Chinese President Xi Jinping, also general secretary of the Communist Party of China (CPC) Central Committee and chairman of the Central Military Commission, speaks at the Central Economic Work Conference in Beijing. The conference was held in Beijing from Dec 18 to Dec 21. [Photo/Xinhua]

The Central Economic Work Conference held on Dec. 18-21 in Beijing focused on "supply-side" economics. This term usually means reducing the government's role in the economy and facilitating free markets; through privatization, lower wages, deregulation, tax cuts, welfare cuts, and improvements in skills and information. However, privatization, and cuts in wages and welfare are simply not on the agenda in China.

Instead, China's leaders want to promote specific industries: introduce regulatory reforms, streamline government and administration, reduce excess capacity, and increase productivity. They also hope to improve the supply of finance and the quality of labor: promote the efficient use of resources; encourage people to set up small businesses; and upgrade the means of production.

When China's stock markets crashed in July 2015, it took massive state intervention to contain the fallout. The State Council, the central bank, major state enterprises and government leaders agreed to radical measures to prop-up share prices. This limited the capacity of markets to spread contagion and turmoil that might otherwise undermine government plans for the wider economy.

Compared to the chaos in Europe and the United States that followed the banking crisis in 2008, China's stabilization policies succeeded. But smooth and balanced economic development, based around five-year plans, requires that the influence of purely speculative market activity be kept in a cage - under control.

It was the veteran revolutionary Chen Yun who coined the phrase (often attributed to Deng Xiaoping) that China is "crossing the river while feeling for stones." Indeed, free markets are like powerful rivers that relentlessly drag everything downstream, often through dangerous rapids and rocks. The purpose of crossing the river is to reach the other side - a land where planned, conscious and purposive steps, establish a prosperous and harmonious socialist democracy.

State owned enterprises (SOEs) and banks are the driving force of China's economy and are the powerbase of the Communist Party. National and international capitalists often seek to corrupt SOE leaders in order to gain access to markets. This is why Xi Jinping's vigorous campaign against corruption, personal enrichment, and increasing inequality is interlinked with the reform of SOEs. Yet, the advice of neo-liberal economics gurus is that curtailing managerial corruption at SOEs demands incentive structures that correspond to those offered in the private sector. But China did exactly the opposite to howls from free market doctrinaires.