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It is known to all that China has started its reforms and Opening-up since the late 1970s, including the transformation towards market economy, i.e., the so-called maketization. What level did China's marketization reach in 2001? Was it up to the five-key-factor criterion for market economy? This warrants our careful and matter-of fact research. The analysis of this important matter which is of great concern goes as follows in three aspects.
(I ) 1978--2001: Rapid Progress of China's Market Economy
China started to reform the system of planned economy in 1978. In 1979, the household contracted responsibility system with remuneration linked to out-put was promoted in the rural areas, and the farming households were entitled to full autonomy in arranging their production. In 1984, China made a decision to reform its economic system. In October 1992, China made it explicit that the objective of its reforms was to establish a system of socialist market economy. In 2002, the 16th National Congress of the Communist Party of China proclaimed to the world that China has established a preliminary system of socialist market economy. China will persevere in its reforms and opening-up, and will continuously improve its system of socialist market economy.
Through over 20 years of efforts, China's achievements in market-oriented economic reforms have attracted worldwide attention.
The first priority was shifting the function of the government from serving the planned economy to serving the market economy so that it is the market that plays a fundamental role in the allocation of resources. The product and the quantity to be produced are decided by the producer at his own will according to the demand in the market, meaning that the players in the market have obtained autonomy in their business activities. The government faded out step by step from direct involvement in the management of numerous enterprises and becomes a macro regulator and a social administrator. Since the reforms in taxation, financing, foreign exchange and investment systems in 1994, China has established a macro administrative system that matches the requirements of a market economy.
Secondly, a pattern in which economic sectors of a diversity of owner-ships are developing concurrently is taking shape. Estimations made by the State Bureau of Statistics show that the contribution to GDP in the form of the added value created by China's non-state-owned sectors rose to 63.37 percent in 2001 as compared to 53.57 percent in 1992. Further, according to the assessment by the International Financing Company under the World Bank, by the year 1998 the contributions to China's GDP by enterprises from different sectors are: 37 percent by state-owned sector, 12 percent by collectively owned sectors, 24 percent by private sector, 6 percent by foreign funded businesses, 3 percent by joint-equity companies and 18 percent by farming households respectively. In other words, the private sectors took up 51 percent of the total GDP. This estimation is accepted internationally. The non-state-owned sectors have become an important force in supporting the national economy. The state-owned enterprises have become much more market-oriented, under the ever more intensified pressure for transformation of system in line with accepted norms. "Clearly established ownership, well defined power and responsibility, separation of enterprises from administration and scientific management" are the important principles guiding the transformation of state-owned enterprises. The reforms in personnel, employment and distribution systems initiated the spontaneous migration of the labor forces and the negotiated rate of wages. The current phase of reform and restructuring of the monopolized industries have been successful. The state-owned enterprises are basically following the market rules in their operations and have become participants of the market. Measures taken by the Chinese government in encouraging direct investment by the foreign businesses have resulted in a large number of foreign invested enterprises making significant contributions. Of the increased portion of the total volume of imports and exports for the year 2001, 63 percent was contributed by foreign invested enterprises. Many world-known transnational companies from Europe and America such as Motorola, Siemens, Alcatel, Nokia and Phillips have achieved fabulous successes in the Chinese Market, as the market-oriented reform in China is a powerful statutory support to their efforts in developing the Chinese market. These companies are the witnesses of the development of China's market economy.
Thirdly, the market system has been better improved. A financial market has been established from non-existence and is growing ever more sophisticated. The labor market is developing rapidly in recent years. The real-estate market is growing steadily. The markets for technology and information are being formed step by step. The prices of the most majority of commodities, productive factors and services are determined by the market. The interest rates are becoming more market-directed. A flexible exchange rate system that is market-oriented and well-directed is playing an effective role. The development of intermediary organizations is accelerated and a preliminary system of intermediary organizations has come into being with a variety of types, organizations and method of services. Meanwhile the management and supervision of market have witnessed constant improvement.
A fact particularly worth mentioning is that a basic legal system for the market economy has been established in China. In the past several years, the Constitution underwent three amendments and modifications, so that it explicitly states that "China practices a socialist market economy", establishing that all sectors in the market economy are on an equal standing. In order to meet the requirements for the development of a market economy, a series of new laws were made, market rules established, behaviors of market principals standardized and the State's function in controlling the economy clarified.
