Communism? Where?

Before hopping over the Pacific about a month ago, I knew China has been liberalizing its economy for a couple decades now. Full on central planning is out, and it seems the nation is on a tenacious march toward becoming a decidedly market economy, practically not much different then our own. It has been over thirty years since Deng Xiaoping’s call for a transition to a “socialist market economy” was met with widespread enthusiasm.

I knew the government was administering this transition in a slow and deliberative fashion, however, so I still expected to see some remnants of the country’s communist past.

I was wrong. Walking down the streets of Beijing, it quickly became quite clear that there is nothing but capitalism here as far as what meets the eye. The grocery stores, massage parlors, and restaurants are seemingly locked in a fierce competition for our tourist dollars. This first impression was affirmed time and time again during our week in Beijing, and has been further solidified during my stay in Shanghai.

I recently learned two interesting things on this subject:

1.     1) Economic communism is very much alive and active in China, it just occurs underneath the surface. As summarized by economist Stephen Jen:

First, the price of money is controlled: China does not yet have a meaningful yield curve. Interest rates are the prices of money and liquidity, and they are still mostly pre-set. Second, the prices of energy input are subsidised. Third, the price of the currency is distorted. In other words, three of the most important macroeconomic prices in China are controlled.

In other words, the state is still playing an active role in attempting to control their economy; it’s just mostly done in the financial and energy sectors, which despite their crucial importance, are not really seen while walking around on the streets.

2.     2) In 1965, 67.5% of industrial enterprises were state-owned, and the rest were partially state-owned. Now, only 15% of the businesses in China are owned by the state. While this reflects a massive decrease in the amount of economic activity that is done through the government, fifteen percent is still quite a lot. It seems though that this would be better described as socialist activity rather than communist; more sectors, like cell coverage, are under state control. The state isn’t telling anyone what jobs they can or cannot do.

It seems that Deng Xiaoping’s vision of a socialist market economy has come into fruition, and is being practicing as we speak. It will be interesting to see how much of a role the government maintains in the Chinese economy in the long run.