View source for Socialist market economy

{{Short description|Chinese economic philosophy}}
{{About|the specific economic system in the People's Republic of China|the broader concept of market-based socialism|Market socialism|the system in Vietnam|Socialist-oriented market economy|the economic model combining free-market capitalism with social policies|Social market economy}}
{{Use British English|date=September 2010}}
{{Use dmy dates|date=January 2020}}

{{Infobox Chinese
|s = 社会主义市场经济
|t = 社會主義市場經濟
|p = Shèhuìzhǔyì Shìchǎng Jīngjì
|altname = Socialist market economy with Chinese characteristics
|order = st
}}

{{Economic systems sidebar|Other}}
{{Socialism sidebar|Models}}

The '''socialist market economy''' ('''SME''') is the [[economic system]] and model of economic development employed in the [[China|People's Republic of China]]. The system is a [[market economy]] with the predominance of [[public ownership]] and [[State-owned enterprises of China|state-owned enterprises]].<ref name=Ding2009>{{cite journal |last1=Ding |first1=Xiaoqin |title=The Socialist Market Economy: China and the World |journal=Science & Society |date=1 April 2009 |volume=73 |issue=2 |pages=235–241 |doi=10.1521/siso.2009.73.2.235 |jstor=40404550 }}</ref> The term "socialist market economy" was introduced by [[Jiang Zemin]] during the [[14th National Congress of the Chinese Communist Party|14th National Congress]] of the [[Chinese Communist Party]] (CCP) in 1992 to describe the goal of [[China's economic reforms]].<ref name="Belknap Press">{{cite book |last1=Vogel |first1=Ezra |title=Deng Xiaoping and the Transformation of China |date=2011 |publisher=Belknap Press |isbn=978-0-674-72586-7 |page=682}}</ref>

Originating in the Chinese economic reforms initiated in 1978 that integrated China into the [[Globalization|global market economy]], the socialist market economy represents a [[primary stage of socialism|preliminary or "primary stage" of developing socialism]].<ref>{{cite web |url=http://english.mofcom.gov.cn/article/topic/bizchina/economicsystem/200406/20040600239133.shtml |title=Socialist Market Economic System |publisher=Ministry of Commerce of the People's Republic of China |date=25 June 2004 |access-date=7 March 2018 |quote=The development of the economic system with public ownership playing a dominant role and diverse forms of ownership developing side by side is a basic characteristic of the socialist economic system at the preliminary stage…The public economy consists not only the state-owned economy and the collective economy, but also the state-owned and collective component in the mixed-ownership economy. The dominant position of the public ownership is represented that: the public assets have a dominant proportion in the overall assets of the society; the state-owned economy controls the lifeline of the national economy and plays a leading role in the economic development, as is from the aspect of the whole country. |archive-date=20 March 2018 |archive-url=https://web.archive.org/web/20180320030825/http://english.mofcom.gov.cn/article/topic/bizchina/economicsystem/200406/20040600239133.shtml |url-status=dead }}</ref> Some commentators describe the system as a form of "[[state capitalism]]",<ref name=Cui2012>{{cite journal |last1=Cui |first1=Zhiyuan |title=Making Sense of the Chinese 'Socialist Market Economy': A Note |journal=Modern China |date=2012 |volume=38 |issue=6 |pages=665–676 |doi=10.1177/0097700412459700 |jstor=41702477 |s2cid=156702979 }}</ref> while others describe it as an original evolution of [[Marxism]], in line with [[Marxism–Leninism]] similar to the "[[New Economic Policy]]" of the [[Soviet Union]], adapted to the cohabitation with a globalized capitalist system.<ref name=":0">{{Cite journal|last=Poulin|first=Maxence|date=2021-10-02|title=Comparative Analysis of the Economic Structure of the Socialist Market Economy of China and the New Economy Policy|url=https://doi.org/10.1080/21598282.2021.2007502|journal=International Critical Thought|volume=11|issue=4|pages=519–534|doi=10.1080/21598282.2021.2007502|s2cid=244875301|issn=2159-8282|quote=Our thesis is that the modern Chinese mode of production, since 1990s, follows a logic similar to the Soviet one during the NEP era. In the light of the NEP experience, our research shows that the Chinese development strategy shouldn't be understood as trending towards a neoliberal model. It is rather an original evolution of Marxism, in line with the tradition of Marxism-Leninism, adapted to the cohabitation with a globalized capitalist system.|url-access=subscription}}</ref>

== Description ==
In the late 1970s, then-[[paramount leader]] [[Deng Xiaoping]] and the [[Central Committee of the Communist Party of China|CCP leadership]] rejected the prior [[Maoism|Maoist]] emphasis on culture and political agency as the driving forces behind economic progress and started to place a greater emphasis on advancing the material productive forces as the fundamental and necessary prerequisite for building an advanced{{Vague|date=March 2025}} socialist society. The adoption of market reforms was seen to be consistent with China's level of development and a necessary step in advancing the [[productive forces]] of society. This aligned Chinese policy with a more traditional Marxist perspective where a fully developed socialist planned economy can only come into existence after a market economy has exhausted its historical role and gradually transforms itself into a planned economy, nudged by technological advances that make economic planning possible and therefore market relations less necessary.<ref name=Ding2009/> In Deng's view, both state planning and market mechanisms were tools to liberate productivity, and that while a capitalist market economy is dominated by individualism, a socialist market economy would lead to [[common prosperity]].<ref name=":0232">{{Cite book |last=Li |first=Xiaobing |title=The Cold War in East Asia |date=2018 |publisher=[[Routledge]] |isbn=978-1-138-65179-1 |location=Abingdon, Oxon}}</ref>{{Rp|page=161}}

