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The socialist market economy (simplified Chinese: 社会主义市场经济traditional Chinese: 社會主義市場經濟pinyin: Shèhuìzhǔyì Shìchǎng Jīngjì) is the official term used to refer to the economic systems of the People's Republic of China and the Socialist Republic of Vietnam. It is also referred to as socialism with Chinese characteristics and Đổi Mới, respectively.



The socialist market economy is a concept first proposed by Deng Xiaoping in order to incorporate the market into the then planned economy in the People's Republic of China. Following its implementation, this economic system has supplemented the centrally planned economy in the People's Republic of China and has been attributed to the high growth rates in GDP during the past decades. Within this model, privately owned enterprises are the back bone of the economic system. Most of the economic growth in China is attributed to the private sector, which grows at twice the official rate of increase and is continually expanding. However, the size of the private sector is notoriously difficult to pin down as the private sector is likely underestimated by state officials in calculation of GDP due to its propensity to ignore small entrepreneurs and private enterprises being not registered. In addition, private entrepreneurs have a propensity to claim to be collectives and under-report the size of their business.[1] The private sector generate about 70%[2] (BusinessWeek, 2005) of GDP in 2005, a figure that might be even greater considering the Chengbao system, in which entrepreneurs operate assets which nominally belong to the government. The state retains control of some strategic industries[3].

Numerous sectors such as health care and education that were previously run by the state were privatized during the formation of China's current market economy[4]. These reforms have helped contribute to high economic growth and prosperity for the Chinese people[5]. The growth of the private sector is indeed phenomenal, as shown by this quote below:

"What is more, if the analysis is restricted to companies that regularly produce statistical reports (those with annual sales of over 5 million Chinese yuans), then the private sector's share of valued added has risen from 28 per cent to 52 per cent between 1998 and 2003. Further, in 1998, the private sector contributed a larger share of value added in only 5 out of 23 "non-core" manufacturing industries. By 2003, this had risen to cover all 23 of these industries. In half of those industries, private firms produced more than three-quarters of output. Overall in these 23 industries, the private sector is estimated to employ two-thirds of the labour-force, contribute two-thirds of valued added, and is responsible for over 90 per cent of their exports. To top it all, over a quarter of all industrial output is now reportedly produced by private foreign-owned companies.[6]

The state sector is concentrated in the 'commanding heights' of the economy with a growing private sector engaged primarily in commodity production and light industry. Centralized directive planning based on mandatory output requirements and production quotas has been superseded by the free-market mechanism for most of the economy and directive planning is utilized in some large state industries.[7] A major difference from the old planned economy is the privatization of state companies, with the exception of 150 large state-owned enterprises remain and report directly to the central government, most having a number of subsidiaries.[8]. These state enterprises have high autonomy in that they can choose their own CEO's, keep their own profits, but differ from the private firms in that they get a bailout if anything goes wrong. By 2008, these state-owned corporations have became increasingly dynamic largely contributing to the increase in revenue for the state[9][10]. The state-sector led the economic recovery process and increased economic growth in 2009 after the financial crises, due to the fact that most of the Chinese stimulus package was directed towards these state owned firms.[11] This type of economic system is defended from a Marxist perspective which states that a socialist planned economy can only be possible after first establishing the necessary comprehensive commodity market economy, letting it fully develop until it exhausts its historical stage and gradually transforms itself into a planned economy.[12] Proponents of this model distinguish themselves from market socialists who believe that economic planning is unattainable, undesirable or ineffective at distributing goods, viewing the market as the solution rather than a temporary phase in development of a socialist planned economy.


The transition to a socialist market economy began in 1978 when Deng Xiaoping introduced his program of "Socialism with Chinese characteristics". Since the beginning of Deng Xiaoping's reforms, China's GDP rose from some 150 billion USD to more than 1.6 trillion USD, with an annual increase of 9.4 percent.[13 ] As of 2004, 50% of the state-owned enterprises have been transformed into joint-stock companies, which generate 30% of the national GDP.[13 ] The private sector's share of the GDP rose from less than 1% in 1978 to more than 50% (OECD estimate) or 70% (BusinessWeek, 2005) by 2005, a figure that is still increasing. Due to the poor performance of traditional state enterprises in the market economy, China embarked on a massive restructuring program of privatization. Under this scheme, the state retains ownership and control of many enterprises but the central government has little direct control over the operations of state-owned enterprises.[14]


Despite the official stance of socialism, the "socialist market economy" is often described as free market capitalism by western observers.[5][15] This criticism also comes from orthodox Marxists, who criticize it on the grounds that the socialist market economy restores capitalist commodity relations and production while further dis-empowering the working class, leading to a sharp increase in social inequality and the formation of a growing capitalist class.[16] Other socialists believe the Chinese have embraced too many elements of market capitalism, resulting in a state capitalist economic system.[17] Trotskyists consider modern China to be Deformed workers' state.

Some industries remain under state ownership. However, state ownership has been reduced substantially in recent years due to the privatization program the Chinese government has embarked on since the late 1990s[14] and privatization of state-run enterprises, resulting in increased output of the Chinese economy between 1989 and 2001[3]. This privatization program continues.[5]. While the free-market has largely supplemented central economic planning in the Chinese economy, the Chinese government still guides overall national economic development through "indicative planning".[18]

Proponents of the socialist market economy compare it to the New Economic Policy in Soviet Russia that introduced market-oriented reforms while maintaining state-ownership of the 'commanding heights' of the economy. The reforms are justified through the belief that changing conditions necessitate new strategies for socialist development.[19] According to Li Rongrong in 2003, chairman of the State-Owned Assets Supervision and Administration Commission of the State Council,

"Public ownership, as the foundation of the socialist economic system, is a basic force of the state to guide and promote economic and social development and a major guarantee for realizing the fundamental interests and the common prosperity of the majority of the people… The state owned economy has taken a dominant place in major trades that have a close bearing on the country’s economic lifeline and key areas, and has propped-up, guided and brought along the development of the entire socio-economy. The influence and control capacity of SOEs have further increased. State owned economy has played an irreplaceable role in China’s socialist modernisation drive."[3]

See also


  1. ^
  2. ^
  3. ^ a b c
  4. ^
  5. ^ a b c
  6. ^
  7. ^ The Role of Planning in China's Market Economy
  8. ^
  9. ^
  10. ^
  11. ^
  12. ^ Market Economy and Socialist Road Duan Zhongqiao (
  13. ^ a b China has socialist market economy in place (People's Daily Online, 2005).
  14. ^ a b
  15. ^
  16. ^
  17. ^
  18. ^
  19. ^


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