Thursday, October 22, 2015

China's Mixed Economy

The People’s Republic of China (PRC) was formed in 1949, when Mao Zedong took power. Under Mao’s government, China’s economic system leaned more towards a command economy than mixed or a free market, with economic development goals set by special planning committees of the government. Factories and farmers operated under state plans. In 1978, Deng Xiaoping came to power. Deng’s “Ten Year Plan” pushed China’s economy to grow industrially and agriculturally, with investments in new technology. Deng also opened up China to foreign investment, which allowed more capital to enter the country.
In 1992, China’s government decided to create a market economy. According to the online article, “Economic System,"

To meet the requirements of the market economy, the operations of state-owned enterprises should be changed so that they fit in with the modern enterprise system. A unified and open market system should be established in the country so as to link the rural and urban markets, and the domestic and international markets, and to promote the optimization of the allocation of resources. The function of managing the economy by the government should be changed so as to establish a complete macro-control system mainly by indirect means.

In 1990, the Shanghai stock exchange re-opened after forty years. China then joined the World Trade Organization in December, 2001.

Imports and Exports
China exports $2.34 trillion worth of goods and imports $1.96 trillion worth of goods per year. Main exports include machinery, apparel, textiles, iron and steel. Main imports include machinery, oil and mineral fuels, and medical equipment.

“Socialist Market Economy”
China’s official description of their economic system is a socialist market economy. This is defined as an economic system in which industry and commerce are run by private enterprise within limits set by the government to ensure equality of opportunity and social and environmental responsibility. China’s government does set limits for the private sector, but the size of the public sector is still very large. The state runs financial institutions (banking), energy, tobacco, transportation, publishing, basic telecommunications, and oil and gas.
Despite the large number of state run enterprises, in 2012, they only accounted for 34% of total fixed investment in China with 48% attributed to private firms. Similarly, in exports, only 11% of exports were manufactured under government control compared to 39% by domestically owned firms. This suggests that privately owned firms are faring just as well as state-run ones, or possibly even better. According to the book, Markets Over Mao, the profit of the private sector in 2012 was 13.9% as opposed to 4.9% in the public sector.
Figure 1
China’s True Mixed Economy
China’s GDP has skyrocketed in the past twenty-four years as seen in Figure 1. More information on this can be found here. This is due to the economic reforms China has implemented, the opening of the stock market, and the development of the private sector. China claims to be a socialist market economy, which in part is true, but the government still controls many aspects of the economy. The private sector of China continues to grow which suggests China is leaning towards a free market economy and less towards a command economy like in the country's past. However, China is clearly mixed as the public and private sectors both play large roles in China’s economy.

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