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China needs a free, not socialist, market  

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China’s Vice Premier, Liu He, made a splash at the World Economic Forum’s recent meeting in Davos when he voiced his support for a more open China and the rule of law.  

Western enthusiasm, however, should be tampered. China’s leaders have always called for a “socialist market economy,” not a free market economy resting on a genuine rule of law that safeguards fundamental human rights. 

In his speech, the vice premier, who is retiring in March, argued that China needs “to uphold the right principles” and adhere to “the rule of law.” But the principles he has in mind are not those of a liberal social order where people are free to choose and express themselves.  

President Xi Jinping has consolidated power since he took over in 2012. He has silenced any dissent and purged the Chinese Communist Party (CCP) of anyone who might threaten his grip on power. As China’s paramount leader, he wants to build a socialist market economy, in which the state and CCP rule by the force of law.  

Liu He is just touting the party line when he calls for letting “the [socialist] market play a decisive role” in the allocation of resources, while letting “the government play a better role.” 

He is simply parroting what President Xi told the Wall Street Journal in 2015: “An important goal for China’s current economic reform is to enable the market to play the decisive role in resource allocation and make the government better play its role,” Xi said. “That means we need to make good use of both the invisible hand and the visible hand.”  

The problem is that, under Xi, the visible hand of the state has suppressed the invisible hand of the market. Private entrepreneurs and others who dare to question the CCP’s monopoly on power are at great risk. 

Even though the vice premier told his audience that China will never “go for the planned economy,” the fact is that a socialist market economy is still a planned economy. Nevertheless, there is no doubt that China has made important strides since 1978 when Deng Xiaoping began dismantling Mao’s Zedong’s centrally planned economy. The private sector was allowed to develop and has been the main engine for enabling hundreds of millions of Chinese people to lift themselves out of poverty.   

Xi Jinping’s policies have repressed the spontaneous order of the free market and prohibited any criticism of CCP politics. It is therefore notable that Liu He clearly emphasized the importance of entrepreneurs in the pursuit of “common prosperity”—that is, wealth creation.  

As he stated in Davos, “Entrepreneurship is a key factor for wealth creation of a society. . . . If wealth doesn’t grow, common prosperity will become a river without source or a tree without roots.”  

Moreover, echoing Deng Xiaoping, he noted: “As China grows, all Chinese people will be better off, but that doesn’t mean their incomes and level of prosperity have to be the same.”    

The vice premier could have also pointed to the words of Premier Li Keqiang, who has argued the function of good government is to “eliminate roadblocks and pave the way for people to tap their entrepreneurship,” so they can “achieve full potential in their life.”   

What Liu He did not — and could not — say is that, although the Chinese Constitution lists a number of human rights, those “rights” are subject to the arbitrary power of the state under the CCP. There is no independent judiciary to uphold rights to life, liberty, and property. Moreover, Article 51 of the Constitution makes it clear that, “When exercising their freedoms and rights, citizens of the People’s Republic of China [PRC] shall not undermine the interests of the state.”  

Those “interests” are all encompassing; as the CCP’s primary interest is to guard its monopoly on power. Consequently, until that iron grip is diminished, citizens’ rights and freedom will remain repressed. As Wu Jinglian, one of China’s strongest advocates of moving toward a market-liberal order, warned: “Only by matching the rule of law with the market economy can we achieve total success.” 

In thinking about China’s future, the advice Milton Friedman gave on his first visit to China in 1980 is still pertinent. He advocated widespread adoption of “‘free private markets,” with the emphasis on “free” and “private.” Market socialism is not a close substitute for true markets based on secure property rights and a free exchange of both goods and ideas.  

James A. Dorn is a Senior Fellow Emeritus at the Cato Institute. 

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