First Letter: M

Brief

UNCTAD defines a market economy as “a national economy of a country that relies heavily upon market forces to determine levels of production, consumption, investment, and savings without government intervention”.

China began its transition from a socialist command economy four decades ago, and since the early 1990s it calls itself a ”socialist market economy” under which markets were to extend to all main sectors of the economy. Following years of market-led growth, China’s current model is characterised by more government influence over the economy than in the past, and then is found in most middle-income and developed economies, with a prominent role given to state banks, firms, and government five-year plans. This model is sometimes referred to as Market-Leninism.

The Chinese Party State actively manages competition, often favouring state-owned enterprises and national champions over private firms, particularly in strategic sectors. Market access can be restricted based on political and strategic considerations rather than purely economic factors, which is a point of contention when discussing free market principles. Since taking power in 2012, Xi Jinping has increasingly stressed national security and self-sufficiency as paramount to economic openness, underlining how China’s homegrown version of a market economy is unlikely to give market forces free rein at the expense of state control.

Analysis

Following spontaneous experiments with individual household agriculture in the late 1970s, the Chinese Communist Party (CCP) gradually relaxed control of farming and then urban economic activity. It permitted private businesses and foreign investment.

The concept of “socialist market economy” was endorsed by the 14th Congress of the Communist Party in 1992 and was enshrined in the PRC constitution in 1993, when it replaced “planned economy on the basis of socialist public ownership” as China’s national economic system.

After decades of protectionism and state economic planning under Mao, his successor, Deng Xiaoping, had to avoid the impression that he was challenging Mao’s legacy. Deng, however, famously declared that “it doesn’t matter whether a cat is black or white, as long as it catches mice,” signalling pragmatism about market mechanisms.

With the socialist market economy model Deng focused on economic growth as the primary goal. Nevertheless, he maintained that the state had to play a leading role in economic planning and development. The ultimate control over strategic sectors would be retained by the Communist Party, which had to maintain its prerogative to intervene extensively in market operations when called for.

In preparation for its accession to the World Trade Organisation in 2001, China adopted a range of market-opening measures which continued during the early days of its WTO membership and contributed to over a decade of double-digit economic growth. None of these policies, however, challenged the strategy of the state maintaining a leading role in what were regarded as strategic industries, such as steel, energy, autos, aerospace, shipbuilding, and military industries.

Shortly after assuming power in 2012, Xi Jinping articulated a vision of market mechanisms playing a pivotal role in resource allocation. Progress has, however, been limited. Few of the reforms that Xi envisioned have been carried out and the Party’s role in the economy has instead become even more pronounced. Prominent Chinese economist Mao Yushi, an outspoken critic of the government’s failure to reduce public ownership, has argued that the state’s dominance in the domestic market “is just as if a referee would join a football game”. 

In recent years, these policies have spurred some Western economies to address dependency on China and to boost domestic competitiveness. Chinese officials have responded by portraying calls for balanced and fair trade, and efforts to respond to industrial overcapacity in China, as a pretext for Western protectionist policies. Meanwhile, China has rhetorically embraced economic globalisation, notably reflected by Xi Jinping’s keynote address at the World Economic Forum in 2017, where he appeared as a champion of free and open global markets. Despite China’s own shortcomings in terms of market openness, these narratives have gained traction, not least in the Global South, especially as some Western countries have increased their own protectionist and statist policies.

Brief

A globally shared view holds modernity as closely linked to progress. Modernisation is the process of development from a “pre-modern” or “traditional” to a “modern” society. In Western thought, modernisation has been associated not only with technological advancement but also with secularisation, democratisation, and advancement of human rights. It is intimately linked to the ideas of enlightenment and rationality.

