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Market Avenue

Market-Driven Model
Cover Stories Series 2011> Market-Driven Model
UPDATED: December 5, 2011 NO. 49 DECEMBER 8, 2011
Market Machine
China deserves the market economy status

PRIVATE VITALITY: Employees work on an assembly line for solar batteries in a privately owned enterprise in Guangdong Province. Private businesses are blossoming in China, breathing fresh life into the economy (HUANG ZANFU)

According to the 2011 Index of Economic Freedom compiled by the Heritage Foundation, China ranked well ahead of Russia.

"The confusing market economy status standards of Western countries have caused disruptions to China's foreign trade," said Mei Xinyu, an associate research fellow with the Chinese Academy of International Trade and Economic Cooperation.

"Whether the EU grants China market economy status is more an issue of political attitude than of substantial significance for either side," Mei said.

Zhang Yansheng, a researcher of the Academy of Macroeconomic Research under the National Development and Reform Commission, said no country today could be defined as a pure market economy.

"But if the EU and the United States can recognize China as a market economy ahead of the 2016 deadline, it would help propel their closer cooperation in trade and investment with China," Zhang said.

China's strides

A market economy is characterized by free markets where supply and demand determine the allocation of resources and the prices of goods and services. By contrast, in a non-market economy, the government decides what to produce, the quantity and the prices.

Both the United States and the EU pointed to government intervention and legacy of a command economy as a major reason for not recognizing China's market economy status.

The U.S. Department of Commerce said the Chinese Government remains deeply entrenched in resource allocation at all levels. The government's continued role in the allocation of financial resources indicates that it exerts significant leverage over the allocation of resources in the economy as a whole.

The European Commission also said in a report in 2008 that the criteria China has yet to meet include less progress in reducing the state's role in price-setting in sectors like energy.

Chen Deming, Minister of Commerce, said China and the West have different understandings on macroeconomic controls over their market economies because they are at different stages of development and have different conditions.

But a persistent decline in state control and a decrease in the use of mandatory planning mechanisms have really happened in the Chinese economy.

In 2008, China's government revenues accounted for 21.8 percent of the GDP, compared with 26.9 percent of the world's average, according to A Report on the Development of China's Market Economy 2010 published by the School of Economics and Resource Management at Beijing Normal University.

The once-dominant state-owned sector is shrinking in relative terms and the growing private sector is becoming increasingly productive and profitable. Private companies have played a dominant role in telecom equipment, home appliances, mining and other sectors.

"Private businesses now make up more than half of the Chinese economy, and provide at least 70 percent of jobs," said Huang Mengfu, Chairman of the All-China Federation of Industry and Commerce.

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