What sort of market is there in China?
Whatever way China’s market is defined, China must be doing something right. The World Bank estimates that China has elevated 600 million people from poverty over the last 30 years. This accounts for most of the global decrease in poverty seen in World Bank figures for those living on under US$1.25 a day. Other welfare indicators show the same success. Life expectancy at birth has risen to 75 years on average, total adult literacy rate reached 95%, while primary school net enrolment ratio is almost 100%. According to ‘China Education Centre’ the country has increased the proportion of its college-aged population to over 20% today now from 1.4% in 1978. This compares to about 35% in Italy.
The economic indicators are also impressive. The Chinese economy has grown at over 9% a year, year on year, since 1978. A significant part of this growth is export driven. Exports account for about 30% of the country’s GDP in these recent years, while for instance in the EU it’s been around 20%, and in the U.S. around 10%. China seems to be following the German model of export led growth. It brings great benefits.
However there is a significant difference between China and Germany. Germany is a market economy while China is not. What does it mean that Germany, and the EU as a whole, is a market economy and China is not? And does the difference have consequences for how the EU should manage its trade relations with China?
The key economic differences between a market economy and a non-market economy are found in the ideas of openness, competition and the role of the state. In the European model the state sets the framework but openly allows private enterprise to compete on the market within that framework. In the China model, the state also sets the framework but for many sectors does not allow competition or even private enterprise. For example banking industry is state owned and commanded. Capital and loans are directed, by government command, to certain sectors and certain enterprises. No foreign control is allowed and foreign banks cannot compete. Steel is another example. Most large producers are state owned and no foreign control is allowed. Foreign firms are not allowed to compete on the market. The same is true of the mining sector, telecommunications, energy and many more.
China has chosen the China way because it works for China today. And the China way has brought impressive results. But it is not based on openness and competition. The role of the state is determinant. It is not a market system as understood in the EU. And this is where care must be taken. Enterprises with a base in, and the support of, China have economic and commercial advantages that no EU enterprise can hope to have.
This is not to condemn the China way. But it does call for rebalancing the differences so that they do not damage the EU market and EU industry. China is not a market economy and this understanding must remain the basis of the EU’s trade policy for the foreseeable future.
 See generally, http://povertydata.worldbank.org/poverty/home/
 Unicef website, China, Statistics: http://www.unicef.org/infobycountry/china_statistics.html
 China Education Centre: http://www.chinaeducenter.com/en/cedu.php
 Se generally, OECD figures for tertiary education.
 European Central Bank “Structure of the euro area economy”: https://www.ecb.europa.eu/mopo/eaec/html/index.en.html
 The World Bank. Exports of goods and services (% of GDP): http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS