On systemic transition: Will China go capitalist?

Transition from nonviable central administrative command planning (socialism) should be toward a full market system (capitalism). The requirements of such transition include: removal of the communist party from monopoly power; patience, determination, explanation, persuasion, and fairness; introduction of new legal, statistical, and accounting infrastructures and procedures; market freedom; demonopolization; privatization; macroeconomic stabilization; and external liberalization of trade and payments. Since 1978 China has taken steps to move its economic system in the capitalist direction, while retaining the communist party’s hold on political power (reduced from totalitarian to authoritarian control) and expanding quasi-private property rights without, however, fully privatizing the large, capital-intensive, state-owned industrial sector. In this sense, unlike many of the countries of central and eastern Europe and Russia, China has deferred the solution of some of the fundamental and potentially highly disruptive reform problems to an indefinite future, a postponement which, despite significant temporal successes, carries with it serious dangers for the entire reform enterprise.