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Socialist market economy

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This article is about the current economic system in the People's Republic of China. For the former political ideology of the Kuomintang in the Republic of China, see Chinese socialism. For the Western European system, see Social market economy.

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Socialist market economy
Simplified Chinese社会主义市场经济
Traditional Chinese社會主義市場經濟

The socialist market economy of modern China consists of a mixture of state-owned enterprises with an open-market economy. It is based on Deng Xiaoping's political platform of socialism with Chinese characteristics (t 中國特色社會主義, s 中国特色社会主义, Zhōngguótèsè shèhuìzhǔyì) and Reform and Opening (s 改革开放, t 改革開放, Gǎigé Kāifàng). It is the economic system in the People's Republic of China since the Chinese economic reform started in 1978 (see Economy of the People's Republic of China). Despite its formal title, this system has been widely cited as a form of state capitalism.[1]

Similar though much less extensive reforms were undertaken in Vietnam, where the economic system is called the Đổi Mới (lit. "New Age", trans. "Renovation") and 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. However, in doing so, he remained committed to the centralized control and the one-party state central to Leninism.

The socialist market economy is 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.[2] 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.

However, 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.[3]

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.[4]

The state sector

By 2005 the market-oriented reforms, including privatisation, was virtually halted and partially reversed.[5] 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.[6] 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.[7]

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.[8] 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.[9]

By 2008, these state-owned corporations have become increasingly dynamic largely contributing to the increase in revenue for the state.[10][11] By 2009 the government considered a state insurance scheme to expand healthcare coverage.[12] 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.[13] The state-sector make out 40 to 50 percent of China's GDP.[14]

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.[15] As of 2004, 50% of the remaining state-owned enterprises have been transformed into joint-stock companies.[15]

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.[16] 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.[17]

Analysis

Despite the official designation of "socialism", the current Chinese economy is often described by economists as a hybrid of free market capitalism and socialism.[citation needed]

This view is also shared by orthodox Marxists, who criticise China on the grounds that the socialist market economy restores capitalist commodity relations and production while further dis-empowering the working class, leading to a sharp increase in social inequality and the formation of a growing capitalist class.[18] 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.[19]

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.[20] 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

References

  1. ^ "The rise of state capitalism". The Economist. 21 January 2012.
  2. ^ Vuong, Quan-Hoang. "Financial Markets in Vietnam's Transition Economy: Facts, Insights, Implications" (Feb 2010) ISBN 978-3-639-23383-4, VDM Verlag, 66123 Saarbrücken, Germany.
  3. ^ Yu, Verna (7 September 2010) "Shenzhen speeches show divide on 'political reform'", South China Morning Post
  4. ^ Market Economy and Socialist Road Duan Zhongqiao
  5. ^ Hederman, Rea. "10 China Myths for the New Decade | The Heritage Foundation". Heritage.org. Retrieved 7 September 2010.
  6. ^ "China names key industries for absolute state control". China Daily. 19 December 2006. Retrieved 7 September 2010.
  7. ^ Hederman, Rea. "Liberalization in Reverse | The Heritage Foundation". Heritage.org. Retrieved 7 September 2010.
  8. ^ "The Role of Planning in China's Market Economy" (PDF). Retrieved 7 September 2010.
  9. ^ "Reassessing China's State-Owned Enterprises". Forbes. 8 July 2008. Retrieved 7 September 2010.
  10. ^ "InfoViewer: China's champions: Why state ownership is no longer proving a dead hand". Us.ft.com. 28 August 2003. Retrieved 7 September 2010.
  11. ^ http://ufirc.ou.edu/publications/Enterprises%20of%20China.pdf
  12. ^ Ramzy, Austin (9 April 2009). "China's New Healthcare Could Cover Millions More". TIME. Retrieved 7 September 2010.
  13. ^ "Business | China grows faster amid worries". BBC News. 16 July 2009. Retrieved 7 September 2010.
  14. ^ Chinese companies shore up government ties to survive
  15. ^ a b China has socialist market economy in place (People's Daily Online, 2005).
  16. ^ "Reform of China's State-owned Enterprises A Progress Report of Oxford Analytica". Worldbank.org. Retrieved 7 September 2010.
  17. ^ Scissors, Derek, Liberalization in reverse, heritage.org (2009)
  18. ^ http://www.marxist.com/china-socialist-market-economy200106.htm
  19. ^ http://www.mtholyoke.edu/courses/sgabriel/economics/china-essays/18.htm
  20. ^ By: C.J. Atkins. "The Leninist Heritage of the Socialist Market Economy". Political Affairs. Retrieved 7 September 2010. [dead link]

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