The Overall Framework of China's Market Economy

Abstract

It is well known that before the commencement of the reform in 1978, China practiced a planned economic system (to be exact, an examination and approval economy). This system was characterized by its over‐centralization, the practice of planned management, exclusion of market mechanisms and neglect of the law of value. As a kind of exploration for the initial construction of the socialist state, this highly centralized planned economic system achieved notable results. It played a positive role in accelerating economic construction, especially industrial construction, by concentrating limited resources of a backward country in specific ways. However, with the development of socialist production and the expansion of the construction scale, the planned economy's defects of overlooking the law of value and the role of the market became greater with each passing day, it led to the irrational allocation of resources, low economic returns and serious hindrance to the enhancement of overall national strength, thereby restraining the vitality and vigor of socialism. The history of world economic development has proved that under state macro‐control, the market economic structure and operating mechanism based on the full development of commodity production and the law of value are so far the more effective economic structure and operating mechanism in human history that can properly realize the optimum allocation of social resources and promote the development of productive forces. Therefore, in China at the present stage, the replacement of the administrative economic system by the market economic structure is a major reform aimed to liberate and develop productive forces and bring about fuller development of the superiority of the socialist publicly owned economy.