dahiyars
January 6th, 2005, 09:37 PM
Chinese Economy-Some aspects
A market-oriented reform was initiated in China as early as 1979 and, following many years of investigation in theory and practice, it was decided that the goal was to develop a socialist market economy. After more than twenty years of reform, a socialist market economy has now been claimed to be basically instituted in China, as shown by the following:
Firstly, the economic system and operating mechanism of the countryside have seen radical change. The rural people’s communes set up on the basis of “a larger size and a higher degree of public ownership” and “the integration of government administration and commune management” were disintegrated in the early 1980s. In their place were introduced a two-tier management system based on the household contract system and a combination of unified management with independent operation, which is more compatible with a market economy and gives the peasants more autonomy in production and management, and the right to free migration.
Secondly, the ownership structure has been readjusted and reformed, and the principle was formulated of keeping public ownership in a dominant position, while developing diversified economic sectors side by side. The proportion of state ownership in the national economy dropped from 78% in 1978 to 40% in 1999 while the proportion of non-state ownership rose from 22% to 60% during the same period. Of the latter, the collectively owned sector was 35% and private economy was 25% (only 0.9% in 1978). The first two sectors constituted 75% of the national economy, which indicates the dominance of public sectors of the economy. The readjustments of ownership structure have facilitated the development of productive forces
Thirdly, the reform of the state-owned economy has made breakthroughs and the state enterprises have shifted from administrative appendages to agents in the market that are independent and responsible for their own profits and losses. Most of the state-owned enterprises have been transformed into companies with limited liabilities and some have become listed companies, going in for the modern enterprise system as entities with diversified equity. A large number of small state-owned enterprises have been turned into enterprises with multiple property rights through joint stock partnerships, auction and capital-pooling, and some have changes their operating forms through leasing and contract operation.
Fourthly, they have successfully reformed the price system and constructed a mechanism for setting prices mainly through the market. The twisted relationships among the prices of basic industry products, manufactured products, industrial goods and of farm produce deriving from the planned economy have been basically corrected and streamlined. Except for a few vital commodities and services that have a close bearing on the national economy and the well-being of the people, prices of more than 95% of commodities and services are determined by the market. The market determination of prices now serves as the main lever to regulate supply and demand and achieve a rational allocation of resources. Initial success has been made in setting up factors markets, especially a capital market.
Fifthly, they reformed the government functions, and a basic change from direct to indirect control has taken place in governmental regulation and control of the economy. China has pushed the reform in the macroscopic control system in the following five ways:
· Reform of the planning system. The planning departments of the government have shifted their emphasis from issuing production and circulation quotas to formulating long-term plans of national economic development and coordinating relations between various economic sectors.
· Reform of the investment system. The enterprises of all economic sectors are becoming real investment entities and they are encouraged to get their funds directly from the capital market.
· Reform of the financial system. A tax-sharing system was introduced in 1994 whereby the central and local governments split the taxes and each collects its own.
· Reform of the monetary system. An initial system of macro-control and supervision by the central bank has been set up, non-commercial banking has been separated from commercial banking and specialized banks like the Industrial and Commercial Bank, the Agricultural Bank, China Bank and the Construction Bank are being gradually turned into commercial banks.
· Reform of the government’s mode of economic management. We have made great effort to separate the functions of the government from those of enterprises and cancelled the specialized departments of economic management. The government no longer directly administers the internal affairs and business operations of the enterprises, but guides them and standardizes their production and operating activities by economic and legal means.
Sixthly, the policy of opening to the outside world has scored considerable achievements and a radical change from a closed to an open economy has taken place in foreign economic relations. In the early 1980s China set up four special economic zones -- Shenzhen, Zhuhai, Shantou and Xiamen. In the middle of the 1980s China opened fourteen coastal cities from Dalian in Northeast China to Beihai in Guangxi Autonomous Region. Later China established the Hainan Special Economic Region and the Pudong New Area in Shanghai. Since the early 1990s China has pursued an omni-directional open policy and now a pattern of multilevel, multifarious, wide-ranging and omni-directional opening up is already in itsplace. Structural reform in foreign trade has been continuously deepened and the mandatory planning reduced. By the end of 2001 a single exchange rate system was set up and the RMB is now convertible through current accounts. Over the past twenty years the foreign capital actually used reached 395.4 billion US dollars. There are now more than 390,000 enterprises with foreign investment, employing 17 million people. The export value of the products of enterprises with foreign investment accounts for 40 percent of the total value of industrial exports. The policy of opening to the outside world has brought about great changes in China’s economy: foreign capital and advanced technology have been introduced into China, accelerating the upgrading and renewing of products and the expansion of imports and exports. Along with these also come the advanced management techniques and the operating mechanisms compatible with the market economy.
The main reason for the great success in China’s post-1978 reforms is that the Chinese Communists, after summing up their historical experiences and lessons, corrected their pre1978 “Leftist” mistakes, and have upheld the principle of emancipating the mind and seeking truth from facts. During the process of reform and opening up they proceed from the actual conditions in China, respect the initiative of the people, learn and refer to overseas experience and judge everything by the fundamental criteria of the “three favorables,” namely, whether it is favorable for promoting the growth of the productive forces in a socialist society, for increasing the overall strength of the socialist state and for raising the people’s living standards. They have thus blazed a road of building socialism with Chinese characteristics under the guidance of Deng Xiaoping theory.
