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August 24, 2023

China Capitalism Explained

China Capitalism Explained. Between state capitalism vs. free-market capitalism which one more sustainable than the other and what is the case of China? Is China’s power going to keep increasing? Is China going to take over much of the world through the Belt and Road initiative? Is the policy for CNY exchange rate fair? Why has China’s economy done better in the Great Recession and in the COVID-19 pandemic?


The sustainability of different economic systems is a complex and debated topic, and it is challenging to make definitive claims about which system is more sustainable between state capitalism and free-market capitalism. Both systems have their advantages and potential drawbacks, and their sustainability can be influenced by various factors.

State Capitalism vs. Free-Market Capitalism

State Capitalism

State capitalism is an economic system in which the state or government exerts significant control and ownership over industries and resources. Proponents argue that it allows for greater coordination and direction of the economy, enabling long-term planning and stability. The state can prioritize sustainable development and allocate resources to address societal needs, such as environmental protection or social welfare. However, critics argue that excessive state control can lead to inefficiencies, lack of innovation, and potential abuses of power.

Free-market Capitalism

Free-market capitalism, on the other hand, emphasizes private ownership, competition, and minimal government intervention in the economy. Advocates argue that free markets promote efficiency, innovation, and economic growth, which can contribute to overall sustainability. The profit motive and competition can incentivize businesses to adopt sustainable practices, reduce waste, and respond to consumer demands. However, critics contend that unregulated markets can lead to inequality, market failures, and negative externalities, such as environmental degradation or social disparities.

China Capitalism Explained

The Case of China

The case of China presents an interesting example that combines elements of both state capitalism and free-market capitalism. Since the late 1970s, China has pursued a policy known as “socialism with Chinese characteristics,” which involves a unique blend of state control and market-oriented reforms. In China, the government maintains significant control over key sectors of the economy, such as finance, energy, telecommunications, and transportation. State-owned enterprises (SOEs) play a crucial role in these sectors and receive support and direction from the government. This state capitalism approach allows the government to exert influence over the direction and priorities of the economy, supporting strategic industries and promoting national development goals.

However, China has also embraced market-oriented reforms and encouraged private enterprise. Over the years, it has implemented economic liberalization measures, opened up to foreign investment, and established special economic zones where market forces are given more freedom. This has led to the emergence of a dynamic private sector and a vibrant market economy, with many Chinese companies experiencing rapid growth and international success. China Capitalism Explained.

When examining the sustainability of China’s economic model, it’s important to consider both the achievements and challenges. On the positive side, China has achieved remarkable economic growth, lifted millions out of poverty, and become the world’s second-largest economy. The state’s influence and control have allowed it to implement long-term plans, such as infrastructure development and poverty alleviation programs.

Is China’s power going to keep increasing?

China’s power is likely to continue increasing in the foreseeable future. With its robust economy, technological advancements, expanding global trade and investment, and growing military capabilities, China has emerged as a major player on the world stage. Its economic growth, driven by domestic consumption and investments abroad, positions China to exert greater influence in global affairs. Additionally, China’s diplomatic engagement, participation in international organizations, and efforts to shape global governance contribute to its rising power. However, various factors such as internal challenges, geopolitical dynamics, and international relations can shape the trajectory of China’s power. While the extent of China’s power increase may fluctuate, its overall upward trend seems poised to continue.

Is China going to take over much of the world through the Belt and Road initiative?

The Belt and Road Initiative (BRI) is a vast infrastructure and development project led by China, aiming to enhance connectivity and economic cooperation across Asia, Europe, Africa, and beyond. While the BRI has undoubtedly expanded China’s influence and economic reach, the notion of China taking over much of the world through this initiative is an oversimplification. The success and impact of the BRI depend on multiple factors, including the willingness of participating countries, the effectiveness of project implementation, and the ability to address concerns such as debt sustainability and environmental impacts. While China has gained influence through the BRI, it also faces challenges and pushback from some countries. The ultimate outcome will likely involve a mix of opportunities and complexities, with China’s influence varying across different regions and sectors, rather than an outright takeover of the world.

Is the policy for CNY exchange rate fair?

The fairness of China’s policy regarding the exchange rate of the Chinese yuan (CNY) is a subject of debate. China has historically been accused of manipulating its currency to gain a competitive advantage in international trade. Critics argue that by keeping the value of the CNY artificially low, China promotes its exports and maintains trade surpluses. This approach can be seen as unfair, as it potentially distorts global trade dynamics and disadvantages other countries. However, China has taken steps to liberalize its exchange rate regime in recent years, allowing the CNY to appreciate to some extent. The fairness of the policy depends on one’s perspective. Supporters argue that China’s managed exchange rate approach allows for stability and gradual adjustments, benefiting both domestic industries and the global economy. Ultimately, the fairness of China’s exchange rate policy is a complex issue with differing viewpoints, and it involves weighing the impact on China’s domestic economy, its trading partners, and the principles of fair competition in international trade.

 Why has China’s economy done better in the Great Recession and in the COVID-19 pandemic?

China’s economy has shown resilience and performed relatively better during the Great Recession and the COVID-19 pandemic due to several key factors. Firstly, China’s strong state control and ability to implement swift and decisive policy measures have allowed for effective crisis management. The government quickly implemented stimulus packages, increased infrastructure spending, and provided support to key industries, bolstering economic activity. Secondly, China’s large domestic market and robust manufacturing sector have played a crucial role. As global demand contracted during these crises, China’s domestic consumption became a significant driver of growth, cushioning the impact. Furthermore, China’s export-oriented economy diversified its markets over the years, reducing its reliance on a single region. Lastly, China’s proactive containment measures and strict lockdowns during the COVID-19 pandemic helped control the spread of the virus, allowing for a faster economic recovery compared to countries grappling with more prolonged outbreaks. These factors, combined with effective policy responses and a strong manufacturing base, have contributed to China’s relative economic resilience during both crises.


China Capitalism Explained. China demonstrates a unique hybrid approach that combines elements of both state capitalism and free-market capitalism. While the sustainability of this model remains a subject of ongoing debate, China has shown efforts to address environmental and social challenges. Overall, while China’s power is likely to continue growing, the extent and nature of its influence will depend on how it navigates both domestic and international challenges, as well as how it balances its rise with the interests and concerns of other countries. Use APA referencing style.

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