Monday, November 18, 2013

Economy: China - Less Mao Zedong, More Milton Friedman

(Drivebycuriosity) - China is changing. Last week the government in Beijing announced a list of serious reforms, called a "blueprint for reform". It contains the most wide-ranging and reform-tinged proposals for economic and social change in many years, says "The Economist" (economist). According to Bloomberg the announced changes are aimed at giving more influence to market forces and loosening government controls (bloomberg).

The blueprint  contains a 60-point list of policy tasks, tackling a wide range of issues (marketwatch). Highlights are
- an end of the strictly one-child-only policy which should reactivate China`s slacking population growth, giving consumer spending a boost
- allowing farmers to sell their communally owned land at market prices  which - according to the bank Société Générale - will boost farmers’ income, thus providing them with the start-up capital to settle in the city
- permitting private investments in state-owned companies which should make them more efficient

According to the Wall Street Journal the blueprint also contains a long shopping list of industries that should be open up to foreign investment (wsj). "Beijing will promote the orderly opening up of the finance, education, culture and health sectors. Restrictions on investing in child care and elder care, construction and design, accounting and auditing, logistics and e-commerce will also be relaxed, as will limits on market entry for manufacturing". This should attract more foreign capital and give the Chinese economy an additional boost.

The reform isn´t a new revolution, but it seems to be an essential chapter of China´s evolution and another important step of the country´s transformation from a rigid communistic control system into a modern economy that started in the late 1970s, shortly after the Mao Zedong`s death (1976).

The country will be still controlled by the communist party which will keep her monopolistic political power. But citizens and entrepreneurs gain more economical freedom. This means less Mao Zedong, who had enforced the strict control over everything by the communist party, and more market economy in the spirit of Adam Smith, Friedrich Hayek and Milton Friedman, who called for the "freedom of choice".

The reform should encourage consumer spending and make the whole economy more flexible. This should strengthen the domestic  Chinese economy and could reduce the country´s dependence from exports and from the global market. Therefore the reform should accelerate China´s transformation from an emerging country into a large modern economy like the US.

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