The Chinese Government: Central Control Vs. Decentralization

Abstract

General reform of the economy of the People’s Republic of China began in the mid 1980s as a reluctant retreat from the old style command and control economy toward a market based economy.  Reform was driven by the growing recognition that state socialist economic policy was a failed experience, and would never produce the high levels of economic growth and development that would even keep up with population growth, much less permit any extensive improvement in China’s economic strength or citizen quality of life. Nor was the Communist China Party, (CCP) making a success of the “allocation of scarcity” which is all that their economy provided.  Inherent in the centrist state system was the widespread use of State Owned Enterprises (SOEs) which were instruments of the government, but supposedly free to operate much like independent organizations capable of operating profitably in the realistic world.  But SOEs too had proved failed experiences.   Instead of generating revenue for government use, most had proved inefficient, and many operated at deficits that had to be underwritten by the government, using funds that could be utilized elsewhere.  SOEs carried larger overhead costs because they provided many social services to their employees such as housing, health care, pensions and elementary/secondary education, and these direct costs drained much of their profitability.