Dismantling of 2,000-year-old table salt system signals further reform to lessen administrative intervention in the market

China is to end a monopoly over the production and sale of table salt, dismantling a system that has been in place in various guises for more than 2,000 years and run by a state monopoly since 1950. The disbanding of the salt monopoly will start in 2016 and be complete by 2017.

It is a good move that will further propel market-oriented reform. State monopolies are not necessarily evil; in certain industries they are needed to maintain the smooth running of the economy. For example, subway systems and water supply networks should be constructed by the State, because hardly any private funds could afford the costs or would be attracted by the low returns. These are what economists call natural monopolies and they apply generally to infrastructure construction, rare resources and industries of strategic importance.

But it should be noted that even natural monopolies need open and just competition for bidding and a lack of transparency will lead to corruption. The latest case of Mao Chaoqun, a town-level tap water official in Hebei province who was found to have 120 million yuan ($19.6 million) in cash at home, is best evidence how corrupt a closed system of monopoly can be.

The monopoly on salt does not belong to any of the natural monopolies. The nation has ample supplies of salt, which is produced at low cost and has nothing to do with any of its strategies. Similar monopolies exist in many other industries, such as tobacco and alcohol, and they are improper, too.

Commodity prices are pushed higher by these improper State monopolies. According to a 2013 study by the Unirule Institute of Economics, the cost of producing a ton of edible salt is around 750 yuan, but monopolies sell salt at about 3,000 yuan per ton. Residents might fail to recognize this because edible salt accounts for a quite low percentage of their living costs, but salt monopolies at all levels harvest 17.7 billion yuan annually from the higher price.