Reform of the Mixed Economy: A comparison with international practice

A mixed economy seeks to have the advantages of both market and command economies. The ingredients of the market economy can efficiently allocate goods, services and capital where they are needed. The ingredients of the command economy safeguards the welfare of people and allows fast mobilisation in priority areas.

Although this seems a perfect match to China’s socialist ideals, reform of the mixed economy has to be calibrated to the current reality, including the slowing growth of economic output, mounting government and corporate debts, a widening income gap and an ageing population

This paper studies the policy design and implementation of China’s mixed economy reform. It starts with a brief summary of the latest reform progress. Further it discusses the difference between Chinese practice and international norms. Finally, we derive four policy implications to assist local authorities to further reform the mixed economy.

We find the difficult balance between the interests of public and private sectors impedes the pace of mixed ownership reform. International practice suggests that a possible solution includes a clearly pre-defined scope for government intervention, the separate ownership and management of enterprise, and the shrinkage of state presence in competitive industries.

The Shanghai Free Trade Zone is a perfect test bed to incorporate global practice in the reform of mixed ownership. Its unique advantage to reform government functions allows for bolder reforms. We also believe that it is helpful for local authorities to report reform progress in a proactive and transparent way, to give room for failure to reformers, and to integrate mixed economy reform with other reforms such as financial liberalisation and fiscal reform.

Key discussion points

  • Define mixed ownership in a clear way, specifying the scope of the state in both corporate management and ownership, in a similar way to international practice
  • Use the free trade zone as a test ground for bold reforms, allowing breakthroughs and failures in a geographically restricted but administratively liberally region.

 

You can also download this report in Chinese.