Vietnam and China: Who Is Moving Toward a Free Market Economy?

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China and Vietnam:
Who is moving toward a free market economy?

Gerald Headd II
Prof. Sujian Guo
Political Economy of Asian Transition
Anyone can foolishly take a quick look at many Asian economies in transition and come to an even quicker assertion that they have taken on a capitalist market mindset. However, one can only determine whether a country’s economy is that of a capitalist market or socialist market by analyzing it based on public/private ownership and market/state control.[1] When basing the system on realistic key indicators, I think you would have no choice but to agree in my belief that Vietnam and China –even though many economists and politicians, both abroad and domestically, rather equate the two previous countries with systems mirroring a capitalist type market economy- are indeed more so market socialist economies than capitalist market economies. [2] Though these two countries have experienced significant growth over the last decade or so, and have added certain components similar to that of a market economy, public ownership and state control are just as evident as they were before the days of market-oriented reform. On the surface some adjustments have been made to give the private sector more ownership and market forces more control over the economy, but at the very foundation of those two dimensions, is where you find the state is still pulling the strings.

With Vietnam and China’s economies growing at an unusually rapid rate for the past few decades, at 7.25%[3] and 8-9% respectively, much is being said about whether the economic reforms themselves or the additions of market economy mechanisms are responsible. Whichever one chooses to site as the deciding factor as to why these countries are experiencing unprecedented economic growth, many countries and economic institutions –most notably WTO, IMF, and ASEAN- are attempting to persuade, and at times coerce, them to further free their markets, loosen state control and privatize more in various sectors.

Of course many state economies are of a hybrid type, meaning they don’t necessarily fall in a straight free market economy or a planned command economy. These two ideal-type political economies have four key points: Control of factors of production; production decisions; value established; and role of the state. The first key point is related to ownership but the latter points are more so related to control. It is true that all countries to a certain extent are still slow to relinquish complete control to market forces and the distribution and allocation of vital resources, but Vietnam and China especially, are adamant in their stance on those issues. For the most part SOE’s (state-owned enterprises) have been reduced and more private enterprises and joint-ventures have been allowed to “compete” in both the public and private sectors. Prices are supposedly, left up to the market forces via “supply and demand” and the allocation of resources have been distributed amongst non-state actors. Financial institutions have been more welcoming to foreign influence and trade policies have been more relaxed, especially tariffs. Yet within these key empirical dimensions, public ownership still reigns and state control is still stronger than ever.

Public vs. Private Ownership
Within the public sector both Vietnam and China’s governments play a vital role in appointing managers, examining and approving major decisions, and in the non-public sector, deciding on policy restrictions and regulations. Although private firms and enterprises are on the rise and are also responsible for the increase in employed workers, the private sector’s contribution to the GDP is relatively low and the firms and enterprises are mainly concentrated in non-pillar areas.[4]

When it comes to the privatization policy in China, major SOE’s that are considered pillar entities are “corporatized” into...
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