FOR those who were expecting a radical reform similar to the ''shock therapy'' attempted in Poland and the former Soviet Union, the decision made by the Chinese Communist Party's Third Plenum will be a big disappointment. There is no mention of privatisation of the state sector. No special role in China's economic reform accorded to foreign investment. And no abolition of remaining intervention of the government in economic management. Instead the Plenum once again upheld the supremacy of ''the basic system of socialism'', and emphasised ''the principle of taking the state owned sector as the mainstay'' and that of ''to each according to his work'' (not according to his capital). Moreover, the strengthening of government intervention through macro-economic controls and an increase in the central government's fiscal revenues - vis-a-vis those of local governments and of the nation's GDP as a whole - were taken as part of the reform, and are probably more important than the others. Even the corporatisation of state-owned firms is not intended as an illicit way of privatisation through the back door. On the contrary, the Plenum believed that ''in key enterprises in backbone and basic industries, the state should have controlling shares and at the same time bring in non-state capital, so as to expand the leading role and scope of influence of the state sector of the economy''. This belief was adopted during the nationalisation process of the Chinese economy in the early 1950s. Perhaps what the Third Plenum attempted and what the central leadership under Jiang Zemin, Li Peng and others wished was not the kind of decentralisation and quasi-privatisation reform that Deng Xiaoping pushed in the 1980s, and which had enjoyed loud applause from the ''capitalist'' West. The legacy of the Maoist strategy and the bitter experiences some party leaders might have with it is something belonging to the past, to the early industrialisation of the Communist Republic. It no longer has any relevance in the present, especially in China's march towards the 21st century. In fact, last year's Party Congress settled for a socialist market system as the socio-economic system for China in the 1990s and beyond. The task of the Plenum is to define in concrete terms the features and mechanisms of the socialist market system on the basis of the needs of China as a fast-developing country, and to define experiences and lessons it learns from other countries irrespective of their political systems or ideology. To this end, the Plenum laid down the basic framework of the socialist market system by defining the attempt to combine a reformed state sector, a stable welfare system, rational government intervention, and the market mechanism to make the socialist market system a reality. This may be seen as the third way, distinguishable from the capitalism of the West and the East Asian model. If it succeeds, this will be the basis of legitimacy for the post-Deng leadership. It is why the central leadership and the Plenum together rejected Mr Deng's call for speeding up reform of further decentralisation. The Plenum has also not responded enthusiastically to Mr Deng's call for faster economic growth, as it is neither consistent with the more gradual and cautious approach of the kind of socialist market system envisioned in the meeting, nor compatible withthe state of economic instability China is still trapped in - a result of the overheating and economic anarchism of last year unleashed by Mr Deng's calls for speeding up growth and reform. An example of the gradualist and cautious approach of the socialist market system endorsed by the Plenum may be found in the area of the crucial banking reform. The original proposal of the reform is based mainly on the American model, with a federal reserve bank system of central banks at the national and regional levels, a division of national state banks into policy-lending banks and fully fledged commercial banks, and numerous small-scale, localised new banks - different from the national banks that operate across regional boundaries. The decision of the Plenum approved only the setting up of policy-lending banks and a monetary policy committee, which would probably work within the central bank. The federal reserve bank system was not thrown out altogether. Trans-regional branches would be set up later when conditions were created for them, while existing local branches of the People's Bank would be retained but converted into agencies of the head office from their present status as the central banks of the local governments. Existing specialised banks, such as the Industrial and Commerce Bank and Construction Bank, for example, will change into commercial banks only gradually. ''When necessary'', rural and urban collective banks - the localised banks in the original proposal - would be set up ''step by step''. More significantly, there is no mention of foreign banks or joint-venture banks. This probably reflected the growing scepticism about opening up China's banking sector to foreign investors and banks, despite the existence of branches of foreign banks and joint-venture banks in foreign exchange business with foreign-invested enterprises. To preserve and maintain the state sector, it seems necessary in the eyes of the central leaders that Chinese banking should firmly be dominated by state banks. State banks, just like other state-owned firms, should undergo reform, but their state-owned nature and predominance in the strategic sector as well as in the Chinese economy as a whole may not be undermined. Another major feature of the socialist market system is that it aims not only at economic efficiency but also justice, which is related to social stability, political stability and legitimacy for the leadership. Emphasis has, therefore, been placed on the establishment of a multi-layered social security system with extensive coverage which should spread to the rural sector as well. In addition, while allowing enterprises to set their own wage system, the government will undertake to set a minimum wage scale for the protection of workers. The role of trade unions and workers' congresses in enterprise management is once again stressed, probably against the excesses of managers and government officials in pursuit of profit maximisation. With these provisions, the new socialist market system of China is taking up many of the features of the welfare state of Western capitalism. It represents a maturing of the Chinese learning from the West into a more long-term consideration for stable and sustainable growth. It is on this basis that the market mechanism can be combined with the basic socialist system inherited from the early industrialisation of China. To outsiders this may seem to be a dream. But China is trying to avoid the great shock produced in transition to a market system that has, in the case of the former Soviet Union and Eastern Europe, created enormous suffering and social dislocation. It is also the dream of Jiang Zemin, Li Peng, Zhu Rongji and other younger leaders of the Chinese Communist Party to find a new legitimacy and goal for the post-Deng era. Thomas Chan Man-hung is co-ordinator of the China Business Centre and Reader of the Department of Business Studies at Hong kong Polytechnic.