Building a High-Standard Socialist Market Economy: China’s Economic Outlook
Introduction:
The Third Plenary Session of the Chinese Communist Party’s (CCP’s) Central Committee recently concluded, raising concerns about China’s economic recovery. Contrary to expectations, the plenum focused on promoting state-controlled socialism rather than offering a concrete plan for economic revitalization. This article examines the implications of China’s shift towards a socialist market economy and the potential challenges it may face.
Xi Jinping’s Tightening Grip on Markets:
Since assuming leadership of the CCP, Xi Jinping has steadily increased his influence over the country’s markets. However, the recent Third Plenum communiqué removed any mention of the “decisive role” of markets. Analysts argue that the lack of a clear economic recovery plan indicates a continuation of Xi’s existing goals, such as high-quality economic growth, technological self-reliance, and environmental sustainability. Despite emphasizing the need to address the property crisis, Xi has struggled to find a resolution.
The Inefficiency of Central Planning:
The recent language shift towards increased intervention by central authorities highlights a fundamental flaw in communism and socialism – the belief that a small panel of central planners can allocate resources and determine product types, quantities, and pricing more effectively than the market. This approach has consistently failed in communist countries. In contrast, markets involve all consumers and sellers, providing real-time information that leads to automatic adjustments in price, quantity, and resource allocation. Central planners cannot accurately predict consumer preferences or determine production levels.
State-Owned Enterprises and Market Efficiency:
State-owned enterprises often become bloated and ineffective due to the absence of a profit motive. This inefficiency is evident in sectors like healthcare, where expensive private hospitals coexist with nearly free government hospitals. The shift towards market-oriented policies in 1978 played a crucial role in lifting China out of absolute poverty, with private sector growth driving much of the progress. However, Xi’s reinforcement of communist ideology and the public sector is reversing this trend. Despite his goal of fostering a consumption-based economy reliant on the private sector, Xi’s emphasis on boosting the role of state-owned enterprises suggests a lack of priority for private firms.
Controlled Currency and Foreign Investment:
The People’s Bank of China’s adjustment of the U.S. dollar-yuan reference rate after the plenum reflects the CCP’s ongoing efforts to control the economy and negate market forces. The partially market-driven value of the yuan, coupled with strict capital controls, hinders foreign investment and economic recovery. The CCP’s desire to maintain control over its currency aligns with its vision of a socialist market economy.
Conclusion:
China’s recent Third Plenum has raised concerns about its economic recovery prospects. The focus on promoting a state-controlled socialist market economy, along with increased intervention by central authorities, indicates a departure from market-driven policies. This approach may hamper economic efficiency, hinder private sector growth, and restrict foreign investment. As China continues to navigate these challenges, it remains to be seen whether its economic trajectory will veer towards greater prosperity or stagnation.
