How capitalist is China today?

A paper that explores the nature of Chinese reforms since 1978

July 25, 2017 12:08 am | Updated 12:08 am IST

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China began liberalising its socialist command economy in the late 1970s under the leadership of statesman Deng Xiaoping, soon after the death of its socialist leader Mao Zedong. Since then, the country has taken significant steps towards becoming a more market-oriented economy, which in turn has helped it achieve significant levels of economic growth and eradicate extreme poverty. So, where does China stand today when it comes to the scale of influence of its government over the economy?

“Is China Socialist?”, a 2017 paper by professor Barry Naughton that appeared in the Journal of Economic Perspectives tries to find an answer by measuring the influence of the Chinese government over the economy since liberalisation began in 1978. He builds his study on four broad variables: one, the capacity of the Chinese government to steer the economy; two, its actual track record when it comes to steering the economy; three, the degree to which its policies enrich the poor; and four, its level of responsiveness to the demands of the population. Mr. Naughton finds that the Chinese government transformed itself from the role of exerting overwhelming influence on the economy in the 1970s to playing a more passive role in the next two decades.

Today, however, it has both the capacity and the intention to steer the economy, and gets involved in wealth redistribution based on populist demands more than in the 1980s and 1990s. So, quite clearly, China of the present day is very different from places like Singapore, Hong Kong and New Zealand that are known for their high levels of economic freedom.

Instead, China looks to steer itself, perhaps quite prematurely, to look more like developed Western economies with a large regulatory and welfare state. This, of course, increases its risks of falling into the infamous middle-income trap. Even more interesting is China’s turn towards populism despite the absence of mass democracy.

Markets over Mao , a 2014 book by Nicholas R. Lardy, and How China Became Capitalist , a 2012 book by Ronald Coase and Ning Wang, are two other resources to understand the dramatic changes that have happened in China since the country began its journey towards economic liberalisation.

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