Socialist market economy
Encyclopedia
The socialist market economy or socialist market economy with Chinese characteristics is the official term used to refer to the economic system of the People's Republic of China
after the reforms of Deng Xiaoping
. It is also referred to as socialism with Chinese characteristics. Similar though much less extensive reforms were undertaken in Vietnam, where the economic system is called the Đổi Mới (lit. "New Age", trans. "Renovation"), respectively. It consists of a mixture of economic planning
with a market economy
.
(1958-1961), was willing to consider capitalist methods of economic growth so as to revitalise China's economy. However, in doing so, he remained committed to centralized control and the one-party state.
The socialist market economy is a concept first proposed by Deng Xiaoping
in order to incorporate the market into the then planned economy in the People's Republic of China, then Đổi Mới in Vietnam. Following its implementation, this economic system has supplemented the centrally planned economy in the People's Republic of China, and the high growth rates in GDP during the past decades have been attributed to it. Within this model, privately owned enterprises are a major component of the economic system, along with 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 underlying authoritarian political philosophy, which eschews Western notions of democracy, individual rights, and the rule of law.
In addition, private entrepreneurs have a propensity to claim to be collectives and under-report the size of their business. The private sector generated approximately 70% of GDP in 2005, a figure that might be even greater considering the Chengbao system
, in which entrepreneurs operate assets which nominally belong to the government. The state retains control of some strategic industries.
Numerous sectors such as health care and education that were previously run by the state were privatised during the formation of China's current market economy. The growth of the private sector is indeed phenomenal, as shown by this quote below:
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.
These state enterprises have high autonomy in that they can choose their own CEO's, keep their own profits, but differ from the private firms in that they get a bailout if anything goes wrong. By 2008, these state-owned corporations have became increasingly dynamic largely contributing to the increase in revenue for the state. The state-sector led the economic recovery process and increased economic growth in 2009 after the financial crises, due to the fact that most of the Chinese stimulus package was directed towards these state owned firms.
This type of economic system is defended from a Stalinist perspective which states that a socialist planned economy can only be possible after first establishing the necessary comprehensive commodity market economy, 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 model distinguish themselves from market socialists
, who believe that economic planning is unattainable, undesirable or ineffective at distributing goods, viewing the market as the solution rather than a temporary phase in development of a socialist planned economy.
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 privatisation. 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.
Orthodox 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 capitalist economic system.
While some industries remain under state ownership, its scope has been reduced substantially in recent years due to the privatisation program since the late 1990s. As a result, output of the Chinese economy has increased between 1989 and 2001; the privatisation program continues. While the free-market has largely supplemented central economic planning in the Chinese economy, the Chinese government still guides overall national economic development through "indicative planning
".
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,
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
after the reforms of Deng Xiaoping
Chinese economic reform
The Chinese economic reform refers to the program of economic reforms called "Socialism with Chinese characteristics" in the People's Republic of China that were started in December 1978 by reformists within the Communist Party of China led by Deng Xiaoping.China had one of the world's largest...
. It is also referred to as socialism with Chinese characteristics. Similar though much less extensive reforms were undertaken in Vietnam, where the economic system is called the Đổi Mới (lit. "New Age", trans. "Renovation"), respectively. It consists of a mixture of economic planning
Economic planning
Economic planning refers to any directing or planning of economic activity outside the mechanisisms of the market, in an attempt to achieve specific economic or social outcomes. Planning is an economic mechanism for resource allocation and decision-making in contrast with the market mechanism...
with a market economy
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
.
Description
Deng Xiaoping, after the failure of the Great Leap ForwardGreat Leap Forward
The Great Leap Forward of the People's Republic of China was an economic and social campaign of the Communist Party of China , reflected in planning decisions from 1958 to 1961, which aimed to use China's vast population to rapidly transform the country from an agrarian economy into a modern...
(1958-1961), was willing to consider capitalist methods of economic growth so as to revitalise China's economy. However, in doing so, he remained committed to centralized control and the one-party state.
The socialist market economy is a concept first proposed by Deng Xiaoping
Deng Xiaoping
Deng Xiaoping was a Chinese politician, statesman, and diplomat. As leader of the Communist Party of China, Deng was a reformer who led China towards a market economy...
in order to incorporate the market into the then planned economy in the People's Republic of China, then Đổi Mới in Vietnam. Following its implementation, this economic system has supplemented the centrally planned economy in the People's Republic of China, and the high growth rates in GDP during the past decades have been attributed to it. Within this model, privately owned enterprises are a major component of the economic system, along with the central state-owned enterprises and collective / township village enterprises.
However, the fundamental distinction between the Chinese and Western mixed-market economy
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
models lies less in the implementation of the mixed economic model but rather in the underlying authoritarian political philosophy, which eschews Western notions of democracy, individual rights, and the rule of law.
