For an economy in transition, development of the market is a sign of a
successful transition and a premise for a sustainable form of economic growth.
Development and integration of labour markets are key components that
indicate the move towards a market system. Despite wide acknowledgment
of success in China’s market-oriented reform, there is disagreement about the
effects of marketisation, especially in regard to the level of regional market
integration. Reforms of production factor markets, for instance—especially in
the labour and capital markets—have been considered less far reaching than
the reform efforts made in commodity markets (Lardy 1994:8–14). There are
also scholars who believe that segmentation of the market has become severe
as a result of decentralisation in the reform process. Such scholars argue that
although decentralisation rectified the concentration of decision making and
resource allocation, it has also generated a ‘border effect’—something present
in independent economies and in administratively divided regions—thus
preventing the labour markets of separate regions from integrating into a
national market (Poncet 2002, 2003a, 2003b; Young 2000). Others suggest
that the deepening of the Chinese reform process will increase the degree of
marketisation in the country, including the regional integration of production
factor markets (Fan and Wang 2001; Wang and Fan 2004; Fan et al. 2003).