All of the above has made it clear that a preliminary market economy system has been established in China and it has become a developing market economy country.
(Ⅱ)Measurement Results on the Development of China's Market Economy
The five-key-factor criterion for the market economy and the assessment of economic liberalization made by the two American and Canadian research institutes are important references for us to measure the extent of development of China's market economy. On the basis of the five key factors, we select 11 sub-factors, under which 33 variables are to be chosen. Through grading variables, assembling and assessing, the research on the development of China's market economy will come to a clear conclusion.
In the following table, we will in brief describe the 33 variables and their points, then introduce the 11 sub-factors, analyze scores of the five key factors, and finally give a final score to and succinctly comment on the extent of development of China's market economy.
Among the 33 variables, there are five with 1 point, indicating they have reached a high level in freedom and marketizaion; 11 variables with 2 points, showing they have reached a higher level in freedom and marketization; 13 variables with 3 points, indicating they get a lower level in freedom and marketization; 4 variables with 4 points, suggesting their level is low in freedom and marketization, which will be given a special concern in our further reform.
Now, on the basis of the 33 variables' values, we establish the evaluation values for the 11 sub-factors, to be arranged from low to high, e.g. the order of high degree of freedom and marketization coming first and the lower the degree the further away of its position. Thus we have: "Freedom in pricing of foreign trade products" 1. 33 points;" Capital and land" 2.00 points; "Contribution by non-state-owned sector" 2.40 points; "Government's fiscal burden" 2.50 points; "protection of fair trade by laws" 2.50 points; "Labor and wages" 2.67 points;" Government's intervention in economy" 3.00 points; "Interest rates and exchange rates" 3.00 points; and finally "freedom in foreign trade" 3.50 points.
Based on the point values of the 11 sub-factors, we establish the evaluation values for the 11 sub-factors, to be arranged from low to high, e.g. the order of high degree of freedom and marketization coming first and the lower the degree the further away of its position: "marketization of productive factors" 2.17 points, "liberalization of economic entity" 2.20 points, "fair trade environment" 2.44 points, "standardization of governmental behavior" 2.75 points, and the last one "rationalization of financial parameters" 3.0 points.
Based on the point values of the five major factors, the calculation brings us the comprehensive score of 2.51 points, or approximately 69 percent if converted to percentage terms, which is the assessment value of the development of China's market economy. This value shows that China's market economy has been improved greatly, but it is still far behind the level attained by the developed market economies in Europe and North America.
(Ⅲ) Comparison of the Assessments Made by the Chinese and the Foreigners Regarding the Development of China's Market Economy
1. Our Conclusion on China's Market Economy as Compared with Similar Results by Other Research Institutes in China
In order to make a comparison between the conclusions drawn from assessments on China's progress toward a market economy.
In the years after l992 there have been two types of measurements used by the researchers on the development of China's market economy. One is the measurement by absolute point values, the other is the arrangement of relative positions in a sequential order. Conclusions arrived at by absolute point value measurement gave the lowest score of 38 percent with the highest being 65 percent. Of which, conclusions by three groups of researchers were 60 percent or above and one of them gave a score of 62 percent for the year of 1992. An annual simple mean value of 52.5 percent was obtained based on all these research results. These conclusions show that the measurement conclusions made by these experts regarding the attainments in China's development of a market economy is slightly lower but close to our results. Considering the fact that several years have past since the pioneering researchers did their work, during which the marketization in China has been rather speedy, then, our index of 69 percent for the year 2001 should be rather reliable. But we have to bear in mind that such comparison was made in reference to the previous years, as the research results for the year 2001 are not yet available in China. Therefore this shall be simply a reference conclusion for analyzing and comparing the evaluation results with respect to the attainments in the development of a market economy.
(Ⅳ) China is a Developing Market Economy Country
The years from 1978 to 2001 witnessed China experiencing a course of re-forms and opening-up, a process of rapid development of market economy and a historical period of transition from a traditional planned economy towards a market-oriented economy. By utilizing the rationale and methodologies of the freedom indices worked out by the Heritage Foundation of the U.S.A. we estimate that the development of China's market economy by the end of 2001 has reached 2.51, or 69 percent in the percentage system. Assuming the criteria for a 100 percent market economy are available, with the 69 percent marketization level we should arrive at the conclusion that the market economy system would have already been established. In fact our argument is that 60 percent should be a critical level in determining whether an economy is market-oriented or not. Once the 60 percent point is crossed, the minimum requirement for a market economy is satisfied and the country becomes a market economy. If all the countries between 80 percent and 100 percent are regarded as mature market economies, then, a country with 69 percent market economy should all the more be accepted as a market economy country. In parliament voting, with a favorable majority the law is made. Similarly, in determining whether a country is a market economy, when most aspects are market-oriented or one of the aspects is mostly market-oriented, it may be safe for us to say that the country is on the whole a market economy country.
