China: Free-Market Economics in a Command Economy

Prior to our International Trip to China, I had heard the rumour that China was a communist country. Having spent two weeks there, I’m certain that this is not the case. China exhibits all the elements of a free-market economy, with a healthy display of consumerism and a liberal sprinkling of capitalist greed and exuberance. However, in contrast to traditional capitalist societies, we were told that China is governed by a decisive and strong central governing body, which acts unilaterally to control the market.

There were several examples of where government control is all-powerful in determining the power of the individual players in the market:

The online community. The ‘great fire-wall of China’ inhibits the success of foreign companies to enter the market. Both Facebook and Google are high-profile victims of the government’s ability to control e-commerce.

The pharmaceutical market. The government’s ability to determine a products success through the publication of a reimbursement list. The frequency of the renewal of this list (two to five years), causes new drugs to lose out and suffer from soft launches. However, this impact on the pharmaceutical market by government is shared by many European states.

However, I remain unconvinced that the dichotomy of a free-market with strong and unyielding central control can survive for long.

JWT showed us that China, particularly on the eastern coast, has a flourishing middle class, which brings with it dreams of aspiration. This is best illustrated by the growth in demand for diamonds: a want that did not exist within China previously. This growing aspiration must be met by government, who are required to grow the economy by at least 8% per annum; this is equivalent to creating nine million jobs per annum! (CEIBS).

Bristol Myers Squibb stated that healthcare is a central plank of ensuring social harmony, and there are signs of wealth redistribution by the government to better the lives of all Chinese.

My thoughts are that the consumer market has grown beyond the ability of the government to centrally control supply and demand. True free-market characteristics are emerging, which, despite the ability of government to enact legislative change at will, means that the influence of the Chinese Communist Party (CCP) is being chipped away at slowly (very slowly).

One repeated theme throughout the trip was the housing market and the possibility of a bubble existing. Much of the group’s thoughts were coloured by the Irish experience – recently converted as we were to the McWilliams school of naysaying – we recognised many correlations between the market performance and the stakeholder behaviour and language of Ireland circa 2002-2007. Much hubris and possibly naively-informed consumer excitement for the ability to double ones investment in property in Shanghai and Beijing were repeated by our tour guides, Treasury Holdings China (in a tour-de-force of experience has thought us nothing!), and Tesco (in the context of commercial property purchasing). Property growth cannot last forever, and the Chinese government know this and are taking measures to stabilise the market. But recent reports by the government’s own think-tanks show that housing price bubbles continue to exist in many of the first and second tier countries.

China has swung open its internal market to the force of capitalism. Despite attempts to temper this influence, a growing and affluent middle class have whetted their appetite for capitalism, and this makes it increasingly difficult for government not to meet this demand. China may not be subject to the full-force of a free market, but it is certainly not immune. The worrying thing is – if the World’s second largest economy catches a cold, it could be devastating for the rest of the world.

– David Lawton

David in front of the Bird's Nest