The socialist market economy is presented by the CCP as an early stage in the development of socialism (this stage is variously called the "primary" or "preliminary" stage of socialism), where public ownership coexists alongside a diverse range of non-public forms of ownership.{{cn|date=March 2025}} 

In the CCP's view, China is not a capitalist country because despite the co-existence of private capitalists and entrepreneurs with public and collective enterprise, the state holds a monopoly on all land ownership and a primary ownership stake in the economy's largest and strategic enterprises, while the party retains control over the state and the direction of the country.<ref name="Ding2009" /> However, many scholars consider the [[Beijing Consensus|Chinese economic model]] as an example of [[authoritarian capitalism]],<ref>{{Cite book |last=McGregor |first=James |url=https://books.google.com/books?id=scM57r29sJUC&dq=china+authoritarian+capitalism&pg=PR11 |title=NO ANCIENT WISDOM, NO FOLLOWERS: The Challenges of Chinese Authoritarian Capitalism |date=2012-11-06 |publisher=Easton Studio Press, LLC |isbn=978-1-935212-81-2 |language=en}}</ref><ref>{{Cite journal |last1=Gruin |first1=Julian |last2=Knaack |first2=Peter |date=2020-04-15 |title=Not Just Another Shadow Bank: Chinese Authoritarian Capitalism and the 'Developmental' Promise of Digital Financial Innovation |url=https://doi.org/10.1080/13563467.2018.1562437 |journal=New Political Economy |volume=25 |issue=3 |pages=370–387 |doi=10.1080/13563467.2018.1562437 |issn=1356-3467 |s2cid=159282907 |hdl-access=free |hdl=11245.1/336bf4c0-6cf3-402d-a0ed-da06b78edc9c}}</ref> [[state capitalism]]<ref>{{Cite web |last=Andrew Szamosszegi and Cole Kyle |title=An Analysis of State-owned Enterprises and State Capitalism in China |url=https://static1.squarespace.com/static/5e41c6f5227c7b05e81bb87a/t/5ebc4f41cb51d10a41c54989/1589399365069/AZS-CK-China-SOE.pdf |website=U.S.-China Economic and Security Review Commission}}</ref> or [[party-state capitalism]].<ref name=":022">{{Cite journal |last1=Pearson |first1=Margaret |last2=Rithmire |first2=Meg |last3=Tsai |first3=Kellee S. |date=2021-09-01 |title=Party-State Capitalism in China |journal=[[Current History]] |language=en |volume=120 |issue=827 |pages=207–213 |doi=10.1525/curh.2021.120.827.207 |issn=0011-3530 |doi-access=free}}</ref><ref name="ReferenceA">{{Cite journal |last1=Pearson |first1=Margaret M. |last2=Rithmire |first2=Meg |last3=Tsai |first3=Kellee S. |date=2022-10-01 |title=China's Party-State Capitalism and International Backlash: From Interdependence to Insecurity |journal=[[International Security]] |language=en |volume=47 |issue=2 |pages=135–176 |doi=10.1162/isec_a_00447 |issn=0162-2889 |doi-access=free}}</ref>

Proponents of this economic model distinguish it from [[market socialism]] as market socialists believe that [[economic planning]] is unattainable, undesirable or ineffective and thus view the market as an integral part of socialism whereas proponents of the socialist market economy view markets as a temporary phase in development of a fully planned economy.<ref>''[https://web.archive.org/web/20120710134716/http://www.nodo50.org/cubasigloXXI/congreso06/conf3_zhonquiao.pdf Market Economy and Socialist Road]'' Duan Zhongqiao</ref>

[[Cui Zhiyuan]] traces the theoretical foundations of the socialist market economy to [[James Meade]]'s model of [[liberal socialism]] in which the state acts as a residual claimant on the profits generated by state-owned enterprises that are operated independent of government management.<ref name=Cui2012/>

Writing for English-language readers, academics Christopher Marquis and Kunyuan Qiao state that to avoid the incorrect assumption that "market economy" is the core idea, a more appropriate translation would be "market economy within the Chinese socialist system."<ref name=":223">{{Cite book |last1=Marquis |first1=Christopher |title=Mao and Markets: The Communist Roots of Chinese Enterprise |last2=Qiao |first2=Kunyuan |date=2022-11-15 |publisher=[[Yale University Press]] |isbn=978-0-300-26883-6 |pages= |doi=10.2307/j.ctv3006z6k |jstor=j.ctv3006z6k |author-link=Christopher Marquis |s2cid=253067190}}</ref>{{Rp|page=16}} In Marquis and Qiao's view, this alternative translation better reflects the subordination of "market" to "socialist system."<ref name=":223" />{{Rp|page=|pages=16–17}}

== History ==
{{quote box|width=25em|align=right|bgcolor=ivory|quote=Marxism holds that, within the contradictions between the productive forces and relations of production, between practice and theory, and between the economic base and the super-structure, the productive forces…and the economic base generally play a principal and decisive role. Whoever denies this is not a materialist.|source=— [[Deng Xiaoping]], "On the General Program of Work for the Whole Party and the Whole Nation" (1975)}}
After the [[Great Leap Forward]] (1958–1961) and the ousting of the [[Gang of Four]] from power in 1976, Deng Xiaoping (paramount leader from 1978 to 1989) refocused China's efforts on [[economic growth]] and on finding an economic system compatible with China's specific conditions. However, in doing so he remained committed to the [[Leninism|Leninist]] model of centralized political control and a [[one-party state]].

