In What Way Can China’s ‘Socialist Market Economy’ Be Regarded as Successful and to What Extent Is It Not Achieving Its Promise?

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Question 2: In what way can China’s ‘socialist market economy’ be regarded as successful and to what extent is it not achieving its promise?

China is much more than just a mere country. It has been through many ups and downs and exciting changes in the Chinese society, from changes of dynasties to establishing a name under the ‘7 wonders of the world’ with its creation of the ‘Great Wall of China’. Its heritage and history for the past thousands of years have made China of what it is today. Hence, with Deng Xiaoping’s widely quoted phrases: “crossing the river by grouping for stones”, “Getting rich is glorious”, and “seek truth from facts, and not from ideology”, how has China develop and grown over the years? How did China attain its current economic prosperity? How did China seek the truth of its economy transition from a planned economy to a market economy over the decades?

“In a planned economy, government controls and determine business ownership, profits, and resource allocation. The theory behind a planned economy is ‘communism’, which suggests that all property is shared equally by the people in a community under the direction of a strong central government. It is an economic system that involves public ownership of businesses. Rather than entrepreneurs, the government decides what products consumers will be offered and in what quantities. As the main planner, the government establishes trade polices that historically have been very restrictive in allowing foreign companies the opportunity to compete” (Stralser, 2004). China was a planned economy under Mao Zedong’s leadership as he thoughts was mainly equality, where he established nationalization of China’s economy through the control of markets by keeping it free from foreign dominations, price, and production as well as natural and human resources. He also introduced the promotion of egalitarianism and collectivism with little incentives, while individuals’ needs are not being realized. As a result, economic development in China was stagnant and there was not much of an economic progress.

In the late 1930s, Oscar Lange started the idea of “Market Socialism,” an economy in which assets or methods of productions, were owned socially by the communist party or State, but which imitated the supply-demand price adjustment of the competitive market economy. Conversely, Lerner and Lange debated on the issue that the key element that is common to ‘market socialism’ is socialist (i.e. party) ownership and (managerial) control of assets. The key difference is that market-based allocation of goods and services versus centrally planned allocation of goods and services. In China, the ‘market’ element has expanded gradually since the start of the agricultural reforms in 1979 and the introduction of Urban reforms in 1984. In 1992, China publicly stated that its goal is a “socialist market economy with Chinese Characteristics.” Though China has successfully expanded the scope of the market, “socialist” (communist) control of factors remains very important. An understanding of these elements is vital to an understanding of the economic performance of China.

Thus, China’s transition from a planned economy to a ‘Socialist Market Economy’ started in 1978, after the death of Mao Zedong in 1976, when Deng Xiaoping recognized the need to reform its economy and political structure, as China was experiencing economic and developmental problems under Mao’s leadership. Deng Xiaoping’s thoughts were different from Mao Zedong’s, as Deng Xiaoping believed in prosperity and efficiency for China’s economy. His aim was to raise living standards and introduced the ‘Four Modernisations’; namely the Industry, Agriculture, Science and Technology and Defence, by developing ‘a market economy with Chinese Characteristics’. Moreover, he establishes a contract responsibility system in agricultural areas and revives individual businesses in urban areas to understand and satisfy individuals’...
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