China’s recipe for growth: Market economy and communism

“There is extremely tough market-driven competition in China, with factories operating on such small margins that they go bankrupt one year and start up with something new the next. At the same time, the state plays a crucial role in major strategic investments in industries such as mining and telecommunications,” says Heidi Østbø Haugen.

She is a professor at the University of Oslo's Department of Sociology and Human Geography, where she conducts research on China.

“China’s economy is shaped both by this cutthroat market competition and by a state that sets clear priorities and boundaries,” she says.

Does not want alternative centres of power

Heidi Østbø Haugen stresses that the Chinese model is a difficult balancing act.

“Chinese authorities occupy a paradoxical position. They need market forces to drive the economy forward. But at the same time, they do not want alternative centres of power that could threaten the authority of the Communist Party,” she says.

She points out that China has been effective at using market mechanisms to raise people’s living standards. This has also provided the state with important resources.

At the same time, the state must control the market in order to retain its current monopoly on power.

“This means that wealthy entrepreneurs, technology giants, and regional economic elites must not become too powerful. They must be stopped when their agendas do not align with those of the state,” the researcher explains.

Operates like a three-tier pyramid

“To understand China, it can be useful to imagine the Chinese economy as a kind of pyramid," says Heidi Berg. She is an economist and sustainability director for the Confederation of Danish Industry in China.

Berg explains that at the top is a very strong central government. It has very clear ideas about the direction it wants the entire economy to take.

Next comes a middle tier consisting of state-owned companies and the provinces. Berg notes that many decisions in China are made at the provincial level rather than central level.

“And then there's the bottom, third element of the pyramid, which consists of the vast majority of companies. These are privately owned small businesses that essentially operate in an extreme market economy,” the researcher says.

According to Berg, this three-part structure enables China to operate a centrally controlled economy while at the same time maintaining such a dynamic market economy.

Dramatic growth over several decades

Berg points to the dramatic growth China has experienced over the past 50 years.

“Part of this development has produced a highly educated, capable, and internationally minded population, one that is aware of both global problems and the challenges facing China in a completely different way than earlier generations were,” she says.

She sees this development as a paradox for a China that wants to retain full state control.

“How can you continue to govern a people as you have done until now when those same people have developed different interests and different views of the world?” Berg asks.

A new generation that is not so easy to lead

Heidi Østbø Haugen also sees the challenges the Chinese state faces with a new generation that does not want to be governed in the same way as their parents’ generation.

“China’s growth was built on cheap labour: people who were willing to work long days in factories. The work was monotonous and physically demanding. At the same time, they had faith in the future, which helped them endure – not least for the sake of the next generation,” says Haugen.

She refers to 'the grand Chinese narrative' surrounding the economic transformation China has experienced, a narrative that large parts of the population have believed in.

This narrative has been about restoring China to its former greatness.

“The Chinese Communist Party has positioned itself as the guiding star of this narrative, and as the only force capable of returning China to its former glory,” she says.

However, Haugen emphasises that such a grand narrative can only work if citizens are able to create their own individual or family projects. This involves believing that their lives will improve decade by decade, just as China has grown decade by decade.

And this is where another paradox emerges, according to the China expert.

“For the state, it has now become a challenge that some parts of the population do not feel that life is improving decade by decade. They are not confident that the good education they have received will give them a better job than their parents had. Nor are they confident that they can give their children the childhood they would like them to have,” says Haugen.

Young people are 'lying flat'

Haugen points out that there has been little room for protest in China’s one-party state. Nevertheless, today’s young people have found a way to protest through a phenomenon known as 'lying flat.'

“Some literally lie down at home for a shorter or longer period. They simply opt out. Others do it more metaphorically. Perhaps they move to the countryside in the hope of creating a slower, better life,” she says.

Haugen stresses that the state sees this as laziness and a lack of loyalty to the parents’ generation.

Heidi Berg, for her part, emphasises that 'lying flat' is not necessarily a political act. It is just as much about a feeling of hopelessness.

“For many years, China had annual growth of more than 10 per cent, with enormous career opportunities and salary increases for large parts of the population. When that is the benchmark, growth of 3 per cent – which is normal and considered good in Europe – becomes a defeat. And that, too, is a Chinese paradox,” Berg says.

Source:

Haugen, H.Ø. Makt og marked – Innføring i Kinas økonomi (Power and market – An introduction to China's economy), Cappelen Damm Akademisk, 2026. ISBN: 9788202896072

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