[[Jiang Zemin]] originally introduced the term "socialist market economy" in 1992. He had coined the idea so that China could learn the lessons from capitalist countries without needing to discuss if the reforms are "socialist" or "capitalist." Jiang had asked Deng Xiaoping if he had approved of the term, which he did.<ref name="Belknap Press"/> The [[Đổi Mới]] in the [[Socialist Republic of Vietnam]] later adopted the concept.<ref name=vn>Vuong, Quan Hoang (2010) Financial Markets in Vietnam's Transition Economy: Facts, Insights, Implications. {{ISBN|978-3-639-23383-4}}, [[VDM Verlag]], 66123 Saarbrücken, Germany.</ref> Following its implementation, this economic system has supplemented the [[command economy]] in the People's Republic of China, with high growth-rates in GDP during the past decades having been attributed to it.{{by whom|date=July 2018}} Within this model, privately owned enterprises have become a major component of the economic system alongside the central state-owned enterprises and the collective/township village enterprises.{{cn|date=March 2025}}

The transition to a socialist market economy began in 1978 when Deng Xiaoping introduced his program of [[socialism with Chinese characteristics]]. Initial reforms in decollectivizing agriculture and opening the economy to foreign investment in the late 1970s and early 1980s later led to large-scale radical reforms, including corporatization of the state sector, partial privatization of some enterprises, liberalization of trade and prices and dismantling of the "[[iron rice bowl]]" system of job security in the late 1990s.{{cn|date=March 2025}}

During [[Deng Xiaoping's southern tour|Deng's 1992 Southern Tour]], Deng promoted the ideological basis for the socialist market economy, stating his view that "[p]lanned economy does not equal socialism and market economy does not equal capitalism. Socialism can have market mechanisms as well, and government planning and market are both economic means."<ref name=":223" />{{Rp|page=65}}

At the first session of the [[8th National People's Congress]] on 29 March 1993, the preamble of the [[Constitution of China]] was [[1993 amendment to the Constitution of China|amended]] to incorporate the system.<ref name=":02">{{cite web |orig-date=1993-02-29 |title=中华人民共和国宪法修正案（1993年） |url=http://www.npc.gov.cn/wxzl/wxzl/2000-12/05/content_4585.htm |archiveurl=https://web.archive.org/web/20141208064244/http://www.npc.gov.cn/wxzl/wxzl/2000-12/05/content_4585.htm |archivedate=2014-12-08 |accessdate=2018-03-10 |publisher=中国人大网 |url-status=live}}</ref> In 1993, the CCP issued its "Decision on Issues Related to the Establishment of a Socialist Market Economy System."<ref name=":023">{{Cite book |last=Roach |first=Stephen S. |url= |title=Accidental Conflict: America, China, and the Clash of False Narratives |date=2022 |publisher=[[Yale University Press]] |isbn=978-0-300-26901-7 |location=New Haven |doi=10.12987/9780300269017 |jstor=j.ctv2z0vv2v |oclc=1347023475 |author-link=Stephen S. Roach}}</ref>{{Rp|page=215}} In the wave of reform thereafter, one goal was to separate SOE management from government and to empower a select group of SOEs with special property rights and autonomy.<ref name=":023" />{{Rp|page=215}} In 1994, China devalued the [[renminbi]] by 33 percent as part of socialist market economy reforms.<ref>{{Cite news |date=June 19, 2010 |title=China's reforms of the yuan exchange rate |url=https://www.reuters.com/article/markets/currencies/chinas-reforms-of-the-yuan-exchange-rate-idUSSGE65I02S/ |access-date=November 27, 2024 |work=[[Reuters]] |quote=China unifies its dual exchange rates by bringing the official and swap centre rates into line, officially devaluing the yuan by 33 percent overnight to 8.7 to the dollar as part of reforms to embrace a "socialist market economy".}}</ref>

After adoption of the socialist market economy, [[Agriculture in China|agricultural]] production increased significantly and China eliminated starvation.<ref name=":2025MesaLago">{{Cite book |last=Mesa-Lago |first=Carmelo |title=Comparing Socialist Approaches: Economics and Social Security in Cuba, China, and Vietnam |publisher=[[University of Pittsburgh Press]] |year=2025 |isbn=9780822948476 |series=Pitt Latin American Series |location=Pittsburgh, PA}}</ref>{{Rp|page=21}}

