Socialist market economy
The socialist market economy is the economic system and model of economic development employed in the People's Republic of China. The system is a market economy with the predominance of public ownership and state-owned enterprises. The term "socialist market economy" was introduced by Jiang Zemin during the 14th National Congress of the Chinese Communist Party in 1992 to describe the goal of the reform and opening up.
Originating in the reform and opening up initiated in 1978 that integrated China into the global market economy, the socialist market economy represents a preliminary or "primary stage" of developing socialism. Some commentators describe the system as a form of "state capitalism", while others describe it as an original evolution of Marxism, in line with Marxism–Leninism similar to the "New Economic Policy" of the Soviet Union, adapted to the cohabitation with a globalized capitalist system.
History
After the Great Leap Forward and the ousting of the Gang of Four from power in 1976, then-paramount leader Deng Xiaoping refocused China's efforts on economic growth and on finding an economic system compatible with China's specific conditions. However, in doing so he remained committed to the Leninist model of centralized political control and a one-party state. Deng and the CCP leadership rejected the prior Maoist emphasis on culture and political agency as the driving forces behind economic progress and started to place a greater emphasis on advancing the material productive forces as the fundamental and necessary prerequisite for building an advanced socialist society. The adoption of market reforms was seen to be consistent with China's level of development and a necessary step in advancing the productive forces of society. This aligned Chinese policy with a more traditional Marxist perspective where a fully developed socialist planned economy can only come into existence after a market economy has exhausted its historical role and gradually transforms itself into a planned economy, nudged by technological advances that make economic planning possible and therefore market relations less necessary. In Deng's view, both state planning and market mechanisms were tools to liberate productivity, and that while a capitalist market economy is dominated by individualism, a socialist market economy would lead to common prosperity.The transition to a socialist market economy began in 1978 when Deng Xiaoping introduced his program of socialism with Chinese characteristics. Initial reforms in decollectivizing agriculture and opening the economy to foreign investment in the late 1970s and early 1980s later led to large-scale radical reforms, including corporatization of the state sector, partial privatization of some enterprises, liberalization of trade and prices and dismantling of the "iron rice bowl" system of job security in the late 1990s. With with the backing of the reformist general secretary, Hu Yaobang, and Premier Zhao Ziyang, the third plenum of the 12th CCP Central Committee officially adopted the concept of a "planned commodity economy".
During his 1992 southern tour, Deng promoted the ideological basis for the socialist market economy, stating his view that "lanned economy does not equal socialism and market economy does not equal capitalism. Socialism can have market mechanisms as well, and government planning and market are both economic means." Jiang Zemin originally introduced the term "socialist market economy" in 1992. He had coined the idea so that China could learn the lessons from capitalist countries without needing to discuss if the reforms are "socialist" or "capitalist." Jiang had asked Deng Xiaoping if he had approved of the term, which he did. The Đổi Mới in Vietnam later adopted the concept. Following its implementation, this economic system has supplemented the command economy in the People's Republic of China, with high growth-rates in GDP during the past decades having been attributed to it. Within this model, privately owned enterprises have become a major component of the economic system alongside the central state-owned enterprises and the collective/township village enterprises.
At the first session of the 8th National People's Congress on 29 March 1993, the preamble of the Constitution of China was amended to incorporate the system. In 1993, the CCP issued its "Decision on Issues Related to the Establishment of a Socialist Market Economy System." In the wave of reform thereafter, one goal was to separate SOE management from government and to empower a select group of SOEs with special property rights and autonomy. In 1994, China devalued the renminbi by 33 percent as part of socialist market economy reforms. After adoption of the socialist market economy, agricultural production increased significantly and China eliminated starvation.
Content
The socialist market economy is officially described as an "economic system in which the market plays a decisive role in resource allocation under the macro-control of the socialist state". It is described the CCP as an early stage in the development of socialism, where public ownership coexists alongside a diverse range of non-public forms of ownership.In the CCP's view, China is not a capitalist country because despite the co-existence of private capitalists and entrepreneurs with public and collective enterprise, the state holds a monopoly on all land ownership and a primary ownership stake in the economy's largest and strategic enterprises, while the party retains control over the state and the direction of the country. However, many scholars consider the Chinese economic model as an example of authoritarian capitalism, state capitalism or party-state capitalism.
