Magazine article Teaching Business & Economics

China - an Economy in Transition

Magazine article Teaching Business & Economics

China - an Economy in Transition

Article excerpt

The preceding article traces the transition of the Chinese economy from almost pure command economy to a mixed economy. It also draws an interesting comparison between progress in China and Russia, highlighting two diverse approaches to a similar issue with very different outcomes. Throughout the article there are ample opportunities for students to apply their knowledge of demand and supply analysis, external factors affecting the environment in which a business operates, the role of the government and the need for intervention. There follows a set of directions to help students explore the main issues.


All economies, regardless of their structure, are tackling the same basic questions of what to produce, where and how this production will take place and who will receive the end result. We can view the structure of the economy on a spectrum running from a pure planned or command economy at one extreme where all decisions are made by a central planning body to a free market economy at the other, where the decisions are entirely the result of market forces; i.e. the interaction of demand and supply. Both systems have their advocates and both have theoretical advantages and disadvantages.

Using the article and any other knowledge you may have construct a list of the advantages and disadvantages to the population of living under a command economy.

A common feature of many planned economies is the control of prices so that all can afford the basic necessities. Even after reform, the price of grain sold to the state was controlled. In many cases this price control resulted in shortages; a key feature of which was queues for basic goods. Use a demand and supply diagram to show this situation and then discuss whether there would be a 'better' solution to the issue of basic goods being available for all.

Both China and Russia have moved from a command economy to a mixed economy. Thinking about the extent of the changes which have taken place position both countries on the spectrum described above. Think about the amount of freedom individual firms have been given, what proportion of the economy is now in private hands and what role the government still plays. Use the figures given in the article to create a pie chart showing the output from different sectors of ownership. A similar chart could be drawn up for the UK in order to help you to decide on their position on the spectrum.


The Household Responsibility System implemented in China is one factor which indicates movement towards a market economy. Each household, previously part of a commune, was allocated a piece of land on a long term lease in return for payment of a tax and an agreement to sell a proportion of output to the state at an agreed price. The price for grain has been controlled but higher prices are commanded by other products. Given this pricing information how do you think each household will allocate their land to grain and non grain products? Show, using demand and supply analysis, how the price differentials between grain and non grain goods have led to a reallocation of resources.

Once the household has sold their quota to the government they are free to sell the remainder at the newly established local markets. Previously this group had been part of a commune, working together for the good of all, but a by product of the reforms was that people have become more protective over their plot of land. Why do you think this is? Does this create an extra issue which the Government must address?


Growth is a valid aim in any economy. As with our own personal situation we would like to be moving forward and expanding our earnings potential. For an economy growth can result from an increase in the amount of or more efficient use of land, labour and capital. Although Mao Zedong stated economic growth as an aim from 1949 to 1976 "China remained materially poor". …

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