== Analysis ==
Some scholars have described China's economic system as a form of state capitalism, particularly after the industrial reforms of the 1980s and 1990s, noting that while the Chinese economy maintains a large state sector, the state-owned enterprises operate like private-sector firms and retain all profits without remitting them to the government to benefit the entire population. This model brings into question the rationale for widespread public ownership as well as the applicability of the descriptor "socialist", and has led to concern and debate regarding the distribution of state profits.<ref name="Milhaupt & Zheng 2015">{{cite journal |last1=Milhaupt |first1=Curtis |last2=Zheng |first2=Wentong |title=Beyond Ownership: State Capitalism and the Chinese Firm |journal=UF Law Faculty Publications |date=1 March 2015 |url=https://scholarship.law.ufl.edu/facultypub/696/ }}</ref><ref>{{cite book |last= Sheng & Zhao|first= Hong & Nong |title= China's State-Owned Enterprises: Nature, Performance and Reform |publisher= World Scientific Publishing Company | date= 22 October 2012 |isbn= 978-9814383844 |page =116|quote= The World Bank report (2005) generated public concerns and debates. Those supportive of the distribution of SOEs dividends hold the following three views: (1) Since the state is the investor of SOEs; it has the right to participate in dividend distribution as a shareholder. By name and under law, the shares of SOEs should belong to all citizens. The governmental departments are only exercising administrative power on their behalf. Therefore, all citizens, as opposed to certain grounds, should become direct beneficiaries. (2) The high wages and welfare benefits of monopolistic SOEs come from their high profitability as they enjoy institutional monopolies. These profits should be turned over to the State and then, through secondary distribution of the government, be used to safeguard public undertakings such as education, medical care and old-age pensions. If a monopoly industry determines the distribution of its profits without the consent of its shareholders (i.e. the people), it has abandoned the people's trust and infringed upon the wealth which ought to be the property of the entire people.}}</ref> Others have labeled it "[[party-state capitalism]]."<ref name=":022"/><ref name="ReferenceA"/>

Starting in 2017 as part of its state-owned enterprise reform program, the central government began encouraging state-owned enterprises to pay dividends to the government. Other reforms have transferred state-owned assets to social-security funds to help finance pensions, and the Shenzhen municipal government has proposed using its state-owned enterprises to finance a social dividend-type system for its residents.<ref>{{cite web |url= http://basicincome.org/news/2017/07/china-city-social-dividend-proposal-captures-national-attention/ |title= China: A city social dividend proposal captures national attention |date= 30 July 2017 | website= Basic Income Earth Network |access-date= 11 December 2017}}</ref>{{Unreliable source?|date=December 2022}}

Chinese economist Cui Zhiyuan argues that James Meade's model of liberal socialism is similar to China's socialist market economy and can be used to make sense of the model. Meade's model of market socialism involved public ownership of firms with independent management, with the state acting as a residual claimant to the profits generated by its enterprises, but without exercising control rights over the management and operations of its firms. This model has the advantage that the state would have a source of income independent of taxation and debt, enabling a reduction of the tax burden on individual incomes and the [[private sector]] while promoting greater equality. Cui points to the Chongqing experience with municipal state-owned enterprises, enabling high social expenditure alongside low taxes and extremely high growth rates as validation of the socialist market economy model. The Chongqing model used state enterprise profits to fund public services (including housing), providing the main source of public finance and enabling Chongqing to lower its corporate tax rate (15% compared to the 33% national corporate tax rate) to attract foreign investment.<ref name=Cui2012/>

Julan Du and Chenggang Xu analyzed the Chinese model in a 2005 paper to assess whether it represents a type of market socialism or capitalism. They concluded that China's contemporary economic system represents a form of capitalism rather than market socialism because: (1) financial markets exist which permit private share ownership—a feature absent in the economic literature on market socialism; and (2) state profits are retained by enterprises rather than being distributed among the population in a [[social dividend]] or similar scheme, which are central features in most models of market socialism. Du and Xu concluded that China is not a market socialist economy, but an unstable form of capitalism.<ref name="Market Socialism or Capitalism? Evidence from Chinese Financial Market Development, 2005">{{Cite book |last=Du |first=J. |url=https://hub.hku.hk/bitstream/10722/64825/1/Content.pdf |title=Market socialism or capitalism? Evidence from Chinese financial market development |last2=Xu |first2=C. |date=2008 |publisher=Palgrave Macmillan |isbn=978-0-230-55354-5}}</ref>

Another analysis carried out by the Global Studies Association at the [[DePaul University]] in 2006 reports that the Chinese economic system does not constitute a form of socialism when socialism is defined as a planned economy where [[production for use]] has replaced production for profit as the driving force behind economic activity, or when socialism is defined as a system where the working class is the dominant class which controls the surplus value produced by the economy. The Chinese economy also does not constitute socialism in the sense of widespread [[Workers' self-management|self-management]] or [[workplace democracy]]. The study concluded that, as of 2006, capitalism is not the dominant mode of organization, either, and China instead has a partially pre-capitalist agrarian system with almost 50% of its population engaged in agricultural work.<ref>{{Cite web|url=http://www.luc.edu/faculty/dschwei/ChinaCap.GSA.pdf|title=China: Market socialism or capitalism?}}</ref>

In 2015, [[Curtis J. Milhaupt]] and Wentong Zheng classified China's economic system as state capitalism because the state directs and guides all major aspects of the Chinese economy—including both the state and private sectors—while not collecting dividends from the ownership of its enterprises. They noted that Chinese state-owned and privately owned enterprises shared many similarities regarding state subsidies, proximity to state power, and execution of government policy objectives. Within the state sector, the emphasis was more on government control than on the ownership of assets.<ref name="Milhaupt & Zheng 2015"/>