In China, the idea that modernisation does not mean “Westernisation” long predates the Chinese Communist Party (CCP). “Chinese substance, Western application” (中体西用) was the slogan of reform-minded intellectuals after the defeat in the Opium Wars. Its essence has been carried on by the CCP whose leaders have emphasised that China will not pursue a “Western-style” but a “Chinese-style modernisation” (中国式现代化). One that modernises industry, agriculture, army and science and technology – but does not include political liberalisation or democracy. The latter, the CCP believes, has led to social conflict within Western societies – something that China can only avoid through the leadership of the CCP and socialist modernisation (社会主义现代化).  

Analysis

Li Shulei, the head of the CCP’s Propaganda Department, described modernisation as something imposed on China by the West that subsequently became an internal necessity.^[1] This view is deeply embedded in China’s historical memory. Ever since the defeat by the technologically superior British and Japanese in the 19^th century, techno-centred modernisation was seen as the path for China to overcome backwardness and national humiliation. Modernisation was also closely linked to anti-imperialism through the struggle for national self-determination.  

Sun Yat-sen, considered the “father of modern China” argued in Three Principles of the People (1911) that increasing “people’s welfare” (民生) through economic and industrial development programmes was a prerequisite for realising “nationalism” (民族主义) and “self-determination” (自决权).^[2] To this day, both the CCP and the Guomindang (KMT, now one of the political parties in Taiwan) claim Sun Yat-sen’s intellectual legacy. In Sun’s footsteps, Chen Duxiu and Li Dazhao, who co-founded the CCP in 1921, saw modernisation as a core part of anti-imperial and anti-colonial struggle, and as a means to improve people’s livelihood and enhance capacities for independent development.

Moreover, the early communists linked China’s modernisation quest with those of other poor countries: Liu Shaoqi declared in 1945 that the course taken by China would lead the way for Southeast Asian countries facing similar conditions.^[3] Later, through foreign aid, China’s domestic quest for modernisation was extended to other countries.   

Beginning with Mao Zedong, CCP leaders made clear that China would pursue a “socialist modernisation”. In the Mao era, it meant following the example of the Soviet Union to modernise industry, agriculture, military and science and technology. The “Great Leap Forward” was Mao’s attempt to accelerate the transformation of China’s economy from agrarian to industrial – which ended in a country-wide famine.  

The “Four Modernisations” in industry, agriculture, military and science and technology then became the core of Deng Xiaoping’s reform and opening policy. To the West, Deng argued: “Our four modernisations are four Chinese-style modernisations”. Deng’s modernisations included the “socialist market economy” with a mix of state elements and private enterprises, experimentation with foreign technology and policy. But Deng rejected the “Fifth Modernisation”, brought forth in the Democracy Wall Movement by Wei Jingshan: democracy in the liberal sense. 

Xi Jinping has described Chinese-style modernisation as the pathway to the “great rejuvenation of the Chinese nation”, which China aims to achieve by the 100^th anniversary of the PRC in 2049. A defined milestone on this path is to make progress towards “common prosperity” and to become a middle-income country by 2035. In 2022, the goal of “Chinese-style modernisation” was amended to the Party Constitution at the 20^th National People’s Congress.

The Party discourse on modernisation in the Xi-era has a deep moral undertone. It postulates  that in contrast to the “old path of capital-centred, polarising and expansionist Western modernisation”, China was pursuing a better “people-centred development”: one to which China’s “whole process democracy” was better suited than liberal democracy. Referring to Sun Yat-sen’s vision of modernisation in 2020, Xi argued that China has progressed far beyond than what Sun had imagined – and only the CCP was able to achieve that. Liberal voices warn however, that the primacy of ideology over economics in Xi’s Chinese-style modernisation has closed the spaces for political innovation that made China’s modernisation successful in the first place.

[1] Li Shilei, 我观世音 [I am Avalokitesvara], Jinan: Taishan chubanshe, 1992, p. 22.

[2] P. Linebarger, The Political Doctrines of Sun Yat-Sen, The Johns Hopkins Press, 1937.

[3] A. L. Strong, ‘The Thought of Mao Tse-Tung’, Amerasia, June 1947.