United States and China: The better economy system

By | June 26, 2013

One point of view is: both US and China are having mixed economy with variations in degree of capitalism; and economic growth differences alone could not act as a reliable proof based on which the good or bad of an economy could be judged. There are various other factors resulting in the economic growth rate differences between US and China and to some points, such comparison made regarding the economy system performance between these different nations are not reliable. Below I will give my justifications.

 

First of all, let’s go back to the definition of “planned economy” that we have already discussed above:

 

In command economies, the central government stipulates what and how much of most products will be produced. By setting prices and wages the central government can also dictate how much of the production is allotted to each household. In short, the central government controls production and income in command economies (Musgrave, Harding, Kacapyr & Harding 2001, p. 37).

 

Based on this definition, an economy is a planned economy if central government controls production and income distribution, and looking at the current China, obviously it would be very unsafe to jump the conclusion that China has a planned economy right now in 2012 rather than in the days before the 1980s because the government no longer directly control all the production and income distribution. And let’s put it in this way:

 

If a planned economy =  100% control over production and income distribution,

Then Chinese government’s control over production and income < 100%

As a result, China does not have a planned economy.

 

As a matter of fact, the Chinese government control is reduced largely in the past two decade. According to the data released in 2010, Chinese State Owned Enterprises (SOE), only make up less than 5 percent of total enterprises in China, though they control almost 1/3 of total enterprise assets due to their big sizes (worldbank.org 2010). Therefore, it would be wrong to conclude that China is still having a planned economy. In a standalone study also done in 2010, data showed that the Chinese economy has achieved a level of 73% marketization of its economy. The stability of the equity market and the stock exchange scenario, the interest rate and currency are some of the features that prove the country has been doing well on the economic front over the last quarter of a century. The increased autonomy given to the State Owned Enterprises (SOE’s) and freeing them from the clutches of excessive government control is also a positive sign that the economy is picking up. That the domestic private enterprises are also doing well is evident from the fact that most of them are now listed in bourses in the cities of Shanghai and Shenzhen in southern China (economywatch.com 2010).

 

Secondly, according to the China Daily, When China entered the World Trade Organization (WTO), all the WTO members agreed to accept China’s market economy status no later than 2010. More than two thirds of the countries have accepted China’s market economy status (chinadaily.com.cn 2010). But two largest trade partner of China still have not yet make such recognition. But their refusal to make the recognition is based on their own trade interest rather than based on the judgment regarding whether China has the market economy status or not. According to WTO rules, China will acquire MES 15 years after entering the organization. China joined the WTO in 2001, which means it would get that status by 2016 at the latest. The US and EU’s unwillingness actually reflect their intention to protection their trading interest because they could not impose as many restriction over China as it is possible today.

 

Thirdly, the differences in growth rate between China and US does not have strong relationship with the good or bad of their economic system. Such differences are mainly because China is developing from a poor country to a middle income country with its large pool of low cost labor while the US is struggling to maintain as the super economy in the world. There is no appropriate comparison to be made between the two economies by growth rate alone.

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