Proponents of the socialist market economy compare it to the [[New Economic Policy]] in 1920s Soviet Russia that introduced market-oriented reforms while maintaining state-ownership of the [[commanding heights of the economy]]. The reforms are justified{{by whom|date=May 2020}} through the belief that changing conditions necessitate new strategies for socialist development.<ref>{{cite web|author= C.J. Atkins |url= http://www.politicalaffairs.net/article/articleview/5798/ |work= Political Affairs |title= The Leninist Heritage of the Socialist Market Economy |access-date= 7 September 2010 |url-status= dead |archive-url= https://web.archive.org/web/20081122062701/http://www.politicalaffairs.net/article/articleview/5798/ |archive-date= 22 November 2008 }}</ref>

According to [[Li Rongrong]], in 2003 the chairman of the [[State-owned Assets Supervision and Administration Commission of the State Council|State-Owned Assets Supervision and Administration Commission of the State Council]], China's socialist economic system is underpinned by the foundational role of public enterprise: {{blockquote|Public ownership, as the foundation of the socialist economic system, is a basic force of the state to guide and promote economic and social development and a major guarantee for realising the fundamental interests and the common prosperity of the majority of the people… The state owned economy has taken a dominant place in major trades that have a close bearing on the country's economic lifeline and key areas, and has propped-up, guided and brought along the development of the entire socio-economy. The influence and control capacity of SOEs have further increased. State owned economy has played an irreplaceable role in China's socialist modernisation drive.}}

In his analysis of whether socialist market economy approaches would be suitable to Cuba, [[Fidel Castro]] contended that China's approach would not work for Cuba because China's socialist market economy approach benefitted from factors lacking in Cuba: China's large size and global economic importance, significant geographic distance from the United States, and a domestic market that could attract foreign investment, including from the United States.<ref name=":2025MesaLago"/>{{Rp|page=197}}

Other Marxist analyses point out that because the Chinese economic system is based on [[commodity]] production, has a role for private capital, and disempowers the working class, it represents a capitalist economy.<ref>{{Cite web | url= http://www.marxist.com/china-socialist-market-economy200106.htm | title= China – "Socialist market economy" or just plain capitalism?|
first=Michele|last=Fabbri|date=7 January 2006|work=In Defense of Marxism}}</ref> [[Classical Marxism|Classical Marxists]] believe a socialist commodity economy (or a socialist market economy) is contradictory. Other socialists believe the Chinese have embraced many elements of market capitalism, specifically commodity production and privatization, resulting in a full-blown capitalist economic system.<ref>{{Cite web|first=Satya J.|last=Gabriel|date=June 2003|url=http://www.mtholyoke.edu/courses/sgabriel/economics/china-essays/18.htm|title=The Transition from State Capitalism to Private Capitalism: Is Capitalism Here to Stay?|publisher=Mount Holyoke College|access-date=11 July 2009|archive-date=19 October 2021|archive-url=https://web.archive.org/web/20211019203345/https://www.mtholyoke.edu/courses/sgabriel/economics/china-essays/18.htm|url-status=dead}}</ref> In the past, although many enterprises were nominally publicly owned, the profits were retained by the enterprises and used to pay managers excessively high salaries rather than being distributed amongst the population. In 2020, the "commanding role" of the CCP over SOEs was cemented in law<ref>{{cite news |last1=Wang |first1=Orange |author2=Zhou Xin |date=8 January 2020 |title=China cements Communist Party's role at top of its SOEs, should 'execute the will of the party' |url=https://www.scmp.com/economy/china-economy/article/3045053/china-cements-communist-partys-role-top-its-soes-should |work=[[South China Morning Post]]}}</ref> and SOEs have been required to have Staff and Worker Representative Congresses (SWRCs), a form of workplace democracy,{{r|zhuchan}}<ref>{{cite act|script-title=zh:中华人民共和国全民所有制工业企业法|title=Zhōnghuá Rénmín Gònghéguó Quánmín Suǒyǒuzhì Gōngyè Qǐyè Fǎ|trans-title=Law on Industrial Enterprises Owned by the Whole People|year=1988|url=http://english.mofcom.gov.cn/article/lawsdata/chineselaw/200303/20030300072563.shtml}}</ref><ref>{{cite web|first=Jeanette|last=Yu|title=New rules on democratic organization in Chinese enterprises|date=20 July 2012|url=https://cms.law/en/chn/publication/new-rules-on-democratic-organization-in-chinese-enterprises|publisher=CMS}}</ref> with 80% of registered companies in China having them,{{citation needed|date=August 2022}} including some private sector companies.<ref name="zhuchan">{{cite journal |last1=Xiaoyang |first1=Zhu |last2=Chan |first2=Anita |title=Staff and Workers' Representative Congress: An Institutionalized Channel for Expression of Employees' Interests? |journal=Chinese Sociology & Anthropology |date=1 August 2005 |volume=37 |issue=4 |pages=6–33 |doi=10.1080/21620555.2005.11038349 |s2cid=145168693 }}</ref>

== Characteristics ==
=== Enterprise and ownership types ===
Public ownership in the socialist market economy consists of state-owned assets, collectively owned enterprises, and the publicly owned shares of mixed enterprises. These various forms of public ownership dominate the socialist market economy alongside substantial private and foreign enterprises.<ref name=Ding2009/>

