China Information-The Socialist Market Economy

Introduction : Since 1978, along with the dismantling of the planned economy system and the deepening of the reform of the economic system, commodity, capital, labor service and technology markets have appeared one after the other in China. Now China has transformed its planned economy system into an initial socialist market economy system. As a result the regulatory function of the market has been strengthened tremendously.

Price Reform

Before the reform and opening was introduced, most commodities on the Chinese market were priced by the state. But since the start of the reform and opening, along with the expansion of the commodity market scale and the change of the relations between commodity supply and demand, the state has carried out price reform step by step and according to plan. The fixing of prices by the state follows three forms: the fixing of price by the state, state guiding prices and market regulatory prices. The market regulatory price has been gradually relaxed-By 1999 the pricing of 95 percent of consumer goods and 80 percent of investment goods had been relaxed. These prices were regulated mainly through the relations between market supply and demand. A socialist market pricing mechanism is gradually taking shape.

In the pricing system the irrational state of basic product prices being too low has been improved, and the pricing structure is becoming more rational, step by step. Comparing 1998 with 1978, the index of the retail sales prices of rural industrial products increased by 3.88 times; and the index of the synthetic relative prices between industrial and agricultural commodities was 59.7 percent. Besides, the price scissors in the exchange of industrial products for agricultural products were alleviated. In 1998, the prices of agricultural products increased by 5.83 times, compared with those of 1978, and the prices of industrial products by 2.95 times, and their price ratio was 0.6 : 1. In accordance with the requirements of the socialist market economy, China has been establishing a pricing mechanism macro-regulated and controlled by the government, and fixing prices through the market.

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Commodity Market

In order to extend the regulatory function of the market, the state has gradually reduced the categories of products for planned production, eliminated the restriction that enterprises were only allowed to engage in production but not in business operation, and abolished the practice of the state fixing commodity prices. As a result, the rights of enterprises to purchase, produce and sell have been extended. Enterprises may organize and establish wholesale markets and trading centers; the wholesale and retail commercial systems are being restructured; and the non-public economy is allowed to take part in commercial activities.

Through the reform, the unitary pattern in which the public economy monopolized commercial activities has been broken up step by step, and the commodity market pattern of diversified economic elements and operation forms with the public ownership of commerce as the main body has been established. Before 1978, there were 791 products belonging to means of production allocated according to state plans, but now only five of them remain, and the rest have entered the market. Now, department stores, supermarkets and chain stores are scattered everywhere in both rural and urban areas. In 1999, China had 1.800 China stores, over 2.000 various flea markets, over 1.000 leasing enterprises, and over 1.000 auction enterprises. Meanwhile electronic commercial business has developed rapidly; the agent system has been widely adopted by various trades; great progress has been made in the circulation and delivery of commodities, and modern material circulation enterprises have replaced traditional storage and transport enterprises. A great variety of food, clothing and other commodities satisfies the needs of consumers. The total market sales grow with each passing year. In 1999, the rural market achieved 1,204.3 billion yuan-worth of sales of consumer goods, 11.4 times the figure in 1978; the urban market achieved 1,909.2 billion yuan-worth of sales of consumer goods, 37.8 times the figure in 1978. At the same time a buyer’s market has appeared in the commodities sector in which the supply and demand of most commodities are kept in balance, the supply of some goods exceeds the demand, price trends are steady, and the guiding function of the market for producers has been strengthened.

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Capital Market

Since the reform and opening began, China has continuously expanded the capital market by improving the credit and loan mechanism, and developing stock and state debt markets. At the beginning of the 1980s, the reform of the credit and loan mechanism, beginning with “unified plan, multi-level control, connection of deposits with loans, and being responsible for making up differences” developed in accordance with the ratio between assets and debts, and eliminating the limits for the sizes of loans. In order to match this important change, new measures have been adopted, such as re-granting loans, re-discounting, reserve fund rates and making market business public, thus standardizing and strengthening the control and adjustment of the credit and loan market. At the same time, the stock market grew from nothing to become a large-scale stock market, symbolized by the Shanghai and Shenzhen stock exchanges.

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Information provided by China National Tourism Administration.