What type of economy is China?

Before the founding of the People’s Republic of China in 1949, in this weakened giant of a country with a population of nearly 500 million people and a territory of 9.6 million sq km the highest annual outputs of major industrial and agricultural products were as follows: yarn 445,000 tons, cotton cloth 2.79 billion m, raw coal 61.88 million tons, generated energy 6 billion kwh, grain 150 million tons, and cotton 849,000 tons. This was the starting point of the economic development of the new China.

After 50 years’ planned and large-scale economic construction, China today is one of the major economic powers with the greatest potential of development in the world, and its people live a comparatively well-off life as a whole. From 1953 to 2000, China had successfully completed nine five-year plans and marked achievements had been made, laying a firm foundation for future economic development. Since the implementation of reform and opening-up in 1979, China’s economy has grown at an unprecedentedly rapid speed.

Increases in the Gross Domestic Product (unit: 100 million yuan)

I978 3,624.1

1985 8,964.4

1990 18,547.9

1995 58,478.1

2000 89,403.6

2001 95,933.0

Economic restructuring is one of the main aspects of China’s reform. In the first 30 years after the founding of the PRC, the Chinese government carried out a system of planned economy, and targets and quotas for various spheres of economic development were all set by the special “planning committees” of the state. Factories produced goods according to state plans, and farmers planted crops also according to state plans. Commercial departments replenished and sold their stocks according to state plans, and the qualities, quantities and prices of the goods were all fixed by planning departments. On the one hand, this system contributed to the stable, planned development of China’s economy, but on the other it also limited the development of the economy and sapped its vitality. At the end of the 1970s, mindful of the gap in economic growth between China and other countries China’s leaders made a great decision to reform China’s decades-old economic system.

The reform began first in the rural areas in 1978, when the household contract responsibility system was introduced there. Under this system, farmers got the right to use the land, plan farmwork and dispose of products independently. State monopoly of the purchase and marketing of agricultural products was eliminated; the prices of the majority of farm products were freed; many policies restricting agricultural development were abolished; and farmers were allowed to go in for diversified business and set up township enterprises. All this had greatly aroused the farmers’ enthusiasm for production.

In 1984, the economic restructuring shifted from the rural areas to the cities.

After ten-odd years of reform and opening-up, in 1992 the Chinese government formulated a policy to establish a market economy. According to the official documents, the main aspects of the economic structural reform are as follows: The development of diversified economic elements will be encouraged while keeping the public sector of the economy in the dominant position. To meet the requirements of the market economy, the operations of state-owned enterprises should be changed so that they fit in with the modern enterprise system. A unified and open market system should be established in the country so as to link the rural and urban markets, and the domestic and international markets, and to promote the optimization of the allocation of resources. The function of managing the economy by the government should be changed so as to establish a complete macro-control system mainly by indirect means. A distribution system in which distribution according to work is dominant while giving priority to efficiency with due consideration to fairness should be established. This system will encourage some people and some places to become rich first, and then they may help other people and places to become rich too. A social security system, suited to China’s situation, for both rural and urban residents shall be worked out so as to promote overall economic development and ensure social stability.

In 1997, the Chinese government stressed that the non-public sectors of the economy are an important component part of the socialist economy of China, in which profitability is encouraged for elements of production, such as capital and technology, making the economic restructuring march forward in bigger strides.

In 2001, reform in various fields was carried out smoothly, and saw great achievements. At present, a socialist market economy system is well on the way to being established in China, and the basic role played by the market has been improved in the sphere of resources allocation. At the same time, the macro-control system has basically taken shape. Moreover, the extensive mode of economic growth is being replaced by an intensive mode. According to the plan, the socialist market economy will be further improved by 2010, and by 2020 a comparatively mature socialist market economy structure will have been established in China.

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Pakistan's political parties Pakistan People's Party (PPP) and Pakistan Muslim League-Nawaz (PML-N) will form coalition governments in central and provincial levels, leaders of the two parties said in Islamabad on Thursday night.

