China’s Socialist Market Economy - Lessons Of Success

Author: 
Arvind Virmani
Description: 
Indian Council For Research On International Economic Relations
JEL codes: 
Abstract: 
Through the 1990s China was widely and often held up as a paragon of economic policy reform driven growth and an example for others to follow. We in India were not immune to the temptation to do the same. There is no doubt that China has lessons that India and many other countries can learn, lessons that will help improve their growth rate. Some of these lessons have been correctly learned, for instance those related to the export led growth model adopted by many S. E. Asian and E Asian countries. There is however a great danger of learning wrong lessons, This danger arises from the fact that information can and is controlled much more easily in a communist party ruled State than it is in a democracy, even a flawed one. China has also gone out of the way to make economic interaction with it (e.g. FDI, outsourcing of manufacturing) profitable for foreigners (non-Chinese), so their interests are best served by publicising information that ensures that profitable interaction with the Chinese Communist Party (CCP) and the State continue. The present paper is an attempt to derive a more balanced picture of Chinas past success so that better and more fruitful lessons can be drawn for the use of other noncommunist countries. In this context the economic history of India, characterised as it is by 30 years of Indian Socialism can be quite beneficial as it comes closest to the market based Socialism with Chinese Characteristics. In contrast comparisons of China with Soviet socialism (USSR) can be very misleading and those with Cuba or North Korea are deliberate red herrings. With the exception of the degree of external openness (FDI & foreign trade), Chinas economy in 2005 is still much more socialist than Indias was in the heyday of the Indian Version of socialism.