[1] The term "socialist market economy" was introduced by Jiang Zemin during the 14th National Congress of the Chinese Communist Party (CCP) in 1992 to describe the goal of China's economic reforms.
[5] In the late 1970s, then-paramount leader Deng Xiaoping and the CCP leadership rejected the prior Maoist emphasis on culture and political agency as the driving forces behind economic progress and started to place a greater emphasis on advancing the material productive forces as the fundamental and necessary prerequisite for building an advanced socialist society.
The adoption of market reforms was seen to be consistent with China's level of development and a necessary step in advancing the productive forces of society.
[12] Cui Zhiyuan traces the theoretical foundations of the socialist market economy to James Meade's model of liberal socialism in which the state acts as a residual claimant on the profits generated by state-owned enterprises that are operated independent of government management.
[14] Following its implementation, this economic system has supplemented the command economy in the People's Republic of China, with high growth-rates in GDP during the past decades having been attributed to it.
The transition to a socialist market economy began in 1978 when Deng Xiaoping introduced his program of socialism with Chinese characteristics.
Initial reforms in decollectivizing agriculture and opening the economy to foreign investment in the late 1970s and early 1980s later led to large-scale radical reforms, including corporatization of the state sector, partial privatization of some enterprises, liberalization of trade and prices and dismantling of the "iron rice bowl" system of job security in the late 1990s.
[16] Some scholars have described China's economic system as a form of state capitalism, particularly after the industrial reforms of the 1980s and 1990s, noting that while the Chinese economy maintains a large state sector, the state-owned enterprises operate like private-sector firms and retain all profits without remitting them to the government to benefit the entire population.
This model brings into question the rationale for widespread public ownership as well as the applicability of the descriptor "socialist", and has led to concern and debate regarding the distribution of state profits.
The Chongqing model used state enterprise profits to fund public services (including housing), providing the main source of public finance and enabling Chongqing to lower its corporate tax rate (15% compared to the 33% national corporate tax rate) to attract foreign investment.
[4] Julan Du and Chenggang Xu analyzed the Chinese model in a 2005 paper to assess whether it represents a type of market socialism or capitalism.
The study concluded that as of 2006 capitalism is not the dominant mode of organization either and China instead has a partially pre-capitalist agrarian system with almost 50% of its population engaged in agricultural work.
According to Li Rongrong, in 2003 the chairman of the State-Owned Assets Supervision and Administration Commission of the State Council, China's socialist economic system is underpinned by the foundational role of public enterprise: Public ownership, as the foundation of the socialist economic system, is a basic force of the state to guide and promote economic and social development and a major guarantee for realising the fundamental interests and the common prosperity of the majority of the people… The state owned economy has taken a dominant place in major trades that have a close bearing on the country's economic lifeline and key areas, and has propped-up, guided and brought along the development of the entire socio-economy.
State owned economy has played an irreplaceable role in China's socialist modernisation drive.Other Marxist analyses point out that because the Chinese economic system is based on commodity production, has a role for private capital and disempowers the working class, it represents a capitalist economy.
Other socialists believe the Chinese have embraced many elements of market capitalism, specifically commodity production and privatization, resulting in a full-blown capitalist economic system.
These various forms of public ownership play a dominant role in the socialist market economy alongside substantial private and foreign enterprises.
This makes gauging the true size and scope of the state sector difficult, particularly when SOEs with mixed ownership structures are taken into account.
The State-owned Assets Supervision and Administration Commission (SASAC) was formed in 2003 to oversee the management of the large centrally owned state enterprises.
By comparison, provincial and municipal level SOEs number in the thousands and are involved in almost every industry including information technology and automobiles design and production.
[37][better source needed] Despite becoming increasingly profitable, SOEs in China have not paid dividends to the state, causing some analysts question the rationale for public ownership in the first place.
[17][38] As part of SASAC's ongoing reforms, SOEs will now be encouraged and required to pay a higher portion of their profits as dividends to the state, with some state-owned assets being transferred to social security funds to help finance pensions for China's aging population.
For example, in the first quarter of 2016 the National Bureau of Statistics of China reported fixed investment by private firms at 35%, and by wholly state-owned SOEs at 27%, with the bulk of the remainder belonging to non-wholly state funded limited liability corporations.