China has successfully moved to a Market Economy. Discuss this view.

China has successfully moved to a Market Economy. Discuss this view.

In a relative short span of three decades, the Chinese economy under the CCP has managed to open up its economy, embracing capitalism and most of its practices. It is rapidly becoming the world’s largest economy, beating the developed economies in their own game. Chinese economic transformation has been therefore largely successful. However, given the politically conservative nature and authoritarian framework of the communist regime, Chinese economic transformation remains incomplete. Therefore, I disagree with the view that China has successfully moved to a market economy.

  • Market Reforms /Embrace Capitalism

China can be argued to have successfully moved to a market economy with its market reforms. After 1978, China has gradually successfully opened itself up to the forces of capitalism. Deng’s “Socialism with Chinese Characteristics” justified the establishment of capitalism within communist China. With the establishment of the four Special Economic Zones (SEZs) in Southeastern Chinese provinces, more trading cities have emerged along the banks of the Yangtze River to facilitate international businesses into China. These SEZs are areas in which foreign and domestic companies can trade and invest without the same control and regulations from Beijing and other parts of China. Since 1982, China’s SEZs have all been developing at an incredible speed. For instance, Shenzhen itself have been especially successful in 1992 as it attracted 14% of China’s total foreign investments and the city is now one of China’s main import – export hubs as well as a leading manufacturing base. It was due to these successes that led to the Chinese government sanctioning more foreign trade areas to cities such as Shanghai today. Therefore, it can be argued that China has successfully moved to a market economy as evident from how it has opened up the forces of capitalism.

 

  • Introduction of Privatization

Secondly, the introduction of privatization has been introduced to increase the efficiency of China’s agricultural and industrial productions. In the agricultural sector, the Household Responsibility System was introduced to encourage greater productivity as peasants could now sell their surplus on the open market. Town Village Enterprises (TVEs) were later established so that surplus labour in the countryside could earn extra income, through employment in low skilled manufacturing industries. By 2008, the government allowed the more profitable farms to enjoy greater economies of scale as they could now lease land from the smaller farmers. In addition, farmers in Yunnan could also collaborate with foreign firms such as Nescafe to cultivate modern cash crops. Monetary incentives are also introduced to improve the process and productivity of SOEs. To make the SOEs internationally competitive, they were restructured and reformed along the managerial model of foreign-owned MNCs. At the same time, leaders of SOEs were better tutored in the capitalist ways by the government. Therefore, it can be argued that China has successfully moved to a market economy as evident from how privatization has been introduced to improve agricultural and industrial productivity.

  • Lack of international recognition

On the other hand, the fact that international organizations and bodies such as the World Trade Organization (WTO) considers China as a ‘non-market economy’ shows that China failed to successfully move to a market economy. Although China has become the leading producer of steel, aluminum, cement and other industrial materials as of 2016, the European Union (EU) and other global organizations still refuses to debate whether China is deserving of the Market Economy Status, whereby costs and prices are determined by the market, rather than by the intervening hand of the state which is what China’s government is currently doing. As such, this allows China to export and offer its products much more cheaply to many of its trading partners, affecting the competition between its trading partners. Therefore, China fails to successfully qualify as a market economy given that its economic practices does not meet the requirements of a market economy.

 

  • Failure to adhere to economic laws

Similarly, the great influence wielded by the governmental officials in the initiation and execution polices also resulted in the Chinese economy being structurally top-down, and unresponsive to market needs. Furthermore, official dominance in national and regional commerce has made China’s market economy a farce. The intellectual circle, entertainment and information industries are often stifled by pervasive political censorship. As such, dependence on personal connections or ‘guanxi’ with the authorities and bribery have become important factors for business success and without them, large scale ventures are often impossible unless with the partnership of local authorities. Given the vast influence of the officials, the market economy system is often left unchecked. At the same time, infringement of intellectual property rights and poor quality control are rampant, with many foreign companies in operating in China often complaining that China views the appropriation of foreign innovations as a part of a policy mix aimed at developing domestic technology. Therefore, China has not totally moved to a market economy as evident from the failure to adhere to the rule of law when conducting businesses.

 

  • Ineffective SOEs

Lastly, most private enterprises in China are overshadowed by the overwhelming and often inefficient SOEs. With SOEs receiving the bulk of governmental attention, support and resources for their development, private enterprises often end up losing out. The SOEs employed millions and are not transported to their operations. The accumulated bad debts held by the state banks are often due to unprofitable SOEs which continues to receive aid from the government. As such, China undertook a first round of drastic reforms of its State-Owned Companies in the 1990s in order to cope with its massive losses, with mass closures of its weakest firms, and stock market listing for many of the highest which made them run a bit more like private companies. Although it was initially able to pay dividends, SOE’s return on assets, a gauge of their productivity rose from barely higher than a 0 in 1998 to merely 7% in 2008. Therefore, it can be argued that China has not totally moved into a market economy as evident from the inefficiency of the SOEs.

In conclusion, despite China’s market reforms, some characteristics of the politically entrenched socialist system still continues to plague the efficiency of its market practices. However, as the Chinese economic transformation is still young and ongoing, with time, this may change so long as the Chinese government and its business-minded officials continue to lead and facilitate China’s economic accomplishment.

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