BEIJING, China, (Beijing Review) – In 1776, Scottish philosopher and economist Adam Smith published An Inquiry Into the Nature and Causes of the Wealth of Nations. In it, he put forward the idea that allowing individuals to pursue their own self-interest in commerce promoted economic prosperity.
In China, Smith is best known for his concept of the invisible hand, a metaphor for the unseen forces that deliver this prosperity. Since China decided to bid farewell to its planned economy in 1978, remarkable transformation has taken place. With the unleashing of market forces, China has turned itself into the world’s second-largest economy and brought more than 700 million people out of extreme poverty. In China’s view, however, the market is only one side of the economic coin. The country also attaches importance to the “visible hand,” or the role of the government in regulating economic activity.
A resolution adopted at the Third Plenary Session of the 20th Communist Party of China (CPC) Central Committee in July has reaffirmed this approach. Focusing on the pivotal issue of balancing the relationship between the government and the market, the resolution makes arrangements for economic structural reform in the next five years.
“We will see that the market plays the decisive role in resource allocation and that the government better fulfills its role,” the resolution reads. It calls for leveling the playing field to make economic operations more efficient. At the same time, it underlines the need to ensure effective regulation and maintain order in the marketplace.
The adoption of the resolution is the most important outcome of the third plenum, Tang Fangyu, deputy head of the CPC Central Committee Policy Research Office, said at a press conference held to introduce the guiding principles from the plenum on July 19.
The resolution, with economic structural reform as the spearhead, provides comprehensive plans for reforms in multiple fields, Tang said, adding that it puts forward more than 300 major reform measures, all of which involve reforms on the levels of systems, mechanisms and institutions.
The resolution states that “we will lift restrictions on the market while ensuring effective regulation, striving to better maintain order in the market and remedy market failures. By doing so, we will ensure smooth flows in the national economy and unleash the internal driving forces and creativity of our society as a whole.”
“We need to correctly understand the terms ‘lifting restrictions’ and ‘effective regulation.’ It’s a challenging issue in the governance of any country,” Dong Yu, executive vice president of the China Institute for Development Planning at Tsinghua University, told Beijing Review, adding that it is not a simple matter of “wanting both,” and the key is to “grasp the balance point of the lever in economic work and, according to the characteristics and requirements of different areas and stages, grasp the rhythm and intensity of the two in a targeted manner.”
The resolution, adopted by senior party officials at the session, codifies the governing party’s vision for further deepening of reform. Drafted based on extensive research and consultation, it represents consensus across a wide spectrum of Chinese society. It will therefore be internalized in Chinese decision-making at all levels.
Western countries have often championed free market capitalism as a hallmark of the freedoms that set them apart from other societies and forms of government. However, in recent decades, this economic system has struggled to deliver the same level of benefits as before. Instead, it has contributed to growing economic and societal challenges, exemplified by increasing inequality.
Market dysfunction has long prompted economists to explore a more nuanced approach, characterized by a combination of the visible and invisible hands. China’s exploration of a socialist market economy gives these economists food for thought.
