The Government Regulates The Market And The Market Guides Enterprises

In October 1987, the report of the 13th CPC National Congress proposed a new economic operating mechanism that reflected the planned commodity economy. It required the country to use economic, legal and necessary administrative methods to adjust market supply and demand, and create a suitable economic and social environment so as to guide enterprises to make correct management decisions. The proposal of the “the government regulating the market and businesses responding to market signals” mechanism was a development of the relevant mechanism theory of the “Decision of the Central Committee of the Communist Party of China on Economic System Reform” adopted by the Third Plenary Session of the 12th Central Committee of the Party. Based on the theory of planned commodity economy, the “Decision” did point out that our country should comprehensively use price, taxation, credit and other economic to our advantage to regulate the national economy, but it failed to pay attention and give play to the role of market as an intermediary and hub. The primary issue of economy mechanism is the relationship among the country, the market and the enterprises in economic activities.

“The government regulating the market and businesses responding to market signals” is a correct expression of the relationship between the country, the market and the enterprises in the socialist planned commodity economy.The planned commodity economy mechanism based on socialist public ownership should on the whole be a mechanism in which the government regulates the market and businesses respond to market signals. “The government regulating the market” is macro regulation. The market is the mirror of the national economy, and the regulation of the market is essentially the regulation of the entire national economy. The country mainly uses economic means, supplemented by legal means and necessary administrative means, to adjust the general balance between total social demand and total supply, adjust the respective balance and basic mutual balance between finance, credit, foreign exchange, and materials, adjust the balance between the supply of goods and the amount of currency in circulation, adjust the overall level of market prices and adjust the industrial structure and the distribution of productivity. In addition to the above major balances, taxation needs to be reasonable and fair, creating a market environment of equal competitions and price adjustments, so that enterprises can be positively guided. “Businesses responding to market signals” is both a micro and macro regulation. The country does not directly manage and operate enterprises and generally does not issue mandatory economic targets to enterprises. Manufacturers, commercial enterprises and consumers are all parties to market exchanges. They are in a unified market and have a close relationship of equivalent exchange. Market guidance means the regulation of the law of value, which affects production and circulation through “invisible hands”. Enterprise's micro decision-making is motivated by profit and guided by information. It is manifested as the supply and demand relationship of commodities in the market, which directly affects the prices of commodities, thereby affecting commodity production and commodity circulation.