The Dual Pricing System in China's Industry

Abstract

This chapter focuses on the dual pricing system in China's industry. A dual pricing system has evolved in the midst of China's economic reform: products allocated according to the central plan, on the one hand, follow a fixed pricing system, while the portion of its output that an enterprise produces on its own, as above-plan output, can be sold on the free market. This duality, which some people call a two-track system, has been the subject of much controversy in China. At the very beginning, as it took shape, enterprises which were barely breaking even under the set-price system welcomed it, while some economists worried about its negative consequences. In command economies, a two-track system has never been allowed, except for some agricultural products sold at the country fairs. Although the existence of black markets in socialist countries, pejoratively called the second economy, is well known, these have never occupied a significant place. The proportion of extraplan pricing is larger than in other socialist countries.