The principles of the socialist market economy legitimized the idea that ownership of state-owned enterprises could be structured in various forms, including majority state-owned joint stock companies.<ref name=":1">{{Cite book |last=Leutert |first=Wendy |title=China's State-Owned Enterprises: Leadership, Reform, and Internationalization |date=2024 |publisher=[[Cambridge University Press]] |isbn=978-1-009-48654-5 |edition= |series=Business and Public Policy Series |location=Cambridge}}</ref>{{Rp|page=48}} There are a few major forms of state-owned enterprises in China today:
* State-owned enterprises: commercial enterprises established by either the central government or a local government, where managers are appointed by the government or public bodies. This category only includes wholly state-funded and managed firms. Most state-owned enterprises are not entities of the central government. Central government state-owned enterprises are subunits of the [[State-owned Assets Supervision and Administration Commission]] (SASAC).
* State-holding enterprises: state-holding, or state-controlled enterprises, are publicly listed firms where the state owns a large share or a controlling share within the firms, thereby exerting influence on the management of the firm. These include firms that receive [[foreign direct investment]].<ref>[http://www.uscc.gov/hearings/2012hearings/written_testimonies/12_02_15/12_2_15_szamosszegi_testimony.pdf Hearing on Chinese State-Owned and State-Controlled Enterprises]</ref>
* State joint ownership enterprises:

=== State sector ===
The socialist market economy consists of a wide range of state-owned enterprises (SOEs) representing one form of public ownership. As of the end of 2019, China's SOEs represented 4.5% of the global economy. State-owned enterprises accounted for over 60% of China's market capitalization in 2019<ref>{{cite web |last=Hissey |first=Ian |date=17 December 2019 |title=Investing in Chinese State-Owned Enterprises |url=https://insight.factset.com/investing-in-chinese-state-owned-enterprises |access-date=15 March 2021 |website=insight.factset.com}}</ref> and generated 40% of China's GDP of US$15.97{{spaces}}trillion (101.36 trillion yuan) in 2020, with domestic and foreign private businesses and investment accounting for the remaining 60%.<ref>{{cite web |last=Tjan |first=Sie Tek |date=21 May 2020 |title=How reform has made China's state-owned enterprises stronger |url=https://www.weforum.org/agenda/2020/05/how-reform-has-made-chinas-state-owned-enterprises-stronger/ |access-date=19 October 2020 |website=www.weforum.org}}</ref><ref>{{Cite news |last=CBNEditor |date=18 January 2021 |title=China's GDP Breaches 100 Trillion Yuan Threshold after Posting 2.3% Growth in 2020, Disposable Income up 4.7% |url=https://www.chinabankingnews.com/2021/01/18/chinas-gdp-breaches-100-trillion-yuan-threshold-after-posting-2-3-growth-in-2020-disposable-income-up-4-7/ |access-date=13 April 2021 |website=China Banking News |language=en-US |archive-date=7 May 2021 |archive-url=https://web.archive.org/web/20210507021126/https://www.chinabankingnews.com/2021/01/18/chinas-gdp-breaches-100-trillion-yuan-threshold-after-posting-2-3-growth-in-2020-disposable-income-up-4-7/ |url-status=dead }}</ref> Ninety-one (91) of these SOEs belong to the 2020 Fortune Global 500 companies.<ref>{{cite web |last=Tjan |first=Sie tek |date=18 August 2020 |title=The Biggest but not the Strongest: China's place in the Fortune Global 500 |url=https://www.csis.org/blogs/trustee-china-hand/biggest-not-strongest-chinas-place-fortune-global-500 |access-date=19 October 2020 |website=www.csis.org}}</ref>{{Update inline|date=April 2023}}

Beginning with the 1978 reforms, in the 1980s during the industrial reforms, state enterprises were gradually [[Corporatization|corporatized]] and transformed into [[Joint-stock company|joint-stock corporations]] with the state retaining either full or majority ownership of their shares. By the early 2000s, most major SOEs in non-strategic sectors were listed on the Shanghai and Hong Kong stock exchanges and some SOEs adopted mixed ownership structures where the central government and various other state entities—including state banks, other SOEs, provincial and local governments—own varying degrees of the firm's listed shares alongside foreign and private shareholders. The result has been a highly diffuse form of public ownership where various government entities, agencies, and other state-owned enterprises own state-owned enterprises. This makes gauging the true size and scope of the state sector difficult, particularly when SOEs with mixed ownership structures are considered. In 2013, the [[public sector]] accounted for 30% of the number of firms in China, but 55% of assets, 45% of revenue, and 40% of profits.<ref name="Scissors1">{{cite journal |url=http://www.eastasiaforum.org/2016/05/17/chinas-soe-sector-is-bigger-than-some-would-have-us-think/|title=China's SOE sector is bigger than some would have us think|last= Scissors|first= Derek|date=16 May 2016 |website= East Asia Forum |access-date=9 March 2018 }}</ref>

In 1996, China implemented a comprehensive series of industrial reforms termed "[[Grasping the large, letting go of the small]]". These reforms involved closing unprofitable state enterprises, merging smaller enterprises, and privatizing other small-to-medium enterprises. Centrally owned SOEs were reformed into joint-stock companies with the aim of delegating more authority to SOE managers. SOEs at all levels shifted their primary focus to profitability and shed their social welfare function of providing social services and benefits to their workers in what was known as the "[[Iron Rice Bowl]]" system. The State-owned Assets Supervision and Administration Commission (SASAC) was formed in 2003 to oversee the management of the large centrally owned state enterprises.<ref>{{cite journal |url=http://www.eastasiaforum.org/2015/02/09/the-long-march-to-the-mixed-economy-in-china/|title=The Long march to the mixed economy in China |last= Fan|first= He|date=15 February 2015 |journal= East Asia Forum Quarterly |volume=6 |issue=4 |pages=3–5 |access-date=9 March 2018 }}</ref>

