'The West bet that China would head towards democracy and a market economy. The gamble has failed.'  (The Economist, March 2018)


When Mr Xi took power five years ago the West speculated that he would move towards constitutional rule and a market economy. Now that the constitution has been changed so that  he can be president for as long as he chooses, that illusion has been shattered. Mr Xi has steered economics and politics in China towards repression and state control.


What is a market economy?

A market economy is a system where the laws of supply and demand direct the production of goods and services. Supply includes natural resources, capital and labour. Demand includes purchases by consumers, businesses and the government.


Businesses sell their wares at the highest prices consumers will pay. At the same time, shoppers look for the lowest prices for the goods and services they want.


Workers bid their services at the highest possible wages that their skills allow. Employers seek to get the best employees at the lowest possible rate.


What is a command economy?

Capitalism involves a market economy to set prices and distribute goods and services. Socialism and communism have a command or planned economy that guides economic decisions from a central authority. Examples of command economies today are China and North Korea.


What is a mixed economy?

The United States is the world's premier market economy. Yet like most economies in the Western world, the U.S. relies on both markets and command mechanisms to coordinate economic activity. The government controls programmes for safety, social security and health. These are called 'mixed economies'.


Source: The Economist, March 2018; Economics, Michael Parkin.

The information in this article has been taken from several reliable sources but does not necessarily reflect the views of UBT.  No short article can cover a topic completely; it is not intended that you should rely on this information for business decisions.