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Li Jiange, the deputy director of the Development Research Center of the State Council, once shared a real-life yet exaggerated example that vividly illustrated the challenges of regional coordination in China. A few years ago, Province A wanted to sell electricity generated from a hydroelectric power plant to Area C. However, the transmission route required passing through the power grid of Province B. At that time, Province B had introduced a group of small generator sets and built several smaller power plants. The officials in Province B were worried that if they allowed electricity from Province A to pass through their grid, it might be sold within Province B instead of being delivered to Area C. This would undermine the local electricity market. If the electricity price in Province B dropped, those newly built small power plants could shut down, turning the loans used to purchase generators into bad debts. As a result, a high-ranking official from Province B famously said: "If you want to deliver electricity to Area C, just fly it there."
This story reflects the mindset of local governments across China, which often prioritize local economic interests over national integration. Enterprises are the core of economic growth and the foundation of national competitiveness. In a system where resources are allocated by the government rather than the market, the government’s role tends to be misaligned or even counterproductive. This “enterprise economy,†shaped by close ties between government and business, leads to enterprises that lack competitive spirit and innovation. These state-led companies fail to scale up or generate real value, while true entrepreneurs struggle to grow due to systemic barriers.
China is a vast country with the potential to leverage its large market as a strength. However, without meaningful reforms in the current administrative system and the free flow of productive factors, Chinese enterprises will find it difficult to develop and thrive. Non-competitive enterprises continue to consume valuable resources, distort market prices, and create unhealthy competition. This environment hinders the growth of large-scale enterprises and the development of independent innovation. Faced with fragmented markets, companies must bear extra costs, making it hard to achieve effective profits.
The "Proposal" adopted at the Fifth Plenary Session of the 16th CPC Central Committee clearly emphasized the need to separate government from enterprises through institutional reforms. Additionally, the national "Eleventh Five-Year" regional plan placed great importance on building a unified market. We believe that over the next five years, decentralized market players will gradually align with a fair and harmonious society. Industries like the automobile sector, which require large-scale development, will see new integrations. But such progress must come through a natural, market-driven process.
October 05, 2025