Q: After the People's Republic of China (PRC) was
founded in 1949, China adopted the mechanism of a centralized
planned economy. Now China has defined its goal of instituting a
socialist market economy with Chinese characteristics in its reform
and opening to the outside world. What is a socialist market
economy and how is it different from the market economy of
capitalist countries?
A: During the three decades from the PRC's founding in 1949 to
the implementation of the reform and opening up in 1978, China
stuck to a centralized planned economy, which was then regarded as
a requirement of the fundamental principles of Marxism and
socialism. Of course, the planned economy did play some positive
role in China's economic development at certain time. Under the
planned economy, China completed its transition from a semi-feudal
and semi-colonial country with a crumbling economy to a socialist
country with an independent and complete national economic
system.
However, the socialist planned economy, as with any fresh
concept in history, is not perfect. With the passing of time, its
defects began to manifest. In running the economy, for example, it
overemphasized the role of planning while ignoring the market's
role in allocating resources. Rigid economic planning and excessive
centralization, to a large extent, hampered companies' management
initiatives and lead to insufficient production of consumer goods
and severe shortages of commodities. Many Chinese people still have
vivid memories of how difficult it was to buy one kilogram of
cotton, grain or meat during the planned economy period.
Since China adopted reform in 1978, the country has gradually
transformed the planned economy into a market economy with Chinese
characteristics. In the process of the transition, China met with
resistance from people who held the traditional thinking that "the
planned economy belongs to socialism while market economy belongs
to capitalism." Most people did not discard this misperception
until 1992 when the ruling Chinese Communist Party clearly put
forward the concept that "the goal of the economic reform is to
establish a market economic system with Chinese
characteristics."
Now we believe that market economy is a stage that cannot be
surpassed during socialist development. In terms of social
development, the essential difference between the socialist system
and the capitalist system does not lie in the role the planning and
the market plays in allocation of resources. The planned economy
does not belong to socialism, since the capitalist system also uses
the planning methods. The market economy does not belong to equal
capitalism either, since the socialist system also uses market
means. Planning and market, both of which are ways to regulate the
economy, are indispensable at certain development phases of a
commodity economy, which is based on socialized production.
Therefore, whether resorting to the planning or the market is
not what differentiates a socialist economy from a capitalist
economy. The most essential difference between a socialist market
economy and a capitalist market economy is that the former is
linked to the basic socialist system and is part of socialist
economic mechanism. This is also the fundamental condition to
guarantee socialism as the nature and direction of the Chinese
economy.