Proponents of this economic model distinguish it from market socialism as market socialists believe that economic planning is unattainable, undesirable or ineffective and thus view the market as an integral part of socialism whereas proponents of the socialist market economy view markets as a temporary phase in development of a fully planned economy.
Characteristics
Enterprise and ownership types
Public ownership in the socialist market economy consists of state-owned assets, collectively owned enterprises, and the publicly owned shares of mixed enterprises. These various forms of public ownership dominate the socialist market economy alongside substantial private and foreign enterprises.The principles of the socialist market economy legitimized the idea that ownership of state-owned enterprises could be structured in various forms, including majority state-owned joint stock companies. There are a few major forms of state-owned enterprises in China today:
- State-owned enterprises: commercial enterprises established by either the central government or a local government, where managers are appointed by the government or public bodies. This category only includes wholly state-funded and managed firms. Most state-owned enterprises are not entities of the central government. Central government state-owned enterprises are subunits of the State-owned Assets Supervision and Administration Commission.
- State-holding enterprises: state-holding, or state-controlled enterprises, are publicly listed firms where the state owns a large share or a controlling share within the firms, thereby exerting influence on the management of the firm. These include firms that receive foreign direct investment.
- State joint ownership enterprises:
State sector
Beginning with the 1978 reforms, in the 1980s during the industrial reforms, state enterprises were gradually corporatized and transformed into joint-stock corporations with the state retaining either full or majority ownership of their shares. By the early 2000s, most major SOEs in non-strategic sectors were listed on the Shanghai and Hong Kong stock exchanges and some SOEs adopted mixed ownership structures where the central government and various other state entities—including state banks, other SOEs, provincial and local governments—own varying degrees of the firm's listed shares alongside foreign and private shareholders. The result has been a highly diffuse form of public ownership where various government entities, agencies, and other state-owned enterprises own state-owned enterprises. This makes gauging the true size and scope of the state sector difficult, particularly when SOEs with mixed ownership structures are considered. In 2013, the public sector accounted for 30% of the number of firms in China, but 55% of assets, 45% of revenue, and 40% of profits.
In 1996, China implemented a comprehensive series of industrial reforms termed "Grasping the large, letting go of the small". These reforms involved closing unprofitable state enterprises, merging smaller enterprises, and privatizing other small-to-medium enterprises. Centrally owned SOEs were reformed into joint-stock companies with the aim of delegating more authority to SOE managers. SOEs at all levels shifted their primary focus to profitability and shed their social welfare function of providing social services and benefits to their workers in what was known as the "Iron Rice Bowl" system. The State-owned Assets Supervision and Administration Commission was formed in 2003 to oversee the management of the large centrally owned state enterprises.
Modern SOEs are operationally very different from those in the 1990s. SOEs are much larger in size and fewer in number, with central government-owned SOEs clustered in "strategic sectors" including banking, finance, mining, energy, transportation, telecommunications, and public utilities. By comparison, provincial and municipal level SOEs number in the thousands and are involved in almost every industry, including information technology and automobile design and production. State sector reform is an ongoing process in China. As of 2017, the CCP has rejected the Singapore model of Temasek-style state investment companies for China's SOEs, where SOEs operate solely to maximize profits on a commercial basis. In particular, China maintains that centrally owned SOEs also pursue national and industrial policy objectives. As a result of recent reforms to increase profitability and unload debt, the government reported the profits of central government-owned SOEs rose by 15.2% in 2017.
Despite becoming increasingly profitable, SOEs in China have not paid dividends to the state, causing some analysts to question the rationale for public ownership in the first place. As part of SASAC's ongoing reforms, SOEs will now be encouraged and required to pay a higher portion of their profits as dividends to the state, with some state-owned assets being transferred to social security funds to help finance pensions for China's aging population. This is part of a broader reform effort of restructuring the state sector to become a source of finance for public services. As part of the SOE reform goals outlined in 2015 by SASAC, SOEs are to be classified as either commercial or public service entities, with the former being required to distribute a higher proportion of their profits as dividends. Dividend payments are set to rise from 5–15% to 30% by 2020.