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A nation's economic system defines its mechanism for the production, distribution, and allocation of goods, services, and resources.

The modern world's most commonly followed economic system, capitalism, allows individuals to own the industries that produce and distribute the goods and services that the population requires. Workers, in turn, contribute their skills in return for money to buy their share of those goods and services.

Socialism, the main alternative economic system that has emerged in modern times, requires that the means of production, distribution, and exchange be owned and regulated by the community as a whole. In practice, that means it is owned and regulated by the government.

A prominent characteristic of the socialist economy is that the goods and services are produced based on usage value. This usage value is subject to the needs of the society, hence preventing underproduction and overproduction.

This is completely different from the common capitalist economic system, in which goods and services are produced to generate profit and capital accumulation, rather than being based on their usage and value.

A socialist market economy is a system of government that attempts to strike a balance between pure capitalism and social welfare. Let’s explore the economies of North Korea, Cuba, and China, as a case study for the key socialist market economies in the present era.

• Contrary to capitalism, socialist market economies produce goods based on usage values, with collective ownership shared by the entire country.
• In socialist economies, governments are charged with redistributing wealth and narrowing the gap between the poor and the rich.
• While no modern-day countries are considered to have a "pure" socialist system, Cuba, China, and North Korea have strong elements of socialist market economies.

Both communism and socialism are based on a vision of a classless society in which goods and services are shared equitably. In both, the means of production and distribution are owned by the workers, either directly or through government agencies.

Socialism can be compatible with individual liberty, democratic government, and freedom of choice. Communism is imposed by an authoritarian state in which individual rights and liberties are held to be inferior to the rights of the people as a whole.

Most advanced democracies contain some elements that could be termed socialist. Nationalized healthcare, mass transit systems, and even public libraries all are examples of government services that are owned and run by government agencies, subsidized by taxpayers, and available to all.

Communism calls for the elimination of private property ownership and thus effectively abolishes wealth accumulation. Socialism calls for public ownership of essential services and levies the high taxes that are needed to support them. The gap in the quality of life between the richest and the poorest narrows.

The two biggest experiments in communism in the 20th century were the Union of Soviet Socialist Republics (U.S.S.R.) and the People's Republic of China. The U.S.S.R. collapsed in 1991. China remains a one-party state, and that state is the Communist People's Party. Nevertheless, it has introduced government reforms that have made its system a hybrid of communism and socialism with a dash of pure capitalism.

A socialist economy offers collective ownership, usually through a state-controlled agency, worker cooperative, or outright state ownership with delegation to representatives. Socialist market economies generally discourage private ownership.

In addition, in socialist market economies, goods and services are produced for their usefulness, with the aim to eliminate the need for a demand-based market. In this way, it discourages accumulation, which is assumed to be the root cause of wealth imbalance.

Interestingly, no pure socialist, pure capitalist, or pure communist economy exists in the world today. All economic system changes were introduced with a big bang approach and had to make “adjustments” to allow appropriate modifications as the situation developed.

To analyze the socialist economies further, let’s look at the cases of three prominent socialist economies across the globe: Cuba, China, and North Korea.

Cuba has a mostly state-run economy including a national healthcare program, government-sponsored education free for its citizens at all levels, subsidized housing, utilities, entertainment, and even subsidized food programs. Together, these social programs are meant to compensate for the low salaries of Cuban workers, making them better off than their international counterparts in many other countries.

As a socialist economy, Cuba has a primarily planned economy with around 88% of its workforce working in state-owned enterprises, as of December 2017. Cuba does not have a stock exchange; a crucial indicator of a capital-free economy.

Former President Raúl Castro unveiled economic reforms in 2010 aimed to shift toward a mixed economy that would allow free-market mechanisms, remove government control of small businesses, lay off unnecessary state workers, and make self-employment easier.

