1. Modernizing State Governance --Restructuring the Relationship between the Government, the Market and Society Since the Reform in China  Yu Keping, Professor and Director  PKU Research Center for Chinese Politics  April 14, 2016, Sydney

2. To Build a Modern Governance System  The Third Plenum of the 18th Party Congress of CCP took modernizing the state governance system and the state’s governing capacity as the general goal of further reform in the near future. Theoretically, it is an important sign of the transformation of the CCP from a revolutionary party into a ruling party. Practically, it shows that the CCP has formally incorporated political modernization into the reform agenda.

3. Why to Put Emphasis upon Governance Besides new awful challenges from current governance, the reason why the CCP took modernization of the national governance as the general goal in further reform is largely resulted from its successful experience in the past 37 years of reform. A basic reason these tremendous successes were achieved in economic development and social modernization since the reform is that China not only carried out thorough reforms of its economic system, but also made major changes in national governance system, including state governance, market governance and social governance.

4. Changes and Not Changes If you look at Chinese politics over the last 30-plus years solely from the perspective of multi-party competition, general elections of top leader and the separation of the legislature, the executive and the judicial, you could well conclude that nothing has changed. However, if you look at it from the perspective of governance, you will discover that Chinese political life has undergone tremendous changes. For example, in terms of the rule of law, public participation, democratic decision making, social governance, public services, government accountability, political transparency, administrative efficiency, government approval procedures, decentralization and the development of social organizations, you can find that the political life in China has made tremendous progress since the Reform.

5. Political Reform in Terms of Governance  Restructuring the relationship between the government, the market and society is in fact a kind of political transformation in terms of governance. We can see a very interesting phenomenon: on the one hand, the Chinese government constantly repeats that it will not slavishly follow the Western political model of multi-party competition, general elections of top leader and the separation of the legislature, the executive and the judicial; and on the other hand, however, the CCP and the Chinese government strongly stresses political reform, particularly reform of state governance. The Chinese top leaders refer political reform mainly in terms of reform in governance, rather than in reform in political system such as one party system or multi party system.

6. Modernizing State Governance We could analyze modernization of state governance in many perspectives. It seems to me that modernizing state governance, to a large extent, is restructuring the relationship between the government, the market and society. In other words, it means to reform government governance, market governance and social governance. It is obviously that the process of modernization of state governance is a process of restructuring relationship between government, market and society in China since the Reform in 1978.

7. First Step: Restructured the Relationship Between the Government and the Market  Before reform, China had a planned economy; no private economy was permitted to exist, and free trade and other forms of market economic activities were forbidden. The breakthrough point Deng Xiaoping chose for his reform was to introduce a competitive market economy. The Party and the government no longer directly interfered in farmers’ economic activities in the countryside and no longer directly managed enterprises in cities. This new kind of market governance system greatly released the productive forces of society, with the result that over the past 35 years China’s GDP grew at an average annual rate of over 9%.

8. Second Step: Restructured the Relationship Between the State and Society  In the late 1980s, villagers’ self-governance was instituted in the countryside followed by residents’ self- governance in the cities. This was a breakthrough development in grassroots democracy and also an important advance in the sharing of powers between the state and society. A relatively independent civil society began to emerge after a new round of government agency reform in the 1990s.

9.  In the late 1990s and the beginning of the 21st century, large numbers of civil organizations appeared and there have emerged at least over three millions of social organizations as the government has begun to change its attitude toward them from a negative attitude of prohibiting them to a positive attitude of cultivating them. The government also has begun to allow them to participate in social governance, and delegated some state powers to designated social organizations. Thus, civil society actually has been playing increasingly role in national governance, particularly in social governance.

10. Third Step: Restructured the Relationship Between the Market and Society The third step was to the implementation of a market economy. The rise of civil society quickly brought a new question to the fore: the mutual encroachment of the market and society on each other. Starting in the late 1990s, China began adopting effective measures to specify the relationship between the market and society. For example, a new system of social responsibility for enterprises was established and enterprises were no longer required to perform excessive political-social functions. The emphasis was placed on social development, and along with economic, political and ecological development, it was made one of the four basic tasks of national development.

11. Three Important Findings First, the structural foundation of modern society lies on differentiation between the political society, economic society and civil society, or between the political, economic and societal system. In pre-modern society, the state, the market and society were intimately integrated; there was no clear boundary between political society, economic society and civil society; civil society and economic society were obliterated by political society, and state controlled everything in society

12. However, in modern age, society began to be differentiated into three mutually independent realms: the government system, the market system and civil society system. The relationship between them constitutes the structural foundation of modern society and determines all the relations of modern society. The basic function of the modern state is demarcating the boundaries of the powers and responsibilities of the government, the market and society, and its basic mission is to render unto the government what belongs to the government, render unto the market what belongs to the market and render unto society what belongs to society.

13. Elements of Modern State Governance Second, the state governance system is a set of institutions and procedures for normalizing the functioning of social powers and safeguarding public order. Correspondingly, government, market and social governance are the three most important sub-systems of a modern national governance system. Effective and successful governance requires the answer to three questions: Who governs? How do they govern? And with which they govern? These three questions pertain to the three main elements of a national governance system: the governing body, governing institutions and governing tools.

14. Equilibrium of the Government, the Market and Societ y Third, neither the government, the market nor society is omnipotent and there are government failure or state failure, market failure and civil society failure; it is necessary for them to be mutually complementary and balanced. It is not only the government or the state that is not omnipotent; the market and society are likewise not omnipotent too. Just like state failure, market and social failure is accompanying modern society too.

15. Two Things Need to be done  To overcome government failure, market failure and civil society failure, we need do two things at least.  Firstly, the government, market and society need to cooperate closely each other and use their strengths to compensate for the others’ weaknesses; and secondly, the state, the market and society should preserve equilibrium between them. State governance fails if the government becomes too powerful and also if it becomes too weak.

16. Towards Good Governance In short, the ideal kind of modern governance is good governance. Simply speaking, good governance is governance by which public interests are maximized, and its basic characteristic is that the relationship between the government, the market and society are the best they can be so that the government, the market and society coordinate in governing social and political affairs.

17. Good Government is the Key Towards Good Governance  However, doubtlessly, governments has been the most powerful and important in the process of modernizing governance. Therefore, in modern governance, the government still plays the decisive role compared to the market and society. In other words, the key to good governance is good government, there would be no good governance without good government, and if we want to have good governance, above all, we must have a good government.

18. Thanks for Your Attention !