How successful has China moved from a planned to a market economy since

1978?
In a relatively 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 worlds second largest economy,
beating the developed economies at their own game. Chinese economic
transformation has been therefore largely successful. Nevertheless, given
the political conservative nature and authoritarian framework of the
communist regime, Chinese economic transformation remained incomplete.
Characteristics of a planned economy such as having a centrally planned
baking system and dominance by state officials have continued to plague the
development of Chinas market economy. This had been due to the fact that
Chinas economic transition has been evolutionary, gradual and mindful of its
own political realities.
After 1978, China has gradually and successfully opened itself up to the
forces of capitalism beyond its borders. Dengs socialism with Chinese
characteristics justified the establishment of capitalism within communist
China. Began with the establishment of four SEZ in Southeastern Chinese
coastal provinces. More trading cities flourished along the banks of the
Yangtze to facilitate international commerce into mainland China. Chinese
leaders toured the more developed countries to invite foreign capitalist firms
to invest and set up businesses in China. Industrial parks and preferential
treatments are in place to attract foreign capital and know-how.
Privatization has been introduced to improve on the efficacy of Chinas
agricultural and industrial productivity. In the agricultural sector, the
Household responsibility system was introduced to encourage greater
productivity as peasants could now sell their surplus crops on the open
market. 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 EOS as they could from then lease their lands to smaller
farmers. Farmers in Yuanan could collaborate with foreign firms such as
Nescafe to cultivate modern cash crops. Monetary incentives were also
introduced to improve the processes and productivity of the SOEs. To make
the SOEs internationally competitive, they were restructured along the
managerial model of foreign-owned MNCs. Leaders of the SOEs were better
tutored in the capitalistic ways; they were given greater autonomy by the
government at making business decisions.
In addition, Chinese economic since the 1980s is becoming increasingly
market-oriented and less state-controlled. Monetary economy was
established with the abolishment of coupons by the 1980s as they yuan
became the nations legal tender. Retail and service sector began to flourish

throughout China as the government began to deregulate the market. Trade

volume and flow of investments between China and other countries
expanded rapidly after the 1980s. More people set up own businesses to
provide goods and services that are in domestic and foreign demand.
Salaries are determined by job performance and most occupational benefits
reminiscence of the old socialist system has been withdrawn.
Meanwhile, Chinas integration with the global market economy has become
more formalized and rapidly deepened. Entry into the WTO has made China a
formal member of the international market economy. Subsequent trade
treaties signed with other countries such as the bilateral and regional free
trade agreements, further integrate the Chinese with the global system. By
2009, China has become the third largest economy and the largest exporter
in the world. The vast Chinese market has continued to attract foreign
investors and businesses even during the 2008-2009 financial crises.
Chinese investments are also sought after by the developing and resourcerich nations.
On the other hand, Chinas financial system remained centrally-planned and
underdeveloped. Despite progresses made in the modernization of Chinas
financial system, the four major state banks remained under strong state
control and are inflexible to the needs of the market. This is a characteristic
of the command economy. China does not have a transparent and developed
bond and stock markets. Value of the Chinese currency is determined by the
government. Chinese banking system continued to discriminate against
private households, local small and medium enterprises, thus irresponsive to
market needs. Financial resources are concentrated in the SOEs traditionally
affiliated with the state banks.
Subsequently, most private enterprises in China are overshadowed by the
mammoth and often inefficient SOEs. SOEs have been receiving the bulk of
governmental attention, support and resources for their development. The
SOEs employed millions and are not transparent in their operations.
Unprofitable SOEs are also responsible for the accumulated bad debts held
by state banks. The SOEs and SIEs contributed to more than half of Chinas
GDP growth. They are the corporations that spearheaded Chinese economic
expansion overseas through aggressive acquisitions and investments. Private
enterprises are often excluded from more large-scale industries such as
energy, steel and telecommunications.
Chinese agriculture sector, handicapped by state land ownership and the
prerogative to sustain high growth rate, could hardly hope to become a
market-oriented industry. Compared with their counterparts in the more
developed countries, Chinese farms are smaller neither as productive nor
efficient. They do not enjoy EOS as the land is owned by the government.
Arbitrary misappropriation of lands by local officials is also common, giving

farmers relatively less incentives to innovate and to improve on productivity

as they would if agriculture is fully privatized. Compulsory grain procurement
policy, a practice of the command economy, has affected the profits farmers
could reap from the open market. Despite the tax exemptions and rural
incentives promulgated in recent years, Chinas agricultural sector remained
within the firm grip of the government.
Great influence wielded by governmental officials in the initiation and
execution of economic policies also resulted in the Chinese economy being
structurally top-down and unresponsive to market needs. Official dominance
in national and regional commerce has made Chinas market economy a
farce. The intellectual circle, entertainment and information industries are
stifled by pervasive political censorship. Dependence on personal connection
with the relevant authorities, and bribery has become important factors for
business success. Private enterprises of the inland provinces are so heavily
taxed by unscrupulous local officials that few are truly profitable. Large scale
business ventures are often impossible without partnering with local
authorities. Given the vast influence of the officials, rule of law, the backbone
of market economic system, is largely unobserved in China. Infringement of
intellectual property rights and poor quality control are rampant.
In conclusion, despite the challenges, China has to a large extent
successfully transformed itself into a globally recognized market economy.
Subsequently, the authoritarian CCP government and its business-minded
officials are the ones leading and facilitating Chinas economic
accomplishments. Thus, the causes for Chinas success are at the same time
the limitations of its market system. As the Chinese economic transformation
is still young and ongoing, it should not come as a surprise that some
characteristics of the politically entrenched socialist system have continued
to plague the efficacy of its market practices.