Barry Naughton is an authority on the Chinese economy. He offers evidence on China's government control over the economy in a nice paper called "Is China Socialist?"
China's government controls an unusually large proportion of national income flows. He argues that these income streams have grown dramatically as a share of GDP since the mid-1990s. He shows how the Chinese government steers the economy because it sees a strong economic performance as a core part of its political legitimacy. China's government has some tools to "shield the public from job cuts or factory closings" because of American tariffs.
Beyond the tools of funding direct government programs and ownership, the Chinese system has two distinctive mechanisms through which it attempts to foster development:
- a set of bureaucratic incentives that reward officials for growth (of GDP and revenue);
- planning that is centered on the national-level Five-Year Plans that propose a certain trajectory for growth.
Chinese Government's Control over National Income
The above Figure illustrates an expanded concept of government revenues that includes four main components:
- budgetary revenues (not including social security);
- social insurance premiums;
- land revenues;
- net income from state-owned enterprises.
These four components help Naughton providing an index of government control of resources, which tripled as a share of GDP between 1996 and 2013. This index gives an indication of the overall size of the Chinese government. For instance, all land in China is publicly owned: urban land is owned by the state, and housing is "privately owned" only in the sense that households hold long-term leases, typically of 50–70 years. The financial system in particular is overwhelmingly dominated by the state-owned banks, which generate substantial profits.
Summing all four components, the Chinese government had direct or indirect control of 38% of GDP in 2015. Overall, the Chinese government is large, well-resourced, and potentially highly intrusive. This is both a distinctive feature of the Chinese economy in comparative context, and a dramatic change from the China of 20 years ago.