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Articles

The Logic of Choosing the Economic System in China

Pages 406-423 | Received 09 Apr 2020, Accepted 05 Jun 2020, Published online: 03 Dec 2020
 

ABSTRACT

Most people in academia conclude that the market economic system is superior to the planned economic system when arguing about the relative advantages of the two economic systems. The experiences of China before the reform and opening-up and of the former Soviet Union, however, demonstrate that the planned economic system has shown great advantages in the economic development of these two countries, playing irreplaceable roles in the industrialization processes of these two countries and creating unique miracles. The main views of this article are as follows: (a) Both the planned and the market economic systems have their advantages and disadvantages in improving the efficiency of resource allocation and promoting economic and social development. The advantages and disadvantages of the market economic system are precisely the opposite of those of the planned economic system; (b) The selection of the economic system can be effectively carried out in accordance with the principle of making good use of strengths and bypassing weaknesses given the stages of economic development; (c) Socialist countries should promptly advance the transition from a planned economic system to a market economic system after completing the tasks of the initial stage of industrialization.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes on Contributor

Hongjun Yu is a professor of economics at Peking University, Director of the Faculty of Economics and Management at Peking University, and an advisor to the Chinese Society of Political Economics. He specializes in political economics, new institutional economics, international finance and management, regional economics, and urban economics. His recent book is Thinking Innovation from the Point of View of Economics (in Chinese; Peking University Press, 2007).

Notes

1 The growth rates here are calculated using the values of the Russian Empire in 1913 as the reference base. Due to the outbreak of the Soviet-German War, the data for 1941 are not available. We use data up to 1940. See РГАЭ. Ф.1562. Оп.33. Д.2310. Л.28 (Russian State Economic Archive, file 2310, catalog 33, RG 1562, 28).

2 We use 1929 rather than 1928 because the “First Five-Year Plan” was not formally implemented until May 1929.

3 See РГАЭ. Ф.1562. Оп.33. Д.2310. Л.35, 45 (Russian State Economic Archive, file 2310, catalog 33, RG 1562, 35, 45).

4 See РГАЭ. Ф.1562. Оп.33. Д.2310. Л.40 (Russian State Economic Archive, file 2310, catalog 33, RG 1562, 40).

5 Mao Zedong once said: “What can we make now? We can make tables and chairs, can make tea bowls and teapots, can grow grain and ground it into flour, and can make paper. But, we cannot build a single car, airplane, tanker, or tractor” (Mao Citation1999, 329).

6 From the founding of the PRC to the beginning of reform and opening-up, the government planned and organized the building of large-scale water conservancy construction projects, large-scale national literacy campaigns, large-scale land reclamation, and large-scale scientific and technological research and development. The costs of these projects were fairly low, but the effects of them were large and positive.

7 When discussing the period before the reform and opening-up, people often focus on the twists and turns that China encountered and the mistakes that China made during this period. Sometimes, people think of these twists, turns, and mistakes as the whole of the history during this period. In fact, with the difficult exploration of this period, China also made great achievements.

8 See National Bureau of Statistics (Citation1998, 55). In addition, on the evening of December 17, 1974, after accompanying Mao Zedong to meet with Zarie’s President Mobutu, Deng Xiaoping reported to Mao Zedong that the industrial output had increased by 1.9 times over the past ten years (1964‒1974), with an annual growth rate of more than 11% and that this number was fine. This fact shows that even in the middle of the Cultural Revolution, China’s average growth rate of industrial output was above 10% per year, which was a remarkable achievement.

9 Shijin is a type of Chinese unit of weight measurement. One shijin is equal to 0.5 kg.

10 Mu is a type of Chinese unit of land measurement. One mu is equal to 666.5 square meters.

11 The data in this paragraph are from the National Bureau of Statistics (Citation2019).

12 Calculation is based on data from the National Bureau of Statistics (Citation2017).

13 Take Beijing as an example, Beijing’s drinking water is mainly from the Miyun Reservoir. The Miyun Reservoir was built between 1958 and 1960. Its total storage capacity reached the historical peak in 1994, 4.3 billion cubic meters.

14 After studying the history of China’s economic and social development from 1952 to 1978, the author reached a surprising conclusion: In a short period of 26 years, China created a miracle of economic and social development that was rare in human history. It is reasonable to say that from the founding of the People’s Republic of China in 1949 to the present, China has created two miracles in the 70 years of economic and social development. The first is the miracle of the Mao Zedong era, and the second is the miracle since the reform and opening-up. The claim that “China’s national economy was on the verge of collapse right before the reform and opening-up” is not tenable.

15 Looking at the practice and achievements of the 70 years of PRC’s economic development, we can clearly see that under the leadership of the CPC, the Chinese people have created two miracles in 70 years: the miracle before reform and opening-up and the miracle after the reform and opening-up. The former brought earth-shaking changes in politics, economy, society, and culture in the Chinese history, and the latter achieved the rapid development of China’s economy and greatly improved China’s overall national strength.

16 As early as December 1990, in a conversation with Jiang Zemin, Yang Shangkun, and Li Peng, Deng Xiaoping proposed: “We must understand theoretically that the difference between capitalism and socialism is not a market economy as opposed to a planned economy. Socialism has regulation by market forces, and capitalism has control through planning. … You must not think that if we have some market economy we shall be taking the capitalist road. That’s simply not true. Both a planned economy and a market economy are necessary. If we did not have a market economy, we would have no access to information from other countries and would have to reconcile ourselves to lagging behind” (Deng Citation2001, 364).

17 The data in this paragraph are from the National Bureau of Statistics (Citation2019) and the World Bank (Citation2019).

18 The data in this paragraph are from the National Bureau of Statistics (Citation2019) and the World Bank (Citation2019).

19 The data in this paragraph are from the National Bureau of Statistics (Citation2019) and author’s own calculation.

20 China’s total economic output in 1980 was almost the same as that in India, which was also a big developing country. In 1980, India’s GDP ranked 12th in the world, while China’s ranked 13th. After taking US dollar exchange rate into account, the ratio of China’s GDP to India’s was about 1 in 1980 and about 5 in 2016. Russia, a socialist country that completely transformed to a capitalist one, spent 20 years to recover to the economic development level before the disintegration of the former Soviet Union. China’s total GDP was 92% of that of Russia in 1992, and China’s GDP was 8.7 times Russia’s GDP in 2016. The data used here are from the World Bank (Citation2019).

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