Skip to main content

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions

China’s Evolving Economic System

China’s impressive economic achievements during the last three decades are a stark contemporary illustration of the historical lesson that unleashing individual initiative tends to boost economic development. But only by withdrawing further from the production system and concentrating on improving social arrangements can China's government ensure that the growth sprint continues.

It is generally agreed that China’s impressive economic achievements during the last three decades are largely the result of the radical reform of its economic system. While private ownership of firms hardly existed when these reforms started, private firms today account for about 60% of total production.

Ownership, however, is only one dimension of an economic system. China’s economic system has changed just as drastically in other ways as well. Decision-making regarding consumption and production has largely been decentralized to individual households and firms, respectively; economic incentives, markets, competition, and internationalization have to a considerable extent replaced command, administrative processes, monopoly, and autarky. Generally speaking, China’s reform period has been a stark contemporary illustration of the historical lesson that unleashing individual initiative tends to boost economic development.

How, then, should today’s Chinese economy be characterized? Some observers describe China’s current economic system as “state capitalism”; others (including China’s rulers) call it “market socialism.” Both labels mislead. One reason is the domination of private firms on the production side. Another is the fact that “socialism” usually does not rely upon strong economic incentives and competition, which are the dominant economic factors in today’s China.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/fQZ6Bzy;
  1. haass107_JUNG YEON-JEAFP via Getty Images_northkoreanuclearmissile Jung Yeon-Je/AFP via Getty Images

    The Coming Nuclear Crises

    Richard N. Haass

    We are entering a new and dangerous period in which nuclear competition or even use of nuclear weapons could again become the greatest threat to global stability. Less certain is whether today’s leaders are up to meeting this emerging challenge.

    0