China's Socialist Market Economy

Since the 1980s, China's Communist Party has been using "socialist market economy" to describe their nation's economic system. China's economy is subject to market forces, and capitalists are involved, but the Party does not believe that capitalists run their economy.

Some people in the United States believe that capitalist influence accounts for China's economic growth: 8.4 percent in GDP in 2009 compared to minus 2.4 percent for the United States. They may describe some of President Obama's policies as socialist and may speak disparagingly of socialism regarding some economies in Europe. Socialism does not work, they claim. They are not inclined to credit socialism for any of China's growth – while China's Communist Party believes it is exercising effective control over their nation's economic engine.

China's Communist Party recognized that it was to their nation's advantage not to isolate itself economically from the rest of the world. Beyond trade, China's Deng Xiaoping invited investment from abroad in Chinese industries. Ownership of industries by foreigners and by individual citizens was exist alongside state-owned industries. According to Business Week in 2005, the private sector accounted for 70 percent of the nation's GDP – a figure many believe to be an under-estimation. But at least some in China view the economy as functioning for the sake of "The People" rather than for the gain of individual entrepreneurs. They see investors seeking profits but doing so within the confines of state control – in other words "The People's" control. They describe the state as controlling the "commanding heights" of the economy and the private sector engaged primarily in commodity production and light industry.

Banking – lending and credit – is under state control. If the state wants the banks to hold back on credit to prevent market overheating (credit bubble creation) it does so. If the state wants the banks to increase their lending, the banks do so. (In the US in late 2009 the government wanted the banks to lend but the banks were reluctant to do so. Banks in the United States are governed by their own economic interests, with some regulation.)

China's 150 or so large state-owned enterprises report directly to the central government while choosing their own CEO's and keeping their profits. But if they get into financial trouble, the state bails them out.

Unlike the Soviet Union in Lenin's and Stalin's day, Chinese law protects a person's right to his private property. This began at a Communist Party gathering in October, 2003, followed by Chinese legislators proposing amendments to the state constitution. In March, 2004, the National People's Congress approved the amendments.

Marx did his intellectual work more than 150 years ago, and Communist Party members see their Party as having grown intellectually in accordance with their experience and what history has handed them. The world has developed not exactly as Marx envisioned, but the Communist Party claims that China's revolution was and remains essentially Marxist.

Some in the West view China's Communist Party identifications with Karl Marx as an anachronism. Some who are most hostile see China as indeed Marxist. And some think of China as anything but democratic so long as it does not have a multi-party political system.

If China did have a multi-party political system – as exists in Thailand, Russia, the United States, et cetera – then people of wealth might indeed gain the political influence that would enable them to guide the economy to their benefit. And there would probably be the social instability that has existed in recent years in Thailand and elsewhere.

Addendum:

March 14, 2012, IQ Squared debate. Minxin Pie:

If you are a private entrepreneur in China you cannot go into – you cannot open a private bank. You cannot get into telecom services. You cannot get into energy. You cannot get international resources. You cannot get into 14 other very important sectors because these are the sectors reserved for state owned companies. You cannot get bank loans. You don't have secure property rights. If you get into a dispute with another entrepreneur, with another businessman, whether you win that dispute does not depend on whether you have a good case, it depends on whether you know the communist party secretary in charge of the legal system.

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