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China’s Socialist Market Economy - Lessons Of Success


  • Arvind Virmani

    (Indian Council for Research on International Economic Relations)


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.

Suggested Citation

  • Arvind Virmani, 2006. "China’s Socialist Market Economy - Lessons Of Success," Macroeconomics Working Papers 22274, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:macroe:22274

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    References listed on IDEAS

    1. John Whalley & Shunming Zhang, 2004. "Inequality Change in China and (Hukou) Labour Mobility Restrictions," NBER Working Papers 10683, National Bureau of Economic Research, Inc.
    2. Lardy,Nicholas R., 1992. "Foreign Trade and Economic Reform in China," Cambridge Books, Cambridge University Press, number 9780521414951, April.
    3. Hehui Jin & Yingyi Qian, 1998. "Public Versus Private Ownership of Firms: Evidence from Rural China," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 773-808.
    4. Barry Eichengreen & Yeongseop Rhee & Hui Tong, 2004. "The Impact of China on the Exports of Other Asian Countries," NBER Working Papers 10768, National Bureau of Economic Research, Inc.
    5. Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 421-480 National Bureau of Economic Research, Inc.
    6. Hertel, Thomas & Zhai, Fan, 2006. "Labor market distortions, rural-urban inequality and the opening of China's economy," Economic Modelling, Elsevier, vol. 23(1), pages 76-109, January.
    7. A. P. Lerner, 1934. "Economic Theory and Socialist Economy," Review of Economic Studies, Oxford University Press, vol. 2(1), pages 51-61.
    8. David E. Bloom & David Canning & Jaypee Sevilla, 2001. "Economic Growth and the Demographic Transition," NBER Working Papers 8685, National Bureau of Economic Research, Inc.
    9. Lixin Colin Xu, 1997. "The productivity effects of decentralized reforms - an analysis of the Chinese industrial reforms," Policy Research Working Paper Series 1723, The World Bank.
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    More about this item


    China; Market Economy; Economic Transition; Socialist Market Economy;

    JEL classification:

    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
    • P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population


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