Chinese Economic Reform and the Socialist Market Economy

Chinese Economic Reform and the Socialist Market Economy Student’s Name Professor’s Name Course Name Chinese Economic Reform and the Socialist Market Economy Chinese Economic Reform and the Socialist Market Economy “Falling behind means to get beaten.” The famous saying that had been deeply imprinted in every Chinese people’s mind reveals the long-lasting dilemma from the late Qing Dynasty to the twentieth century. After the Chinese Communist Party had defeated the Nationalist Party and established its power in 1949, China was implemented by a planned economy as the essential feature of the communism under Mao Zedong’s rule. Planned economy system ensures investment and the allocation of capital goods to take place according to government’s plans. After Mao’s death in 1976, Deng Xiaoping took over the power and started his profound economic reform. Why did Deng choose to change the planned economy to the socialist market economy? Why and how can it save China? This paper will discuss the feasibility of the socialist market economy and the process of its improvement to suit China’s national condition. The change of planned economy into a socialist market economy by Deng was fuelled by the need to solve the needs of people who lived in the countryside. At that time, over 80 percent of the Chinese population lived in rural areas Deng argued, no matter how intense the city economy was, it would not mean a thing if it didn't trickle down to rural areas. Out of this need, the Chinese economy policies were changed invigorating the economy and adopting open policies in rural China. This policy opened the markets in China and led to an economic bust which solidified the rural economy in a way that it was entirely self-sufficient. Socialism got rid of the “closed door” policies which were in place at that time. This blockaded opportunities and the need for economic growth; as a result, no industries were built enough. It hindered construction and crippled development. Productive forces were not developed as the Communist model was run by the powerful few and the Communist Party. Towards the end of 1978, Deng adopted an open trade policythis was very vital in having investors begin to build industries and infrastructure.[Unger, Jonathan. The transformation of rural China. Routledge, 2016.Deng, Xiaoping. 1984. ‘Building Socialism with a Specifically Chinese Character.’ in The People’s Daily. Beijing.] The other factor that moved China to a socialist economy was the political developments that took place at that time. It is recorded that after open policies were put in place, there were significant amounts of socialist transformations in agriculture, commerce, and industries. Special Economic Zones were established, designated locations where foreign investors were allowed to put up their businesses and industries without government regulations or red tape. These transformations went smoothly without any barriers politically foreign investments absorbed millions of dollars for the economy, and it was a significant supplement in the building of socialist China. The Soviet Union made loans available to China. These loans enabled China to gain a footing in its economy as it was mainly used to build industries and infrastructure. China registered significant growth in the consumer and the export market during this period. An urban middle class also rose during this period leading to a higher living standard; the urban middle class was compromised of 15% of the entire Chinese population. With an urban middle class, the Chinese middle-class economy was born, and this was very instrumental in bridging the gap, between the lower class economy and the upper-class economy. The other factor that accelerated the shift was the availability of labour in the market, commonly referred as “floating population”. In this era, there was a stream flow of rural-urban migration in search of employment. “About ten million workers from SOEs and urban collectives were laid off in each year between 1996 and 1998”. The increased rate of unemployment and layoffs was considered a major problem that led to serious deliberations among citizens and leadership at large. The move was partly informed by automation in agriculture that led to unemployment or underemployment in the rural area as well as the simultaneous growth of industrial work in the urban centres. It was estimated that over 30% of the employees would move to urban centres in search of employment. The voluntary migration resulted in aggressive re planning schemes that saw rural villages demolished to allow room for manufacturing settlements to progress in the country. Excess labour in the rural areas due to unemployment was estimated to be around 100 million while the illegal migrants from rural-urban migration were in tens of millions. By the year 2000, 76 million people were recorded to have migrated to the urban areas. In response, the country labour market was controlled through Hukou system that determined where an individual was supposed to live, work in order receive state social benefits such as healthcare, public schooling, job opportunities, housing, and for farming. These systems ensured that illegal migrants find it hard to get employment in better-paying industries in better-paying industries, as well as local government’s pressure to industries to prioritize in offering a job to the local citizens in the area of operation...