A market-oriented reform was initiated in China as early as 1979 and, following many years of investigation in theory and practice, it was decided that the goal was to develop a socialist market economy. After more than twenty years of reform, a socialist market economy has now been claimed to be basically instituted in China, as shown by the following:
Firstly, the economic system and operating mechanism of the countryside have seen radical change. The rural people’s communes set up on the basis of “a larger size and a higher degree of public ownership” and “the integration of government administration and commune management” were disintegrated in the early 1980s. In their place were introduced a two-tier management system based on the household contract system and a combination of unified management with independent operation, which is more compatible with a market economy and gives the peasants more autonomy in production and management, and the right to free migration.
Secondly, the ownership structure has been readjusted and reformed, and the principle was formulated of keeping public ownership in a dominant position, while developing diversified economic sectors side by side. The proportion of state ownership in the national economy dropped from 78% in 1978 to 40% in 1999 while the proportion of non-state ownership rose from 22% to 60% during the same period. Of the latter, the collectively owned sector was 35% and private economy was 25% (only 0.9% in 1978). The first two sectors constituted 75% of the national economy, which indicates the dominance of public sectors of the economy. The readjustments of ownership structure have facilitated the development of productive forces
Thirdly, the reform of the state-owned economy has made breakthroughs and the state enterprises have shifted from administrative appendages to agents in the market that are independent and responsible for their own profits and losses. Most of the state-owned enterprises have been transformed into companies with limited liabilities and some have become listed companies, going in for the modern enterprise system as entities with diversified equity. A large number of small state-owned enterprises have been turned into enterprises with multiple property rights through joint stock partnerships, auction and capital-pooling, and some have changes their operating forms through leasing and contract operation.
Fourthly, they have successfully reformed the price system and constructed a mechanism for setting prices mainly through the market. The twisted relationships among the prices of basic industry products, manufactured products, industrial goods and of farm produce deriving from the planned economy have been basically corrected and streamlined. Except for a few vital commodities and services that have a close bearing on the national economy and the well-being of the people, prices of more than 95% of commodities and services are determined by the market. The market determination of prices now serves as the main lever to regulate supply and demand and achieve a rational allocation of resources. Initial success has been made in setting up factors markets, especially a capital market.
Fifthly, they reformed the government functions, and a basic change from direct to indirect control has taken place in governmental regulation and control of the economy. China has pushed the reform in the macroscopic control system in the following five ways:
· Reform of the planning system. The planning departments of the government have shifted their emphasis from issuing production and circulation quotas to formulating long-term plans of national economic development and coordinating relations between various economic sectors.
· Reform of the investment system. The enterprises of all economic sectors are becoming real investment entities and they are encouraged to get their funds directly from the capital market.
· Reform of the financial system. A tax-sharing system was introduced in 1994 whereby the central and local governments split the taxes and each collects its own.
· Reform of the monetary system. An initial system of macro-control and supervision by the central bank has been set up, non-commercial banking has been separated from commercial banking and specialized banks like the Industrial and Commercial Bank, the Agricultural Bank, China Bank and the Construction Bank are being gradually turned into commercial banks.
· Reform of the government’s mode of economic management. We have made great effort to separate the functions of the government from those of enterprises and cancelled the specialized departments of economic management. The government no longer directly administers the internal affairs and business operations of the enterprises, but guides them and standardizes their production and operating activities by economic and legal means.
Sixthly, the policy of opening to the outside world has scored considerable achievements and a radical change from a closed to an open economy has taken place in foreign economic relations. In the early 1980s China set up four special economic zones -- Shenzhen, Zhuhai, Shantou and Xiamen. In the middle of the 1980s China opened fourteen coastal cities from Dalian in Northeast China to Beihai in Guangxi Autonomous Region. Later China established the Hainan Special Economic Region and the Pudong New Area in Shanghai. Since the early 1990s China has pursued an omni-directional open policy and now a pattern of multilevel, multifarious, wide-ranging and omni-directional opening up is already in itsplace. Structural reform in foreign trade has been continuously deepened and the mandatory planning reduced. By the end of 2001 a single exchange rate system was set up and the RMB is now convertible through current accounts. Over the past twenty years the foreign capital actually used reached 395.4 billion US dollars. There are now more than 390,000 enterprises with foreign investment, employing 17 million people. The export value of the products of enterprises with foreign investment accounts for 40 percent of the total value of industrial exports. The policy of opening to the outside world has brought about great changes in China’s economy: foreign capital and advanced technology have been introduced into China, accelerating the upgrading and renewing of products and the expansion of imports and exports. Along with these also come the advanced management techniques and the operating mechanisms compatible with the market economy.
The main reason for the great success in China’s post-1978 reforms is that the Chinese Communists, after summing up their historical experiences and lessons, corrected their pre1978 “Leftist” mistakes, and have upheld the principle of emancipating the mind and seeking truth from facts. During the process of reform and opening up they proceed from the actual conditions in China, respect the initiative of the people, learn and refer to overseas experience and judge everything by the fundamental criteria of the “three favorables,” namely, whether it is favorable for promoting the growth of the productive forces in a socialist society, for increasing the overall strength of the socialist state and for raising the people’s living standards. They have thus blazed a road of building socialism with Chinese characteristics under the guidance of Deng Xiaoping theory.