Why was this change needed in a pure “socialist economy”? The reason is that Cuba's economy was in disarray. GDP was registered at 2.4% per year with stagnation at 2% per year during Raul Castro's presidency from 2008 to 2018. This ends up being less than the 5% annual growth needed in Cuba to sustain growth. In addition, the country has experienced shortages of consumer staples, energy rationing, and price inflation.

As of today, Cuba operates with a parallel financial system; one that operates on the usual social programs in critical sectors while allowing a free-market economy in the tourism, export, and international business sectors.

Cuba's economy has also suffered greatly from U.S. sanctions on the country.

As of 2017, 12% of Cuban workers were employed in the private sector. The private sector in some shape or form provides income and jobs to four out of 10 Cubans of working age.

The country has continued to introduce reforms through new laws aimed at bringing in higher foreign investment, which was a shift from being a complement of the economy to an essential part of it. It is clear that Cuba has moved away from its socialist economy to one that focuses on implementing capitalist structures.

A significant portion of the Chinese economy is still government-controlled, although the number of government programs has declined significantly. Healthcare expenses, for example, are covered for 95% of the population through three public insurance programs. China's foreign policy continues to be pro-socialist, but it has essentially become a free-market economy. In essence, China no longer remains a “pure socialist economy."

Interestingly, the privately-owned firms reportedly generate a substantial portion of GDP for China: 60%, as state-owned enterprises only contribute 40%. After the U.S., China is the second-largest economy in the world and the number-one largest manufacturing economy.

How has China managed to grow its economic influence?

Effectively, China transitioned from a “socialist economy” to a “socialist market economy.” The communist regime in China quickly realized that it would be to its disadvantage to keep China's economy secluded from the rest of the world. Since then, it has been able to successfully strike a balance between the “collective” and “capitalist” approach.

Policies allow entrepreneurs and investors to take profits but within the controls of the state. Around 2004, the government began to allow a person’s right to private property. Establishing a special economic zone and opening up to international trade have allowed the country to embark on fast-paced economic growth; all courtesy to the right changes to the socialist policies at the required time.

North Korea—the world's most totalitarian state—is another prominent example of a socialist economy. Like Cuba, North Korea has an almost entirely state-controlled economy, with similar social programs to those of Cuba. There is no stock exchange in North Korea either.

Around mid-1975, North Korea was better educated and more productive than China (based on international trade per capita). However, the economic and social situation has been precarious in North Korea since a massive famine hit the country between 1994 and 1998.

Today, many world powers have discontinued aid and trade with North Korea due to the many human rights abuse allegations of the totalitarian government. These sanctions by other world powers have significantly restricted any economic development of the North Korean economy.

Apart from the challenges of dynastic rule in North Korea, which prevents the country from becoming self-reliant, the campaign of "military-first politics" also imposes a heavy burden on the economy.

North Korea’s only foreign-trade partner is China, and the business is dominated by middlemen who broker the deals between Chinese companies and Korean firms. This has completely closed off North Korea on nearly all fronts.

In May of 2019, the United Nations estimated that 10 million North Koreans were facing severe food shortages. Over 43% of the population is suspected to be undernourished.

Due to a lack of self-sufficient manufacturing facilities and markets in the country and increasing dependency on China, private firms and businesses are on the rise in North Korea.

Irrespective of the existing situations and causal factors, the development of parallel “second” markets, where citizens and firms trade or barter for goods and services, are thriving.

Indicating a significant shift from the heavily controlled "socialist” economy of North Korea, this parallel system is seeing involvement from all–housewives exchanging unused goods for the ones required, farmers selling their produce locally, and an increasing number of firms importing Chinese goods through agents.

Lack of credible official information on North Korea makes it hard to observe the economic development (or lack thereof), but available information does point to the existence of a different financial system.

Socialist market economies across the globe have existed and continue to progress. However, there may not be any standard of a pure socialist economy remaining. Over time, many world leaders that previously identified under the umbrella of socialist economies have now bent towards capitalist-shifts in programs and policies; China being the leader among them. The ones taking a rigid stand are facing severe problems or developing parallel markets.