Unified national market buildup still key goal

China's efforts to build a unified national market entered a new phase in early 2025, when the National Development and Reform Commission — the country's top economic regulator — issued guidelines intended to accelerate regional integration and harmonize market rules. For many observers, it marks the beginning of a comprehensive advancement of China's national market unification. A subsequent meeting of the Central Financial and Economic Affairs Commission in July further reinforced this agenda, signaling that the pace of unifying domestic markets is likely to increase in the near future.

This policy shift is shaped by deeper changes in both global and domestic environments since the 2008 global financial crisis. Externally, the retreat of globalization, prolonged economic stagnation intensified by the COVID-19 pandemic, and increasingly strained international trade relations -notably Sino-US economic and trade frictions — have all weakened the ability of external demand to support China's growth. Internally, China's rapid economic expansion has made it harder to rely on net exports as a long-term growth engine. Simply put, a major economy of China's scale cannot depend indefinitely on foreign markets to drive its domestic development.

These realities form the backdrop for the "dual-circulation" development pattern introduced in 2020. The framework emphasizes domestic circulation — production, distribution and consumption within China — while encouraging mutual reinforcement between domestic and international markets. In other words, it signals a shift from a model where external demand pulls the domestic economy forward to one where a strong domestic market provides the foundation for China's engagement with the world.

Building up this domestic-centered development model rests on three pillars: expanding and upgrading consumption, advancing industrial upgrading and technological innovation, and building a unified national market. Each pillar enhances domestic circulation from a different aspect. Consumption speaks to demand, innovation strengthens supply, and market unification provides the institutional architecture that allows both sides to interact efficiently. Without a unified market, efforts to expand demand or upgrade supply will struggle to reinforce each other.

The global experience is clear: Economies controlling major "final markets" tend to wield greater influence in trade, investment and finance. The prominence of the US dollar is closely tied to the United States' position as the world's largest unified consumer market. China, with a population of 1.4 billion and per-capita GDP surpassing $13,000, has the foundations for a large and powerful domestic market.

However, China's domestic market remains segmented, with obstacles hindering the flow of goods, capital, labor, technology and data across regions. These barriers weaken market-based price formation and reduce the efficiency of resource allocation.

Building a unified national market is therefore fundamental to strengthening domestic circulation. When factors of production can move freely, overall economic efficiency rises and the "size of the economic pie" expands before questions of distribution emerge. A unified market also provides the scale required to stimulate technological innovation, supports firms in building complete supply chains, and sustains industrial upgrading and global expansion.

China first laid out a comprehensive blueprint for market unification in 2022. That document called for eliminating local protectionism, harmonizing institutional rules, and removing bottlenecks that impeded the flow of goods and factors. It envisioned transforming China from a "large market" into a "strong market", and outlined six major tasks ranging from rule harmonization to building unified markets for land, labor, capital, technology and data.

The 2025 guidelines continue this structure but offer more detailed and practical guidance and direction. They explicitly bar local governments from using administrative or judicial tools to interfere in economic disputes, or to seize corporate assets without proper justification. They require government agencies to honor contracts with private and small businesses, to record breaches in official credit systems and to incorporate such records into performance evaluations. On infrastructure, the guidelines emphasize removing interprovincial bottlenecks in road and waterway networks and prohibit local standards that obstruct the movement of freight vehicles.

Compared with the 2022 blueprint, the new guidelines sharpen protections for private and smaller firms and offer more detailed remedies for long-standing issues such as fragmented transport links and excessive regional competition for investment. They are, in effect, an operational extension of earlier principles.

The July 2025 meeting further updated the framework, shifting from the earlier formulation of "five unifications and one standardization" to "five unifications and one opening-up". The change is subtle but meaningful. Replacing "regulating improper intervention" with "unifying governance standards" reflects a heightened focus on aligning administrative behavior across regions, reducing harmful competition and allowing factors to move more freely. Replacing "integrating goods and services markets" with "continuous opening-up, both internal and external" underscores the need to align domestic and foreign trade practices and break down regional barriers that hinder unified participation in national and global markets. These refinements maintain continuity with earlier policy while highlighting the government's evolving priorities.

Despite steady policy progress, the biggest challenge lies not in the design of market rules, but in local incentives. China's local officials are still evaluated primarily on region-specific metrics such as GDP growth, fiscal revenue, debt levels and environmental performance. Under such a system, local governments naturally seek to retain high-quality resources within their jurisdictions and resist the outward flow of talent, capital or large enterprises. This is why companies still encounter obstacles when attempting to relocate headquarters across provincial boundaries, and why financial institutions may face pressure if they allocate substantial resources beyond the local region. Without reforming the performance evaluation system, meaningful market unification will remain elusive.

Rebalancing these incentives requires reducing the weight of strictly local indicators and significantly increasing the weight of metrics related to market-based factor allocation and cross-regional mobility. Only then will local governments have a genuine incentive to support integration rather than enable fragmentation.

If market integration advances, factors of production will not be distributed evenly across the country. They will cluster in regions with strong comparative advantages, likely accelerating regional integration. Over the next decade or two, several major clusters — Guangdong–Hong Kong–Macao Greater Bay Area, Yangtze River Delta region, Beijing-Tianjin-Hebei region, and two emerging "triangles" in central and western China - are poised to become the fastest-growing regions. Together, they may form a new domestic "flying-geese" pattern. Combined with an international pattern involving China, Japan, South Korea, and economies in ASEAN and major emerging economies participating in the Belt and Road Initiative, they could evolve into a "dual flying-geese model" that supports China's long-term growth and reinforces the interaction between domestic and international circulation.

The writer is deputy director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences and a senior researcher at the National Institution for Finance and Development.

This article was originally published on Economic Affairs.

The views do not necessarily reflect those of China Daily.