Some would argue: what you are talking is about a bucket more than half full while I am actually worried about the part without water. It is true that China is not yet completely market--oriented. But what is a 100 percent market economy? Is there any 100 percent market-oriented country? Suppose you want to invest in China, is the 69 percent marketization level insignificant to you? As to the fact that there are still some aspects remaining below the critical level for market economy, it is not to be taken that these aspects are insulated from marketization. In fact marketization is being propelled rapidly forward.
That China is a developing market economy country has two implications: on the one hand, China as a preliminary all economy is advancing towards a mature market economy. It implies an emphasis on statutory reform and renovation, and an emphasis on the reform and opening up of China's economic system for a full extent transition. This is the principal connotation of "a developing market economy country". It took us only over 20 years to realize the transition from a planned economy to a market economy. History has proved that the crucial issue of a market economy is the establishment of market principals, and that the speed in building a market economy depends directly on the selection of the statutory objectives. The reason that China was not able to develop into a market economy more than 20 years ago lies in the fact that market economy was not our initial choice. On the peripheries of China, some rising industrial countries and regions accomplished the development from natural or agricultural economy into industrial economy within a mere couple of decades, at the same time realizing the transition from controlled economy to market economy, all because they preferred market economy. Market economy as the most flexible economy among all types of economic systems, once chosen its speedy development is ensured, especially against the background of the current economic globalization. The fact that China as a large developing country has launched on the road of market economy is a manifestation that China has realized that market economy is the most vigorous economic system in today's world.
On the other hand, it also implies that China as a developing country has now adopted a system of market economy. Here the word "developing" is used in the same sense as it is in the term "developing economics". It is emphasized that the term "a developing market economy country" is to be understood in terms of development of economy. The stages of development undoubtedly are heavily dependent on the economic system. The market economy system is established only when the development of economy has reached a certain stage. Therefore, the level of economic development is to some extent related to the economic system, although they are not identical. It is true that it is relatively easier for a country with a higher level of development to practice market economy; or, to put it in a reverse way, the practice of a market economy system will benefit the development of economy. While the expressions "developing" and "developed" mainly denote the level of development, they imply a difference in the systems as well. Based on this understanding, we are able to realize the distance between our level of economic development and that of the developed countries. Further efforts are required of us in order to maintain a rapid, stable and healthy development of economy for a sooner realization of modernized economy, preparing a material foundation for the realization of a full-fledged market economy system.
Obviously, a developing market economy country would judge a country's economic system from a point of view that combines development with reforms. Meanwhile what we call "development" and "reforms" are mutually supplementary in this sense: a market economy system can only be established and developed when the economy has developed to a certain level; and the establishment of an all-round market economy system is an important foundation in propelling the rapid development of economy.
On April 7, 1998, the EU passed a resolution to delete China from a list of "non-market-economy countries", the list itself being a component part of its anti-dumping policy, and China was granted the treatment of "special market economy country", Which is an intermediary status between the "non-market economy countries" and the "market economy countries". This showed that the EU had been concerned about the development of China's market economy and was prepared to timely modify its judgment of the marketization level in China. The word "special", as we take it, was meant to express our foreign friends' surprise at China's rapid development of market economy. However the "special" country, as it seems fit, should not be a country of a third category, beyond the categories of "non-market-economy countries" and "market economy countries". The "special" country is a market economy country that is a bit special. One expert made a witty remark: a child, although immature, is still a human being in the full sense. It follows that a developing market economy country is still a market economy country. Being "special" is not being "alien", so to speak. There should be no discriminative policies when what we need is fairness in trade.
The conclusion is that China's national economy is already operating under market economy conditions, as it has long since crossed the critical threshold for a market economy. This is a result achieved by the Chinese people who spared no effort in the course of reforms and opening up, and a result that cannot be achieved without the participation, encouragement and contribution by all economic forces worldwide. China is willing to share its achievements in reform and development with all countries of the world.
(China.org.cn November 7, 2003)
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