Modern SOEs are operationally very different from those in the 1990s. SOEs are much larger in size and fewer in number, with central government-owned SOEs clustered in "strategic sectors" including banking, finance, mining, energy, transportation, telecommunications, and public utilities. By comparison, provincial and municipal level SOEs number in the thousands and are involved in almost every industry, including information technology and automobile design and production. State sector reform is an ongoing process in China. As of 2017, the CCP has rejected the Singapore model of [[Temasek Holdings|Temasek]]-style state investment companies for China's SOEs, where SOEs operate solely to maximize profits on a commercial basis. In particular, China maintains that centrally owned SOEs also pursue national and industrial policy objectives.<ref>{{cite news |last1=Wildau |first1=Gabriel |date=20 July 2017 |title=China rejects Singapore model for state-owned enterprise reform |url=https://www.ft.com/content/21e99a38-6d08-11e7-bfeb-33fe0c5b7eaa |url-access=subscription |access-date=9 March 2018 |website=[[Financial Times]]}}</ref> As a result of recent reforms to increase profitability and unload debt, the government reported the profits of central government-owned SOEs rose by 15.2% in 2017.<ref>{{cite web |date=11 November 2017 |title=Reform pays dividends for state firms |url=http://www.chinadaily.com.cn/business/2017-11/22/content_34838675.htm |access-date=9 March 2018 |website=[[China Daily]] |publisher=}}</ref>{{Better source needed|date=October 2021}}

Despite becoming increasingly profitable, SOEs in China have not paid dividends to the state, causing some analysts to question the rationale for public ownership in the first place.<ref name="Milhaupt & Zheng 2015"/><ref>''SOE Dividends: How Much and to Whom?'', World Bank (17 October 2005): "Since the taxation reform in 1994, most SOEs have not paid any significant dividend to the government of China."</ref> As part of SASAC's ongoing reforms, SOEs will now be encouraged and required to pay a higher portion of their profits as dividends to the state, with some state-owned assets being transferred to social security funds to help finance pensions for China's aging population.<ref>{{cite web |date=19 November 2017 |title=China to transfer state assets to social security funds |url=http://www.chinadaily.com.cn/business/2017-11/19/content_34715815.htm |access-date=9 March 2018 |website=[[China Daily]]}}</ref>{{Better source needed|reason=The current source is insufficiently reliable ([[WP:NOTRS]]).|date=November 2024}} This is part of a broader reform effort of restructuring the state sector to become a source of finance for public services.<ref>{{cite web |url=https://www.files.ethz.ch/isn/128535/UPI_Briefing_Paper_79.pdf|title=Whose Money? The Tug-of-war over Chinese state enterprise profits |last= Mattlin |first= Mikael |publisher=The Finnish Institute of International Affairs |date=April 2011}}</ref> As part of the SOE reform goals outlined in 2015 by SASAC, SOEs are to be classified as either commercial or public service entities, with the former being required to distribute a higher proportion of their profits as dividends. Dividend payments are set to rise from 5–15% to 30% by 2020.

=== Private sector ===
Privately owned enterprises (POEs) are recognized as one of the components of the socialist market economy alongside state, collective, and individually owned enterprises. The private sector has played an increasingly large role since adopting the 1994 Company Law. Additionally, the boundary between public and private enterprises has blurred in China as many publicly listed firms are under mixed ownership by various state and non-state entities. Additionally, private sector firms that operate in industries targeted for growth often receive favorable loans and preferential government treatment, while SOEs in non-strategic sectors might be exempt from subsidies. As an example, [[ZTE Corporation]] is a majority state-owned enterprise that was forced to rely on equity markets, whereas its employee-owned private sector competitor [[Huawei]] is viewed as a "national champion" and therefore received major state funding from state banks. Like their state-owned counterparts, POEs are expected to follow state policies and are subject to CCP control, suggesting that the distinction between public and private ownership is not a meaningful distinction to make for understanding China's economic model. As of 2015, state control and state-directed development (in both public and private sectors) are the overriding features of the Chinese economic system that play a more substantial role than the public ownership of assets.<ref name="Milhaupt & Zheng 2015"/>

While the private sector has been accorded a role in the socialist market economy and has greatly increased in size and scope since the 1990s, the private sector does not dominate the [[Chinese economy]]. The exact size of the private sector is difficult to determine in part because private enterprises may have a minority of their stock owned by state entities and because of different classification standards used for classifying enterprises. For example, in the first quarter of 2016, the [[National Bureau of Statistics of China]] reported fixed investment by private firms at 35%, and by wholly state-owned SOEs at 27%, with the bulk of the remainder belonging to non-wholly state-funded limited liability corporations.<ref name="Scissors1" />

