China’s Five-Year Plans

In 1996, the first year of the ninth 5-year plan, the Chinese economic system started to change from a planned economy to a market economy. The government made this decision because in the 1940s, the country’s products could not satisfy consumers’ needs and wants. Therefore, they had to pursue a market-based economy to encourage firms to make appropriate decisions based on market conditions.

The market economy is an economic system in which decisions are made by individual buyers and sellers who act in their own self-interest. For example, producers attempt to maximize their profits, while consumers try to maximize their own utility. The whole economy is managed by some “invisible hand,” namely the price of products and services. Here the obvious goal is to increase GDP, which is the sum of consumer expenditure, government spending, firm investment, and net exports. Because market forces and price mechanismscan more efficiently allocate resources, consumers are likely to pay more for products and services. There are more opportunities for firms to make decisions, and therefore firms invest more. Finally, the market economy reflects less government intervention, fewer trade barriers, and increased international trade, which contribute to an increase in net exports. All these factors can facilitate GDP.

However, China has witnessed some serious problems during its rapid economic growth. First, the wealth gap has widened. In a market-based economy, competition is severe because firms want to increase their revenue by reducing their prices. This forces some small firms to exit the market as a result of their lack of competitiveness. Second, China’s environment has deteriorated because of its emphasis on manufacturing in the primary and secondary sectors. Finally, China has faced a shortage of resources as a result of vast exports.

Although it is difficult to determine whether the shift in the economic system can enhance China’s social welfare, situations in developed countries offer some hope for China’s strategy. However, because of the severity of problems currently facing China, the country must carefully make appropriate decisions to ensure that its vision of balanced development is achieved in the near future.

Lin Yuwen