BEIJING, China – In 1776, renowned philosopher and economist Adam Smith articulated a pivotal concept in his work, An Inquiry Into the Nature and Causes of the Wealth of Nations, emphasizing that individuals pursuing self-interest in commerce fosters economic growth.
In China, Smith’s notion of the invisible hand symbolizes the unseen forces that contribute to this prosperity. Since shifting away from a planned economy in 1978, China has undergone extraordinary transformation. The harnessing of market forces has propelled the nation to become the world’s second-largest economy while lifting over 700 million people out of extreme poverty. Nonetheless, China recognizes that the market is only one facet of its economic landscape, placing equal significance on the “visible hand”—the government’s role in regulating economic activities.
A resolution from the Third Plenary Session of the 20th Communist Party of China (CPC) Central Committee, adopted in July, reiterated this dual approach. It addresses the essential balance between government intervention and market freedom, laying out plans for economic structural reforms over the next five years.
“We will see that the market plays the decisive role in resource allocation, while the government better fulfills its regulatory responsibilities,” the resolution states. It emphasizes creating a level playing field for more efficient economic operations while ensuring effective regulation and marketplace order.
According to Tang Fangyu, deputy head of the CPC Central Committee Policy Research Office, the resolution is the most significant outcome of the recent plenum, as he detailed at a press conference on July 19, outlining guiding principles from the session.
This comprehensive resolution spearheads economic structural reform and proposes over 300 major reform measures encompassing systemic, mechanical, and institutional adjustments.
The document articulates the need to “lift restrictions on the market while ensuring effective regulation, striving to maintain market order and address market failures.” This approach aims to facilitate smooth flows within the national economy and ignite internal driving forces and creativity throughout society.
“Understanding terms like ‘lifting restrictions’ and ‘effective regulation’ is crucial, yet challenging in governance,” noted Dong Yu, executive vice president of the China Institute for Development Planning. He emphasized the importance of balancing these elements in economic governance based on the unique characteristics of various sectors and stages.
Adopted by top officials, the resolution encapsulates the governing party’s vision for advancing reform. Developed through extensive research and widespread consultation, it reflects a broad consensus across Chinese society and is expected to influence decision-making at all levels.
While Western nations often highlight free market capitalism as a defining characteristic of their freedoms, this economic model has faced challenges in delivering consistent benefits in recent decades, leading to rising economic inequality. This market dysfunction has prompted economists to pursue more balanced approaches, blending the visible and invisible hands. China’s exploration of a socialist market economy serves as a pertinent case study in this evolving economic discourse.