=== Economic planning ===
The 1993 CCP decision overhauled the organization of China's planning apparatus.<ref name=":423">{{Cite book |last=Heilmann |first=Sebastian |title=Red Swan: How Unorthodox Policy-Making Facilitated China's Rise |date=2018 |publisher=[[The Chinese University of Hong Kong Press]] |isbn=978-962-996-827-4 |doi=10.2307/j.ctv2n7q6b |jstor=j.ctv2n7q6b |s2cid=158420253 |author-link=Sebastian Heilmann}}</ref>{{Rp|pages=133}} Planning was not abolished, but instead reframed as one of three key mechanisms of macro-economic control, along with fiscal policy and monetary policy.<ref name=":423" />{{Rp|page=133}} Chinese administrators were instructed to plan for markets and to absorb major market trends (both domestically and internationally) into multi-year government programs.<ref name=":423" />{{Rp|page=133}}

In 2003, the State Planning Commission was reformed into the [[National Development and Reform Commission]]. [[Indicative planning]] and [[Industrial policy|industrial policies]] have substituted [[material balance planning]] and play a substantial role in guiding the market economy for both the state and private sectors. The planning system consists of three layers, each using a different planning mechanism.

Compulsory planning is limited to state-owned enterprises operating in strategic sectors, including research, education, and infrastructure development plans. Compulsory planning outlines targeted outcomes and the supply of raw materials and financial resources needed. Contractual planning sets objectives and the overall means of achieving these goals, and then negotiates with enterprises and local governments to establish detailed objectives and how resources are to be allocated to the targeted sectors. Indicative planning operates at the lowest level of the planning system, where the government outlines industrial targets and then uses market instruments (tax exemptions, subsidies, and favorable bank loans) to induce firms in the targeted industry to meet these targets.<ref name="Rambures1">{{cite book |last= Rambures |first= Dominique|title= The China Development Model: Between the State and the Market |publisher= Palgrave Macmillan UK|date= 2015 |isbn= 9781137465498|quote= the planning system is a three-layer system: compulsory, contractual and indicative. At the upper level, the planning system is compulsory: documents outlining detailed sets of targets, including the human resources needed and the supply of raw materials and the financing needs, such as infrastructure programmes; development plans of the western provinces; education plans; health expenditures; research objectives, and so on. Generally speaking, included within compulsory planning are state-owned companies and banks and the monopolistic sectors under tight government control such as the Ministry of Railways. At the second level, the planning system is contractual: planning sets the objectives; the ways and means of a given industrial sector; and then negotiates with the corporations and the offices concerned to establish detailed objectives, as well as the allocation of resources to the targeted sectors. At the third and lowest level, the planning system is only an indicative: government schedule; industrial sector targets; the companies involved and inducement measures (government subsidies, tax exemption, bank lending and financial markets).}}</ref>

== See also ==
{{cols|colwidth=21em}}
* [[Chinese economic reform]]
* [[Cooperative]]
* [[Dirigism]]
* [[East Asian model of capitalism]]
* [[Economy of China]]
* [[Free market]]
* [[Mixed economy]]
* [[Party-state capitalism]]
* [[Socialism in one country]]
* [[Socialist-oriented market economy]]
* [[State capitalism]]
{{colend}}

== References ==
{{Reflist|35em}}

== Further reading ==
* {{cite book |last1 = Brodsgaard |first1 = Kjeld Erik |last2 = Rutten |first2 = Koen |title = From Accelerated Accumulation to Socialist Market Economy in China: Economic Discourse and Development from 1953 to the Present |url = https://books.google.com/books?id=O1POAQAACAAJ |year = 2017 |publisher = Brill |isbn = 978-90-04-33008-5 }}
* {{cite book |last = Lou |first = Jiwei |author-link = Lou Jiwei |title = Chinese Economists on Economic Reform – Collected Works of Lou Jiwei |url = https://books.google.com/books?id=k-FJAgAAQBAJ |date = 4 December 2013 |publisher = Taylor & Francis |isbn = 978-1-135-08246-8 }}
* {{cite book |last = Postiglione |first = Gerard A. |title = Education and Social Change in China: Inequality in a Market Economy |url = https://books.google.com/books?id=MHFsBgAAQBAJ |date = 28 January 2015 |publisher = Routledge |isbn = 978-1-317-47234-6 }}
* {{cite book |first = Mohamed Osman |last=Suliman |title = China's Transition to a Socialist Market Economy |url = https://books.google.com/books?id=zGS-0bNWDGAC |year = 1998 |publisher = Greenwood Publishing Group |isbn = 978-1-56720-142-0 }}
* {{cite book |last = Wang |first = Mengkui |title = Chinese Economists on Economic Reform – Collected Works of Wang Mengkui |url = https://books.google.com/books?id=it5JAgAAQBAJ |date = 4 December 2013 |publisher = Routledge |isbn = 978-1-135-09247-4 }}
* {{cite book |last = Zhang |first = Xianzhi |title = Enterprise Management Control Systems in China |url = https://books.google.com/books?id=TK3BBAAAQBAJ |date = 30 April 2014 |publisher = Springer Science & Business |isbn = 978-3-642-54715-7 }}

{{Economy of China}}{{Jiang Zemin}}{{Portal bar|Business and economics|Socialism|China}}

{{DEFAULTSORT:Socialist Market Economy}}
[[Category:Socialism|Market economy]]
[[Category:Economy of China]]
[[Category:Market socialism]]
[[Category:Mixed economies]]
[[Category:Ideology of the Chinese Communist Party]]
[[Category:Jiang Zemin]]
[[Category:Reform and opening up]]
[[Category:Socialism with Chinese characteristics]]
[[Category:State capitalism]]
[[Category:Economic liberalization]]