The private sector
Most of the economic growth in China is attributed to the private sector, which grows at twice the official rate of increase and is continually expanding. However, the size of the private sector is notoriously difficult to pin down as the private sector is likely underestimated by state officials in calculation of GDP because of its propensity to ignore small entrepreneurs and private enterprises being not registered.In addition, private entrepreneurs have a propensity to claim to be collectives and under-report the size of their business. The private sector generated approximately 70% of GDP in 2005, a figure that might be even greater considering the Chengbao system
Chengbao system
In the People's Republic of China, the Chengbao system refers to the private or individual contracted operation of public assets such as bus lines, hospitals, and schools. These operators pay a fee as well as a percentage of profit generated to the state...
, in which entrepreneurs operate assets which nominally belong to the government. The state retains control of some strategic industries.
Numerous sectors such as health care and education that were previously run by the state were privatised during the formation of China's current market economy. The growth of the private sector is indeed phenomenal, as shown by this quote below:
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. By 2009 the government considered a state insurance scheme to expand healthcare coverage.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.
These state enterprises have high autonomy in that they can choose their own CEO's, keep their own profits, but differ from the private firms in that they get a bailout if anything goes wrong. By 2008, these state-owned corporations have became increasingly dynamic largely contributing to the increase in revenue for the state. The state-sector led the economic recovery process and increased economic growth in 2009 after the financial crises, due to the fact that most of the Chinese stimulus package was directed towards these state owned firms.
This type of economic system is defended from a Stalinist perspective which states that a socialist planned economy can only be possible after first establishing the necessary comprehensive commodity market economy, 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 model distinguish themselves from market socialists
Market socialism
Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
, who believe that economic planning is unattainable, undesirable or ineffective at distributing goods, viewing the market as the solution rather than a temporary phase in development of a socialist planned economy.
History
The transition to a socialist market economy began in 1978 when Deng XiaopingDeng Xiaoping
Deng Xiaoping was a Chinese politician, statesman, and diplomat. As leader of the Communist Party of China, Deng was a reformer who led China towards a market economy...
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 privatisation. 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
Hu-Wen Administration
The Hu-Wen Administration , or Hu-Wen New Administration is the name given to the Chinese leadership that succeeded Jiang Zemin, Li Peng and Zhu Rongji, whose official start date was 2003...
rolled back many of Deng's reforms, leaving observers dubbing 2008 the "third anniversary of the end of reform.
Controversy
Despite the official stance of socialism, the "socialist market economy" is often described as one hybrid type of both free market and socialism by economic observers. This criticism also comes from orthodox Marxists, who criticise it 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. The political ideology term itself have often been mentioned for scapegoating bearing other issue like currency, energy, fair trade and environment change caused during economic and technology development.Orthodox 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 capitalist economic system.
While some industries remain under state ownership, its scope has been reduced substantially in recent years due to the privatisation program since the late 1990s. As a result, output of the Chinese economy has increased between 1989 and 2001; the privatisation program continues. While the free-market has largely supplemented central economic planning in the Chinese economy, the Chinese government still guides overall national economic development through "indicative planning
Indicative planning
Indicative planning is a form of central economic planning implemented by a state in an effort to solve the problem of imperfect information in economies and thus increase economic performance...
".
Proponents of the socialist market economy compare it to the New Economic Policy
New Economic Policy
The New Economic Policy was an economic policy proposed by Vladimir Lenin, who called it state capitalism. Allowing some private ventures, the NEP allowed small animal businesses or smoke shops, for instance, to reopen for private profit while the state continued to control banks, foreign trade,...
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
Li Rongrong
Li Rongrong is a politician of the People's Republic of China and the former chairman of State-owned Assets Supervision and Administration Commission of the State Council of PRC....
in 2003, chairman of the State-Owned Assets Supervision and Administration Commission of the State Council,
See also
- Chinese socialismChinese socialismChinese socialism is the unique form of socialism and socialist thought developed in China in the modern era. The Tongmenghui revolutionary organization led by Dr...
- Criticism of capitalism
- Criticisms of socialismCriticisms of socialismCriticism of socialism refers to a critique of socialist models of economic organization, their efficiency and feasibility; as well as the political and social implications of such a system. Some criticisms are not directed toward socialism as a system, but are directed toward the socialist...
- Economy of the People's Republic of ChinaEconomy of the People's Republic of ChinaThe People's Republic of China ranks since 2010 as the world's second largest economy after the United States. It has been the world's fastest-growing major economy, with consistent growth rates of around 10% over the past 30 years. China is also the largest exporter and second largest importer of...
- Mixed economyMixed economyMixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
- Market socialismMarket socialismMarket socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
- Free market capitalism
- State capitalismState capitalismThe term State capitalism has various meanings, but is usually described as commercial economic activity undertaken by the state with management of the productive forces in a capitalist manner, even if the state is nominally socialist. State capitalism is usually characterized by the dominance or...