The socialist market economy (SME) is the economic system and model of economic development employed in the People's Republic of China. The system is based on the predominance of public ownership and state-owned enterpriseswithin a market economy.
Description
The economic reform toward a socialist market economy is underpinned by the Marxist framework of historical materialism. In the late 1970s, then-Chairman Deng Xiaoping and the Communist Party leadership rejected the prior 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 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.
The socialist market economy is seen by the Communist Party of China 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.
Analysis
Western observers and 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.
Economic planning
By the early 1990s, Soviet-type economic planning had been replaced with market relations and markets became the fundamental driving force in the socialist market economy, with the State Planning Commission being reformed into the National Development and Reform Commission in 2003. Indicative planning and 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, with each layer using a different planning mechanism.
Compulsory planning is limited to state-owned enterprises operating in strategic sectors, including research, education and infrastructure development plans.