To expand its middle-income population, China needs to create conditions for people to increase their incomes via land ownership, technical knowledge and management expertise. However, because of the lack of a sound institutional arrangement for property rights protection－which block the channels for income generation－neither urban residents nor rural people can increase their earnings through such means.

So, to fulfill the requirements of its economic and social transformation, China has to improve its property rights system by advancing rule of law. And to better protect property rights, it should safeguard the fruits of innovation through legislation.

Economic ownership－which is different from legal ownership－should also be provided proper legal protection so as to inject new vitality into the market players and facilitate the country's economic transformation and upgrading.

However, extending equal protection to public ownership and non-public ownership of property means China has to address such new problems as removing the hidden barriers that non-public-sector players face in order to enter the service sector and helping entrepreneurs protect the gains they have made via innovation.

Fortunately, the State Council guideline has promised to abolish regulations that are unfair to non-public-sector players and lift the hidden barriers to ensure open and fair participation of all eligible enterprises and individuals in the market, as well as give them equal legal protection. To this end, the government should first prepare a list of services that cannot be offered by the private sector, and then grant both public and private capital free access to the rest of the service sector, and establish an incentive mechanism aimed at promoting innovation and increasing entrepreneurs' sense of security.

The document also points out the need to make legal arrangements for the protection of home-owners after the expiry of the 70-year period for land use rights. This will help assure businesses and investors of the permanent protection the government will provide them when it comes to their property rights.

The author is president of the China Institute of Reform and Development.