Advocates of the "China model" believe the country's economic success owes much to a powerful government tightly controlling the economy. But that model is not without flaws. Wu Jinglian, a renowned economist, discussed these issues in an article recently published in the Caijing magazine. Edited excerpts follow:

The past 30 years have witnessed a remarkable take-off of the Chinese economy. The economic miracle has sparked a worldwide debate about the development model of China. Many economists attribute the success to China's unique economic and political systems - it has a powerful government and a controlled national economy, so it is more able to formulate and implement strategies in the best of national interests.

In my opinion, the so-called "China model" is only one of the reasons for the country's economic prosperity. Before the reform and opening up started in 1978, the country was still struggling with acute poverty despite a powerful government.

The establishment of market systems was a strong boost to productivity and laid a solid foundation for vibrant economic growth in the 1990s in the following ways:

First, it allowed some room for private businesses. Since mid-1980s, the government has been relaxing restrictions for private investors to enter some state-controlled sectors.  

Second, it strengthens utilization of human and material resources. For example, the enormous rural surplus labor force - around 250 million people, have migrated into cities in the past three decades. Meanwhile, around 70,000 square km of rural land, equal to the area of Ireland, have been used for urban construction.

Third, the opening-up policy stimulated export growth, making up for the weakness of domestic consumption and propping up the high growth of the Chinese economy.

Fourth, the opening-up policy allowed China to introduce advanced foreign equipment and technologies. This helped China to quickly catch up with developed countries in terms of technological prowess and provided firm support to the economy.

All those facts prove that reform and opening up was the real secret to China's economic success.

But China's market economic systems remain far from perfect because state sectors still play a dominant role in resource allocation, as reflected in the following aspects:

First, the state-owned sectors control the commanding heights of the national economy. State-owned enterprises have been monopolizing key industries such as oil, telecommunications, railways and finance.

Second, governments at all levels have the power over land use and capital arrangement.

Third, the rule of law is yet to be established.

Long way to go

China's economic and social development, heavily reliant on government regulation and resource input, is unsustainable, and will sooner or later result in some unintended consequences.

First, the present growth model cannot be sustained. The government mobilized a lot of social resources and introduced overseas advanced technologies to maintain rapid growth. But that growth is costly and short-lived.

China is reaching the Lewis turning point, where rural surplus labor starts disappearing. Moreover, the resource-intensive growth model brought about resource depletion, incurred damage to the environment and led to many intractable problems, such as lackluster consumption, income stagnation and a widening income gap.

And after more than 10 years of export euphoria, problems are popping up, including static technological progress and low industrial efficiency. The macro-economy is also struggling with excess liquidity, asset bubbles and simmering inflation.

Second, since the power of resource allocation is in the hands of government officials, corruption is becoming a more serious problem in the country. Worse still, corruption and the yawning rich-poor divide may sow the seeds of social unrest.

Between 1988 and 1998, debates heated up among Chinese economists about intensifying corruption. They called for efforts of market-oriented reform, to avoid the so-called "Asian Drama." The Swedish Nobel Laureate economist Karl Gunnar Myrdal published a book titled Asian Drama in 1968, in which he warned that Asia's economic prospects are overshadowed by ineffici==encies, corruption and waste caused by excessive reliance on administrative controls.

Public criticism of the government's inaction to push forward market-oriented reform is growing. The critics are justified, and policymakers must make clear the direction of strengthening government functions. Should the government aim to build a better market environment or control the market, or even replace the market? The direction will decide whether the government would positively or negatively impact the country's development.

That is also why the ongoing debates about the "China model" mean a lot for the country's future.