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The Chinese government has taken an increasingly active economic role in the wake of the coronavirus. Photo: AP

Could coronavirus threaten China’s shift towards market economy?

  • Forum in Beijing told that the state has taken on an enhanced role in the economy in the wake of the Covid-19 pandemic
  • Government adviser Peng Sen warns that this shift could see the country drifting back towards a planned economy

The Chinese state’s increased role in economic activity in the wake of the Covid-19 pandemic is threatening the country’s move towards a market-oriented economy, a government adviser has warned.

Peng Sen, a former deputy head at the National Development and Reform Commission, told a forum hosted by Renmin University in Beijing that China is only halfway to creating a market-based economic system, adding that the coronavirus and tensions with the United States are pushing the government back towards a command economy.

Peng said China’s use of state directives to mobilise resources has increased the perception that “the state’s hand is more effective, more powerful and more reliable [than the market]”.

“As a result, government intervention in economic activities has been enhanced, there are myths about the advantages of a ‘whole country’ approach and the market system has been belittled,” Peng, who is now the president of the China Society of Economic Reform think tank, said.

Meanwhile the rivalry with the US has prompted certain government departments to turn back to the planned economy – which is what they are “used to”.

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“Some government departments are now insisting on China’s ownership of the value chain from top to toe, pinning their hopes on industrial policies or subsidies,” Peng continued.

Peng’s comments represent the views of the government’s pro-market camp, which argues China can embrace a relatively liberalised market system without compromising the Communist Party’s absolute grip on political power.

The national development strategy has been built on the notion that resources, including funds, land and labour, should be distributed by the market instead of the government, and in 2013 the Communist Party adopted a policy of giving the market a “decisive” role.

Peng Sen’s comments reflect the pro-market view within government. Photo: Handout

However, such voices have been increasingly marginalised in Beijing where there is a new focus on strong government leadership and a powerful state sector, which has seen resources become increasingly concentrated in the hands of the authorities.

Peng, who retired from the economic planning agency in 2012, said he is worried that market-oriented reforms are no longer high on Beijing’s agenda.

“The task of market reform cannot be delayed any longer,” Peng said. “If our market reforms are not completed in the 14th five-year plan [which runs until 2025] or even in the next decade, it will be difficult for us to explain the delay”.

At the same time, Peng noted that it would be hard to break up vested interests.

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“Ideally, China should set up a nationwide land market by 2035 when a centralised land use quota system will be completely abolished … governments at all levels will exit the land market and land prices will be determined by public bidding,” Peng said.

“But when the idea is flagged, comrades from the land ministry are always furious. They will ask ‘what the point of having this ministry if this land use quota is gone?’”

This article appeared in the South China Morning Post print edition as: Heightened role of state casts shadow on reforms