The creation of a functioning market-based economic system in China

Essay by punditUniversity, Master'sA-, August 2004

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Topic: The creation of a functioning market-based economic system in China is difficult, if not impossible, given current legal arrangements, Critically assess whether, or to what extent, this statement is correct.

Since the reform undergone in 1978, China has experienced many changes in its legal arrangements for the socialist market development. The ultimate aim of the reform is to improve the living standards in China.

Before the reform, China was adopting the planned economy for political reasons. The planned economy did not bring China a wealthy and healthy economy. As a result, a scaled economic reform has been started. Since the reform, the living standard in China has been improved a lot. Therefore, China has the incentive to further conduct the transition from the planned economy to a socialist market economy. In this study, the socialist market economy being similar with a functioning market-based economic system would be discussed later.

The impediment of the creation of a functioning market-based economic system by the current legal arrangements would also be critically assessed in the later context.

Definition of a functioning market-based economic system

Market, with or without a physical location, enables buyers and sellers to make an exchange. Its functioning depends very much on the demand and supply forces. Still there are some forms of markets where sellers have significant power to affect the prices, like monopoly and oligopoly.

A functioning market should be able to contain competitions in its operation. The market price is determined reasonably by the demand and supply and with minimum government intervention. Buyers and sellers have to accept the market price in exchange. Market will introduce the competition force among the business entities. The entry barrier of a particular market imposed by the government should be of minimal. There are free entry and exit for...