Background to a Mathematical Model of Price Reform in China

China is currently undergoing an extensive economic reform. The reform has provided the economists with an excellent opportunity to compare and analyze the centrally planned economy and the market economy in regard to their merits and shortcomings. Most of the analytical tools in modern economics stem from the market economy of the Western world to which many top economists have dedicated so much and on which they have developed valuable theories and practical experience over the past century. While identifying and summarizing the internal rules of the market economy, these economists also pointed out the shortcomings and faults of such an economic model. Obviously there is a big difference in the cultural background and social and economic structures between China and the West. Mechanically applying some conclusions or analysis from contemporary economic theory to explain what is happening in today's economy in China will surely lead nowhere. Economists should never overlook one fact: One-third of the world's population lives in the centrally planned economic system. China, with its population of one billion, is trying to discover a new way for economic reform in an attempt to break through the limitation of the outdated planned economic system. A new economic theory is needed for this new situation. We should not only evaluate the fitness of analytical tools of present economic theory for China's economic reform, but also develop and improve on them.