Socialist market economy

This article is about the current economic system in the People's Republic of China. For the system in Vietnam, see Socialist-oriented market economy. For the former political philosophy of Republican era, see Socialist ideology of the Kuomintang.

Not to be confused with Social market economy.

Socialist market economy
Simplified Chinese	社会主义市场经济
Traditional Chinese	社會主義市場經濟
Transcriptions Mandarin - Hanyu Pinyin Shèhuìzhǔyì Shìchǎng Jīngjì

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The socialist market economy is the economic model employed by the People's Republic of China. It is based on state-owned enterprises and an open-market economy, and has its origins in Deng Xiaoping's ideological concept socialism with Chinese characteristics (simplified Chinese: 中国特色社会主义; traditional Chinese: 中國特色社會主義; pinyin: Zhōngguótèsè shèhuìzhǔyì) and Reform and Opening (simplified Chinese: 改革开放; traditional Chinese: 改革開放; pinyin: Gǎigé Kāifàng). This economic system replaced the Soviet-type centrally planned economy after the Chinese economic reforms starting in 1978.

Despite its formal title, this system has been widely cited as a form of state capitalism.

Similar though much less market-friendly reforms were undertaken in Vietnam, where the economic system is called the socialist-oriented market economy.

Description

After the Great Leap Forward (1958–1961) and the ousting of the Gang of Four from power, Chairman Deng Xiaoping was willing to consider market-based methods of economic growth so as to revitalise China's economy and find an economic system compatible with China's specific conditions. However, in doing so, he remained committed to the centralized control and the one-party state central to Leninism.

The socialist market economy was a concept first proposed by Deng Xiaoping in order to incorporate the market into the planned economy in the People's Republic of China, and later, to the Đổi Mới in Vietnam. Following its implementation, this economic system has supplemented the centrally planned economy in the People's Republic of China, with high growth rates in GDP during the past decades have been attributed to it. Within this model, privately owned enterprises have become a major component of the economic system alongside the central state-owned enterprises and collective / township village enterprises.

There are some similarities to Western mixed economies, with some fundamental differences. The fundamental distinction between the Chinese and Western mixed-market economy models lies less in the implementation of the mixed economic model but rather in the degree of state-ownership and underlying authoritarian political philosophy, which eschews Western notions of democracy, individual rights, and the rule of law.

This type of economic system is defended from a Stalinist perspective which states that a fully developed socialist planned economy can only come into existence after first establishing the necessary and comprehensive commodity market economy and letting it fully develop until it exhausts its historical stage and gradually transforms itself into a planned economy (the Stalinist Two-Stage theory of revolution). Proponents of this economic model distinguish it from Market socialism: Market socialists believe that economic planning is unattainable, undesirable or ineffective, and thus view the market as an integral part of socialism, whereas proponents of the socialist market economy view markets as a temporary phase in development of a fully planned economy.

The state sector

By 2005 the market-oriented reforms, including privatisation, was virtually halted and partially reversed. In 2006, the Chinese government announced that the armaments, power generation and distribution, oil and petrochemicals, telecommunications, coal, aviation and shipping industries had to remain under "absolute state control" and public ownership by law. The state retains indirect control in directing the non-state economy through the financial system, which lends according to state priorities. Liberalization continues to be rolled back in the state-sector by the consolidation of state enterprises into large "national champions" with the goal of consolidating efforts and creating internationally competitive national industries.

The state sector is concentrated in the 'commanding heights' of the economy with a growing private sector engaged primarily in commodity production and light industry. Centralized directive planning based on mandatory output requirements and production quotas has been superseded by the free-market mechanism for most of the economy and directive planning in large state industries. A major difference from the old planned economy is the restructuring of state companies along a commercial basis, with the exception of 150 large state-owned enterprises that remain and report directly to the central government, most having a number of subsidiaries.

By 2008, these state-owned corporations have become increasingly dynamic largely contributing to the increase in revenue for the state. By 2009 the government considered a state insurance scheme to expand healthcare coverage. The state-sector led the economic recovery process and increased economic growth in 2009 after the financial crises, partially because most of the Chinese stimulus package was directed towards these state-owned firms. The state-sector make out 40 to 50 percent of China's GDP.

