Socialist Market Economy

In 1992, the target model of economy reform was proposed by the 14th CPC National Congress. It is an economy that combines the basic system of socialism with the mechanism of the market economy. It was a great initiative of the Communist Party of China. The building of a socialist market economy is a valuable achievement of theoretical and practical explorations after the Reform and Opening-up. Traditional economic views, both socialist political economics and western bourgeois economic theories, believe that market economy is an economy mechanism combined with capitalist private ownership, while planned economy is the essential feature of socialism.

Deng Xiaoping analyzed the history of world economic development in depth, and based on practical experience, he clearly pointed out that planned economy and market economy are both methods of developing production and means of regulating the economy and they belong to the category of mechanism. If they serve socialism, they belong to socialism and if they serve capitalism, they belong to capitalism. There is no fundamental contradiction between socialism and market economy and socialism can also have market economy. This laid a theoretical foundation for the establishment of a socialist market economy. The progress and effectiveness of our country’s economic system reforms over the years had provided a practical basis for proposing the establishment of a socialist market economy. Since the Reform and Opening-up, the scope of the market's role has been gradually expanded. The area of planned direct management has been significantly reduced and the market's role in regulating economic activities has greatly become more important. Practice has shown that where the market's role is given play to more adequately, the economic vitality is stronger and the development is better. To optimize the structure of our economy, improve efficiency, accelerate development and participate in international competition, we have to continue to strengthen the role of market mechanism. The socialist market economy is different from the capitalist market economy in that it is integrated with socialist system.

In the ownership structure, public ownership plays a leading role and all forms of ownership grow side by side. Enterprises of different economic components enter the market and through equal competition give play to the leading role of the state-owned economy. In the distribution system, performance-related pay plays a leading role, combined with various distribution ways. Various regulation methods including the market are used to encourage advancement, promote efficiency, reasonably widen the income gap while preventing polarization and gradually realize common prosperity. In terms of macro-control, socialist countries can combine people’s current interests with long-term interests and combine partial interests with overall interests to better utilize the advantages of planning and the market. All these indicate the socialist nature of our country’s market economy. Under national macro-control, China’s socialist market economy has undergone a process from the market’s fundamental role to the decisive role in resource allocation to make economic activities follow the law of value as a whole, and through prices and competition mechanism, to adapt to changes in the relationship between supply and demand, to allocate resources to segments with better benefits, to promote timely coordination of production and demand and to put pressure and motivation on enterprises, achieving survival of the fittest. At the same time, since the market has its own weaknesses and negative aspects, it is necessary to strengthen and improve the country’s economic regulation and control in order to give better play to the role of the government to make the market and the government organically unified, complementary, coordinated and mutually improved, promoting a sustainable and healthy development of the economy and society. The establishment of the socialist market economy theory combined the socialist system with the market economy, which not only got rid of the troubles of the “being radical”, breaking the theoretical viewpoint that the planned economy was the basic feature of the socialist economic system, but also resisted the conservative trend of denying socialism, establishing a new economic theory system with a socialist market economy as the core. It was a major development in scientific socialist theory and Marxist economics.