Mainland Risks a Return to Central‐​Planning Mindset

January 28, 2008 • Commentary
This article appeared in the South China Morning Post on January 28, 2008.

For 30 years, China has been making progress in transforming from a planned economy to a market economy. Most prices are now set by demand and supply, China is the world’s third‐​largest trading nation and private property is constitutionally recognised. Nevertheless, important remnants of central planning and control remain, which impede Beijing’s proclaimed goal of “peoplecentred development”.

The biggest weakness in the 11th Five‐​Year Programme (2006–10), no longer called a “plan”, is the lack of any well‐​defined path towards institutional development that would allow farmers to acquire full ownership rights in their land, which is now collectively owned. Without genuine private‐​property rights, farmers have no right to sell their land and less incentive to invest in the capital necessary to increase agricultural productivity. Meanwhile, local party officials have become rich by selling land‐​use rights to developers, and there has been a serious rise in social unrest.

Farmers, the heroes of the Communist Party, are treated as secondclass citizens. In addition to the lack of private‐​ownership rights, which would allow farmers to use their property as collateral and would add tremendous wealth to the countryside, there are serious restrictions on the farmers’ rights to migrate.

Unless they can obtain an urban hukou (household registration permit), farmers and their families will be denied critical social services if they move to the more prosperous cities to work. With more than 700 million people still in the countryside, Beijing cannot afford to have an inefficient labour market by unduly restricting labour mobility.

Even where private ownership is allowed, in the case of housing, those rights will remain tenuous as long as it is relatively easy for local officials to invoke the power of eminent domain to seize private property and then benefit personally when it is developed. The 2007 Property Law is supposed to improve that situation, but implementation could be slow.

China’s robust economic growth has yielded many benefits, and the standard of living, as measured by real per capita income, has increased more than fivefold since 1978. The 11th Five‐​Year Programme calls for another doubling by 2010 but, unlike earlier five‐​year plans, that goal is not mandatory. More emphasis is being placed on social development objectives and balanced growth. The new buzzword is “scientific development”, which suggests planning rather than market liberalism.

If Beijing has learned anything from its reform experiment, it should be that bottom‐​up, spontaneous market‐​based measures are more likely to generate human happiness and prosperity than top‐​down central planning. The major problems on the mainland stem from weak institutions, not from the lack of “scientific development”. As Peter Bauer, a pioneering development economist, liked to point out, the process of development is too complex to warrant its own general theory.

But Bauer did recognise, as do China’s leaders now, that economic growth and development are not necessarily the same. What matters, said Bauer, is to increase the range of choices open to people – an objective best accomplished by limited government, strong private property rights and free trade. China’s leaders, meanwhile, seem to think that market‐ based growth clashes with “people‐ centred development”. They forget that the free market is simply a reflection of the free choices of millions of individuals who own private property and are subject to the rule of law. The best measure of whether development is “people centred” is the extent of economic freedom – and China still has a long journey to become a market‐​liberal economy.

If the Chinese are to be “masters of their own country”, the goal proclaimed at the 17th National Congress, legal institutions must be put in place more quickly to better safeguard people and their property.

About the Author
James A. Dorn

Vice President for Monetary Studies, Senior Fellow, and Editor of Cato Journal