Opinion

Why the socialist element of China’s market economy is important

Name: SCMP Explains: China’s five-year plans that map out the government priorities for development
Uploaded: 2021-04-26T11:07:38.000Z
Duration: 5 min 57 s
Description: SCMP Explains: China’s five-year plans that map out the government priorities for development

China’s socialist market economy has been at the heart of the nation’s economic transformation

Private investors must remember socialism comes first, meaning public interests trump commercial concerns

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China’s ‘socialist market economy’ mixes public ownership and state guidance with aspects of the market. Photo: AFP

Zhou Xin

Zhou Xin is Tech Editor of the Post, following stints as Political Economy Editor and Deputy China Editor.

Published: 7:07pm, 26 Apr 2021Updated: 10:19am, 27 Apr 2021

China’s “socialist market economy”, which mixes public ownership and state guidance with aspects of the market, has propelled the nation from an economic backwater into the global engine of growth in about four decades.

But it is also an idea with inherent contradictions. In orthodox economic terms, being socialist requires that Beijing dominate the means of production, which can include land, machines, raw materials, capital and data. That contradicts the key pillar of a modern market economy: private ownership.

This may stir theoretical questions, but in the real world they are largely irrelevant; the private economy has flourished in China since the late 1970s. There are smart ways to work around rigid Communist Party dogma. For instance, urban land may be publicly owned in China, but land use rights can be sold by municipal authorities to property developers.

In reality, different levels of Chinese government, state-owned enterprises and public institutions control certain economic resources and act as normal market players.

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SCMP Explains: China’s five-year plans that map out the government priorities for development

There’s a widely shared joke about this in China: every government agency acts like a commercial enterprise, while every commercial enterprise pretends to be a government agency.

The system can be helpful in terms of delivering economic outcomes. A driver of China’s rapid economic growth is competition among government bodies and the mix of public and private efforts.

But as the economy matures, disharmony between socialism and the market economy may become more pronounced.