Market Economy in China: Established or Not?

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Last updated at: (Beijing Time) Thursday, September 12, 2002

Market Economy in China: Established or Not?

China's market-oriented economic reform has proceeded for over two decades, but experts seem still unable to see eye-to-eye on whether the market economy has been really established in the country.

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China's market-oriented economic reform has proceeded for over two decades, but experts seem still unable to see eye-to-eye on whether the market economy has been really established in the country.

The market-oriented economy has largely taken shape, Li Shousheng, director of the Comprehensive Department of the State Economic and Trade Commission, was quoted as saying by the Beijing-based China Business Times.

He based his conclusion on the degree of marketization of State-owned enterprises (SOEs), a stalwart of the traditional planned economy.

First, aside from State-owned firms, which still carry the major clout of China economy, non-State-owned sectors are rising as a dynamic dart of China's economy.

Second, a pricing mechanism based on the market supply and demand has been established. Instead of being completely decided, as in the planned economy era, by the government, prices of the vast majority of commodities and services are now up to buyers' and sellers' bargain in the market.

This is true even in the case of the price-setting of the so-called governmentally monopolistic industries, for example telecommunication, post and electricity supply, which usually includes a public hearing in their pricing processes.

Third, the capital market is playing an increasingly significant role in the social resources allocation.

By July 2002, there are altogether 1,187 domestic firms listed at bourses in the coastal business metropolis Shanghai and south China's Shenzhen, a thriving business hub growing with China's opening-up and reform strivings.

Of the total 832 billion yuan (US$100.6 billion) capital raised, 650 billion yuan (US$78.6 billion) goes to SOEs, which habitually in the past rely on State-owned commercial banks to bump money into them.

SOEs' diversified equity structure will also push them go farther in reforming their corporate governance and increase their operating efficiency, Li said.

By 2001, there were 2,710 State-owned group companies (most of them had ever been the supervisory bureaus of different industries during the days of China's planned economy), of which 1,994, or 73.6 percent, had been re-structured in line with the standardized organization of a group firm. Of all the re-structured group firms, 40.2 percent were controlled by a wholly State-owned parent firm.

Fourth, the traditional governmental monopoly over such industries as the petrochemicals, telecommunication, electricity supply, railway transportation, civil aviation are been lifting up, leaving more chances for entry of both domestic and foreign capital.

Someone holds reserve

But some other experts take it with a grain of salt that China has crossed the threshold of a market economy.

China may now have stepped into the doorway of a market economy, but not indoors yet, the newspaper quoted Jia Kang, president of the Finances Institute of the Financial Ministry.

In terms of the marketization degree of the components of a market economy, only consumers' products can be considered as operating along the track of a market economy. As for all the remaining, they are still in a bud stage, Jia said.

First, Chinese enterprises' pipelines of capital supply are still very underdeveloped, he said.

In many experts' eyes, Chinese bourses are more like the gambling houses than efficient capital diverters. Banks are also too cautious of enterprises' bad credit record to lend them money.

Second, there is not a united nation-wide labor market in China today. Administrative hurdles between different provinces and departments are still impeding the free movement of domestic labor forces.

Moreover, the social security network is still too narrow and fragile to cover the majority of laborers, greatly discounting the productivity of Chinese work forces.

Third, policies and measures of intellectual property rights protection are so inadequate as not to offer sustainable support for technological innovation.

Marketized in flesh and spirit

To a great extent, China has made some progress only in marketizing the non-State economic sectors, said Chang Xiuze, deputy director of the Economic Institute under the State Development Planning Commission.

But there is still a long way to go in matters of the strategic restructuring of the State-owned economic sectors, he said.

Some experts even touch the cultural basis of a market economy.

China should pursue a market economy not only in body but also in soul, said Yi Gang, secretary-in-general of the Monetary Policy Committee of the People's Bank of China, the central bank.

Essentially, a market economy means nothing but a true respect of the property rights and the man, an individual with full freedom and self-discretion.

By PD Online staff Forest Lee

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