turnover taxes are the principal taxes. The principal tax of the turnover taxes is the value added tax, which is not only of significant importance in government revenue, but also plays an important role in realizing fairness in market and in enhancing economic efficiency. Firstly, the tax rates applicable to most taxpayers are 17 percent (in respect of the general tax payers) and 6 percent (small sized tax payers) respectively. The level of tax burden is theoretically cons istent basically. The benefits gained by the tax payers are mainly related to the efforts exerted by themselves, and will not be affected unfavorably by taxation; Secondly, tax payers of value added tax are divided into two categories: ordinary tax payers and small size tax payers, for whom the tax bearing magnitude is in fact uniform in a considerably wide range. Among tax payers of the same category there is generally no taxation discrimination. The tax burden of China's value added tax is designed to be reasonable and fair theoretically. The categorization of taxpayers is on the whole consistent with the actual conditions of China. Especially, a simplified structure of the tax rates laid the foundation for creating a fair market.

The income taxes consist of company income taxes and individual income taxes. In 2001, a proportional tax rate of 33 percent was applied to the company income taxes for all domestic funded enterprises in China. The average rate of the company income tax fell to 14.7 percent from the 2O.01 percent in 1992. The rate of company income taxes in China is not particularly high from the viewpoint of pure comparison of tax rates. Beginning from the mid-1980's, the average rate of company income taxes in developed countries dropped by nearly 10 percentage points, but the average rate of company income taxes is still about 30 percent for most countries in 2000. However, taking into consideration of the fact that many countries adopted progressive tax rates, the 33 percent tax burden in China is a bit too heavy as far as the medium- and small sized enterprises are concerned. In the countries where progressive tax rates are implemented, lower tax rates are generally applicable to the medium- and small sized enterprises as their taxable earnings are relatively small. While in China, except for the small enterprises with annual taxable earning less than 100,000 yuan, which are eligible for preferential tax rates (still as high as 27 percent and l8 percent), all domestic funded enterprises are subject to the 33 percent tax rate. On the whole, the tax burden of China's company income taxes is quite reasonable, and is favorable for the fair competition between enterprises of different ownerships, with different sources of fund and operated in different approaches. Where the individual income taxes are concerned, progressive rates or proportional rates are applied in connection with earnings of different natures. Earnings of wage and salary are subject to a nine-grade extra amount progressive tax rate from 5 percent to 45 percent, with the highest marginal income tax rate being 45 percent; production and business earnings of individual industrial and commercial households and earnings from contracted or tenant operations by enterprises and institutions are subject to a five-grade extra progressive tax rate system from 5 percent to 35 percent. Earnings from labor service, writer's payments, franchise loyalties, interests, stock interests, dividends, property leasing, property transference, incidental incomes and other incomes are subject to a uniform proportional tax rate of 20 percent. The maximum marginal rates of individual income taxes in other countries of the world are generally around 40 percent, and China's rate of individual income taxes is basically consistent with that of the international level.

4. Government's Price Administration

The government has greatly reduced its intervention as far as the prices are concerned. The government's administration over prices is simply regarded as a means for macro control, aimed at maintaining stable market prices and regulating the distribution of revenues. In 2001, the government issued the Price-Setting Catalogue of the State Development Planning Commission and the relevant departments of the State Council, according to which, prices of most commodities and services that were previously fixed by the Central Government are now set free. The types (categories) of commodities and services the prices of which were fixed by the price administrative authority and other relevant authorities of the State Council was reduce to 13 from the 141 in the 1992 Price-Setting Catalogue.

The government retains the price setting or price control power only for very few important commodities and labor services. The Price law stipulates that when necessary the government may exercise government guided prices and government fixed prices for the following five types of commodities and services: (1) prices of very few commodities of important significance to national economic development and people's livelihood; (2) prices of a few commodities the resources of which are limited; (3) prices of commodities under natural monopoly; (4) prices of important public utilities; (5) prices of important public welfare services.

5. Government's Production Administration

The government does not intervene in production operations. The production operations of all market entities of the whole society are determined by the enterprises and by the market. The principal function of the government is to prevent and abolish monopolization and regional blockade, to fight against unfair competition and to create a fair environment for production and business operation. Apart from exercising mandatory planning on a few important products, the government leaves the rest to market regulation and to directive planning. In industrial production, only five products are subject to mandatory planning, namely, timber, gold, cigarettes, salt and natural gas. Among these five products, mandatory planning is limited to some stages or some types of by-products of timber, natural gas and gold. While in agricultural production, mandatory planning is completely abolished, and the main farm produces are under directive planning or subject to market orientation.

