Free Market Economy of China - Research Paper Example

Market economy Free market economy refers to a structure where business partners are independently responsible for their personal choices. Buyers and sellers give total responsibility to prices to resolve the distribution and allocation of commodities. Forces of demand and supply set prices in a free market economy of every respective product. When there is excess supply of a particular product in a free market economy than the available demand, prices tend to go down automatically (Friedman 12). On the other hand, when demand exceeds supply, market prices go up as there is no enough distribution and supply of the respective product. Other characteristics of free market economy are free trade fairs without subsidies or tariffs from the government. One of the most outstanding free market economies is that the government has very limited powers in a free market economy because marker powers regarding price control are set by buyers and sellers. Since the government lacks direct control of business operations regarding prices, sellers are likely to exhaust buyers through high prices (Chai 24). The government powers are restricted to providing law and order in the market operations and ensuring that only fair competition is charged. The government does not have control over participants’ entry to the market. This means that the government does not stipulate any rules regarding tariffs and subsides. Therefore, it is an economic system whereby only the fittest survive. In such economy, the government does not play any role that may favour or discourage business partners as only the involved parties regulate the transactions and prices. The government is restricted to making possible flow and functioning of the business environment through implementing policies and laws that guarantee people rights and freedoms to property. Therefore, the government is not a competitor or a market player but enhances business operations by creating a suitable business environment (Friedman 19). China is a mixed economy since the government and the private sector have an influence in the economy thus having both characteristics of both free market economies and controlled economy. Majority of mixed economies have strong government regulations as the government provides public goods and government run enterprises. In mixed economies like china, production of goods and services are mainly conducted by the private sector whereby markets are the major controllers and coordinators of economy. The driving forces within mixed markets are profit seeking enterprises and capital accumulation. Unlike pure free market economy in china, the government has larger indirect control over the economy by implementing monetary and fiscal policies and regulations. These policies counteract economic challenges and capitalisms’ influence towards financial crisis and challenges towards unemployment. The government has a central place in providing social welfare and making sure that public goods are available to the public (Chai 52). In general, the degree of freedom in a mixed economy against government regulations varies. The government is often responsible for providing environmental protection, maintaining unemployment standards, and controlling competition. China may not fit to be a free market economy since the government has strong control over inflation and rural spending (Friedman 35). China has been successful since its government is vibrant ion deficit funding programs since 1998 as well as endorsement of exports by tax rebates. When public demand is low due to anti-inflation, export promotions and monetary policies chip in to create a difference. When public demand is strong, the promotion of external export by government relaxes. Statistics show that the stock market activities are high because households and other enterprises prefer their funds in more liquid forms. Due to inflation surge, the government sets policies and regulations to correct the economic situation. Government policies in china support both rural liberalization and fiscal programs (Chai 123). The most challenge in these programs is whether the government policymakers and other institutions are sophisticated enough to control liberalization adequately and increase nominal interest rates when necessary. On becoming a member of World Trade Organization, china government will have the powers to import more products especially grains when there is drought. Through Chinas’ bilateral and multilateral involvement, this will enhance importation of grains and other foodstuff. This will make sure that tariffs will be low at other times and subsequently increase at other times to respond to the deficit or surplus between demand and supply (Friedman 38). Chinas economy has a free market element since there is a division of labour and the establishment of commodity financial system tithing the environment of feudalism. China has a class of capitalists that focuses on money capital and effectives means of production within their powers. In its capitalist economy, people are willing to exchange their labour power with money. This transformation of their labour power into wealth and the way of production into capital signifies the transformation from simple wealth production to capital production (Martinez 78). During this transformation, artisans and noble field workers turned from working from their farms to working to big farm owners to get money for daily expenses. This shows that labour force that had been concentrating on minority sources was now provided by the majority hence capitalism. There was the creation of an internal market as farm and industry owners wanted supply of labour from workers, and the workers wanted money for daily consumption. Development of the commodity exchange and production together with differentiation of wealth producers serves as the foundation of free market (Friedman 75). Concentration of factors of production was necessary since scattered articles of trade production could not meet the growing demand for goods and services. The challenges faced with capitalist economy arose within its production processes, unemployment, and struggles between classes of capitalist. This is a major challenge that predicts doom of a capitalistic economy. The practice of price controls on a successful environment harms the economy by interfering with the business in the economy and creating platforms for resource wastage. Researchers have established that price controls interfere with market entry opportunities in the long run. This is because government regulates on operational conditions that make it hard for new and small market players to conform. Most market entrants have small capitals and resources hence finding it a struggle to fulfill set conditions and still concentrate on the core business. Therefore, Chinas’ government should abolish any form of government controls that are very limiting to new market players (Chai 154). Price controls also reduce the quality of products since market players are limited thus influencing monopolies and customer exhaustion. These controls also influence black markets since if entry to market is on restriction and an individual or a company is willing and determined to get to the market, one will be tempted to use corrupt and unclean ways of reaching the market. These controls encourage counterfeit and fake goods resembling the ones authorized by the government. These untested goods expose consumers to risks of consuming illegal and damaged commodities at times. Controls do not influence innovations that could solve many of the present and future problems (Martinez 96). On the other hand, price controls may prevent monopolies and other market participants from charging too high prices. This saves consumers from unwarranted expenses and at times the inflation rate. Government fiscal policies are very crucial when resurrecting a country economy suffering from inflation. Conclusion China is likely to succeed and advance in business operations as its people are concerned with development. This is because people own houses, have freedom and rights they lacked tens of years back. People have the opportunity to choose employers and employment opportunities and make choices of the social life partners like spouses and compatible ones who can work together and become wealthy. The practice of free market will take china to higher development as its government has very limited control of business operations and economy at large. The mixed economic strategy makes the country concentrate on advantages and opportunities from both communism and capitalism. Chinas political party throws out any individuals attempting to plan or organize any conflicting political force. Although this attracts government stability, such acts also discourage competition, as opposition government is essential to keep the ruling government on check (Martinez 118). If opposition government lacks in an economy, chances are high that the government will extend powers and create dictatorship. Therefore, if china does not check on its governance system, it may reach a point where its government shall take full control of the economy. References Chai, Joseph C. An Economic History of Modern China. Cheltenham: Edwards Elgar Publishing, 2011. Print. Friedman Milton and Friedman, Rose D. Capitalism and Freedom: Fortieth Anniversary Edition. Chicago: University of Chicago Press,2002. Martinez, Mark A. The Myth of the Free Market: The Role of the State in a Capitalist Economy. Kumarian Press, 2009. Read More