The role of the government in China

China has been a socialist nation since 1949, and, for almost all of that time, the government has played a predominant role in the economy. In the industrial sector, for instance, the state for a long time owned outright almost all of the firms producing China’s manufacturing output. The proportion of overall industrial capacity under government control has gradually declined, although heavy industries have still remained largely state owned. In the urban sector the government has determined the level and general distribution of investment funds, set the prices for key commodities, prescribed output targets for major enterprises and branches, set wage levels and employment targets,allocated energy resources, run the wholesale and retail networks, and controlled financial policy and the banking system. The foreign trade system became a government monopoly in the early fifties. In the countryside from the mid-1950s, level of prices was set, cropping patterns was prescribed, and output targets was fixed for all major crops, by the government.

By the early 21st century change creeped in in much of the above system, as the role of the central government in managing the economy declined and the role of both private initiative and market forces went up. Yet, the government continued to play a prevailing role in the urban economy, and its policies on such issues as agricultural procurement still wielded a major influence on performance in the rural sector.

The Chinese Communist Party might have reserved the right to make broad decisions on economic priorities and policies, but the government apparatus led by the State Council assumes the major burden of running the economy. The Ministry of Finance and the State Planning Commission also are concerned with the functioning of almost the entire economy.

The entire planning process encompasses considerable negotiationand consultation. The main benefit of including a project in an annual plan is that the raw materials, financial resources, labor, and markets are guaranteed by directives that enjoy the force of law. In fact, nevertheless, a great deal of economic activity goes on outside the purview of the detailed plan, and the tendency seems to be for the plan to become narrower rather than broader in scope.

There are three sorts of economic activity in China: those governed by market forces, those done according to indicative planning (in which central planning of economic outcomes is indirectly implemented), and those stipulated by mandatory planning. The first and second categories have grown at the expense of the third, but goods of national significance and nearly all large-scale construction have remained under the mandatory planning system.

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