The approach used by the government in directly controlling the state owned enterprises has been changed a great deal, as a result of remarkable progresses made in distinguishing the roles of the government and the enterprises. Concurrently with the reforms of the government institutions, armed forces, military police, the judiciary system, the Communist Youth League, the Women's Union and various government departments underwent reforms in which their relations with the associated enterprises were separated. Some of the enterprises that have severed relations with the patronizing government institutions entered into a group of 500 large enterprises under the direct control of the State Economic and Trade Commission, others were taken over by the localities. The government departments cancelled their relations with the economic entities or enterprises that were previously run by them or belonged to them, and no longer ran these enterprises. In order to enhance the supervising function as an owner, the government designated the board of supervisors to key state-owned enterprises and financial institutions, and authorized asset managing institutions and large enterprises to run state-owned assets, in order to safeguard and enhance the value of state-owned assets. To some key enterprises, the government exercised the system of designating monitors, and intensified the work of the board of supervisors of state-owned enterprises. In most areas, the government exercised the system of designated accountants to some state-owned enterprises, thus intensifying financial supervision of state-owned enterprises by the government. The government proposed the principle of "advancing in some areas and retreating from others", and "be active only in a selected number of areas" to implement strategic adjustments to the state-owned economy.

The government relaxed the control over some monopolized industries. Fighting against monopolization will benefit the nurturing and growing of the market. The process of China's economic reform is in essence a process of breaking the monopoly in various aspects to be replaced by the optimal allocation of resources by the market step by step. In recent years, China's access restrictions on monopolized industries such as telecommunications, aviation, railway and electrical power have been relaxed to some extent. The reform of the telecom industry was the most successful. "Telecom industry" here is used in the narrow sense, referring to the telecommunications network and network services. Network services cannot be independent of the telecommunications network, so the telecommunications network is highly monopolized. Before 1994, in China's telecommunications market, especially the part of basic businesses of it, there was only one enterprise due to the government's severe access restrictions, namely China Telecom under the Ministry of Post and Telecommunications, which was under monopolized management all over the country. In 1998 the restructuring of the telecom industry was initiated. To date, a new pattern of the telecom industry has taken shape consisting of a number of companies including China Telecom, China Mobile, China Unicom, CHINAVSAT, Jitong Communications, and China Railcom.

6. Government's Maintenance of the Market Order

By formulating policies and perfecting rules and regulations, the government can maintain the market order, striving for creating a favorable market environment for fair competition of the market entities. The basis for a successful market economy system lies in the bonding relations between the market entities enjoying equal rights. This type of relationship is maintained by a well-developed law system in combination with an effective mechanism to enforce it. The Chinese government has made significant progress in establishing and developing the market rules.

-- In maintaining the market order, the promulgation and implementation of the Economic Contract law, the Technical Contract law, the Foreign Economic Contract Law, the Arbitration Law, the Trademark Law, the Product Quality Law, the Accounting Law, the Audit Law, the Law of Counter-Unfair Competition and the Price Law made specific stipulations in relation to the rules for enterprises' market access, equal participation of market competition and transaction; the promulgation and implementation of the Consumer Protection Law, the Trade Union Law, the Regulations on the Settlement of Enterprise Labor Disputes and the Labor Law etc. are for safeguarding the lawful rights and interests of the consumers and laborers.

-- In improving and enhancing the macroeconomic control by the State, the formulation of the Budget Law defined the budget control powers between the Central Government and the localities; a series of taxation related laws and regulations were issued and amended, such as the Law of Individual Income, the Income Tax Law for Enterprises, the Provisional Regulations on the Enterprise Income Tax, the Provisional Regulations on the Value Added Tax, the Provisional Regulations on the Consumption Tax, the Provisional Regulations on the Business Tax, the Provisional Regulations Concerning the Stamp Duty, the Provisional Regulations on the Resource Tax, the Provisional Regulations on the Land Value Added Tax and the Procedures for Administering the Levying and Collection of Tax etc., establishing a preliminary framework for China's taxation system. The formulation of the Law of People's Bank of China, the Law of Commercial Banks and the Insurance Law established and perfected the macroeconomic control system of the central bank and intensified the supervision and control of the financial industry. The formulation of the Law of Agriculture, the Land Administration Law, the Law of Waters, the Forestry Law, the Mineral Resources Law, the Law of Coals, the Law of the Highway, the Civil Aviation Act, the Railway Law, the Electric Power Law, the Postal Law, the Construction Law, the Tobacco Monopoly Law, the Fisheries Law and the Environmental Protection Law etc. ensured that the government will formulate industrial policies in compliance with the laws and promoted the healthy development of China's infrastructure industry.

(China.org.cn November 7, 2003)