Enterprise forms

The socialist market economy consists of a wide range of state enterprises and mixed-enterprises. Following the 1978 reforms, most state enterprises were reorganized into Western-style corporations and joint-stock companies, with the government retaining control through owning controlling shares in these corporations.

• State-owned enterprise: Commercial enterprises established by either the central government or a local government, where managers are appointed by the government or public bodies. This category only includes wholly state-funded and managed firms. Most state-owned enterprises are not entities of the central government. Central government state-owned enterprises are subunits of the State-owned Assets Supervision and Administration Commission (SASAC).

• State-holding enterprise: State-holding, or state-controlled enterprises, are publicly listed firms where the state owns a large share or a controlling share within the firms, thereby exerting influence on the management of the firm. These include firms that receive foreign-direct investment.

• Privately owned enterprise: This category includes private limited liability corporations, private share‐holding corporations, private partnership enterprises and private sole investment enterprises.

• Urban Collectives
• Township-Village Enterprise

History

Main article: Chinese economic reform

The transition to a socialist market economy began in 1978 when Deng Xiaoping introduced his program of "Socialism with Chinese characteristics". Initial reforms in decollectivising agriculture and allowing private businesses and foreign investment in the late 1970s and early 1980s later led to large-scale radical reforms, consisting of privatisation of the state sector, liberalisation of trade and prices, and dismantling the welfare state in the late 1990s. Since the beginning of Deng Xiaoping's reforms, China's GDP rose from some 150 billion USD to more than 1.6 trillion USD, with an annual increase of 9.4 percent. As of 2004, 50% of the remaining state-owned enterprises have been transformed into joint-stock companies.

The private sector's share of the GDP rose from less than 1% in 1978 to 70% by 2005, a figure that is still increasing. Due to the poor performance of traditional state enterprises in the market economy, China embarked on a massive restructuring program of corporatization. Under this scheme, the state retains ownership and control of large enterprises but the central government has little direct control over the operations of state-owned enterprises. Recently the Conservative Hu-Wen Administration rolled back many of Deng's reforms, leaving observers dubbing 2008 the "third anniversary of the end of reform.

Analysis

Despite the official designation of "socialism", analysts often describe the Chinese economy as a form of state capitalism.

One analysis carried out by the Global Studies Association at the DePaul University finds that the Chinese economy does not constitute a form of socialism when socialism is defined as a planned economy where production for use has replaced production for profit, or when it is defined as a system where the working-class is the dominant class, and when it is defined as self-management or workplace democracy. However, it also finds that capitalism is not the dominant mode of organization in the Chinese economy, suggesting it is a partially pre-capitalist, agrarian system where almost 50% of its population is engaged in agricultural work.

Other Marxist analyses point out that the current Chinese system contains capitalist commodity relations in production, dis-empowers the working class, contributing to a sharp increase in social inequality and the growing size and political power of a capitalist class. Classical Marxists believe a "socialist commodity economy" is contradictory. Other socialists believe the Chinese have embraced many elements of market capitalism, specifically commodity production, resulting in a full-blown capitalist economic system. Although many enterprises are nominally publicly owned, the profits are retained by the enterprises and used to pay managers excessively high salaries rather than being distributed amongst the population.

Proponents of the socialist market economy compare it to the New Economic Policy in Soviet Russia that introduced market-oriented reforms while maintaining state-ownership of the 'commanding heights' of the economy. The reforms are justified through the belief that changing conditions necessitate new strategies for socialist development. According to Li Rongrong in 2003, chairman of the State-Owned Assets Supervision and Administration Commission of the State Council,

Public ownership, as the foundation of the socialist economic system, is a basic force of the state to guide and promote economic and social development and a major guarantee for realising the fundamental interests and the common prosperity of the majority of the people… The state owned economy has taken a dominant place in major trades that have a close bearing on the country’s economic lifeline and key areas, and has propped-up, guided and brought along the development of the entire socio-economy. The influence and control capacity of SOEs have further increased. State owned economy has played an irreplaceable role in China’s socialist modernisation drive.

See also

• Corporatization
• Chinese socialism
• Criticism of capitalism
• Criticisms of socialism
• Dirigisme
• Economy of the People's Republic of China
• Free market
• Mixed economy
• Market socialism
• New Economic Policy
• State capitalism