Answer

China has remained one of the World’s socialist countries since 1949, and the country has nearly attained full accustomed price and wage control measures. The government of China plays a predominant role in the economy by setting up prices and wages from different perspectives. In China’s industrial economy, the large sector is under governments control for prices and wages. Although the proportion of industrial price control has declined due to globalization, significant urban sector prices have remained controlled by the government. Prices of the critical commodities are controlled and set by the Chinese government, and they also determine the distribution levels substantially. Hence, foreign trade systems have taken a monopolistic direction in the Chinese market, therefore price control measures.

China dominates the global market at 70% for electronic goods, 50% for shoes, cameras, bikes and telephones (Perkins, Dwight, and Thomas, 2008). It also dominates more than a third of the world market for microwave ovens, air conditioners, computer monitors, luggage and coloured televisions. Additionally, it has a significant influence on washing machines, underwears, jeans, refrigerators and jeans. The country is doing excellently economically compared to other developing and developed countries. The types of price/wage controls practised in China have included setting up of price ceiling, setting up minimum prices, and adjusting to any economic situations that arise intending to control trade patterns in the country. Having attained the development thresholds in the world’s economy, China obligated herself to use price control measures to regulate prices and wages for significant goods and services (Whalley, John, and Shunming, 2004).

The price control actions taken were; setting up maximum prices that can reduce the cost of food to make it more affordable to all people irrespective of their financial status, but the major threatening factor is that maximum price may lead to lower supply and a shortage. Minimum price legislations such that the minimum prices can push upwards the price producers receive. These are applicable in farm produce and raises the farmer’s income. On the other hand, minimum prices lead to oversupply, which implies that the government has to procure the surplus from the producers whether they need it or for whatever cause. Food prices during the control period were unstable. The price of goods was set to a specific range and goods rationed. However, this encouraged people to sell on the black market through inflated prices. These led to China developing a policy to control the prices to protect the consumers from exploitation by the producers.

Economists argued that if prices were set independently by market forces, it would be just the wealthy who could afford to go to games. The disadvantage is that some who want to go to the game cannot because there is a shortage of tickets. The government had to set a maximum price for renting to keep housing affordable. This was accelerated by the increasing population in china that is reciprocated by an increase in demand for shelter. However, a maximum price led to a reduction in housing supply, leading to homelessness. Although landlords practice a monopoly and supply habits is very inelastic, the rent prices will be expensive for people to purchase. A maximum price will reduce the rental burden, thus reducing supply. The effectiveness of the exercise of control over the economy articulates a committed group of bureaucrats and a highly dedicated hierarchy of command, stretching from the leaders to the led individual enterprise. The Chinese Communist Party reserves the right to make broad economic priorities and policies. Still, the government apparatus headed by the State Council assumes the primary burden of running the economy. The State Planning Commission and the Ministry of Finance are also concerned with virtually the entire economy. Today, the Chinese market prices are not entirely under the control of the government. There have erupted high levels of competition that has affected the control measures through cartels aimed to promote international trade, allowing countries to leave the forces of demand and supply to take their effectiveness in the market.

Today China has cut the number of items subject to price restrictions by nearly 30 per cent in a revised government pricing catalogue released from the government ministry of economic planning. The new list of essential items is no longer subject to price controls, such as some railway and air travel tickets, compared with the previous restriction imposed in 2015; these were done through China’s National Development and Reform Commission (Liu et al., 2020). The new freedom of trade removed the initial offer and final sales prices of electricity and natural gas, opening them to market forces, but still keeps midstream transmission and distribution prices for government supervision. These items’ prices will be determined by the forces of demand and supply, including goods and services in public utilities, public welfare services and network-based natural monopoly goods. Table 1 below shows the current prices/wages after removal of restrictions; (Extracted from an Online Economy Journal; https://www.china-briefing.com/news/minimum-wages-china-2021/).

Table 1.

A person working in China typically earns around 29,300 CNY per month after the wage control bill. Salaries range from 7,410 CNY (lowest average) to 131,000 CNY (highest standard, the actual maximum wage is higher). The wages are relatively higher than in the era of price controls (Liu et al., 2020).

This study noted substantial impacts of removing price controls in China’s market, which affects some of the key market players. If not followed up, these trends will restrain the economy from reflecting that of the developing countries in the next 10 years (Whalley, John, and Shunming, 2011). For example, the market segment controlled by the small independent producers may close down or shrink; they were enjoying the benefits of regulations while exploiting the consumers. Some situations will affect the highly concentrated markets because they fear the equal distribution of available client base in the competitive environment, such as the Chinese natural-gas upstream and midstream sectors, which are the leading suppliers of gas products in the country. The dominant partners with riches of resources can undermine the implementation of reform initiatives (such as pricing reforms) to counter their interests which are majorly profit maximization, without considering the burden on the consumers.

The trends that have faced China after the removal of price control measures have broad such that in the end, rent and housing controls price ceilings often will result in hurting some of the people the government thought would benefit. Many low-income class people will have trouble finding affordable houses to rent. Ironically, some of those who will discover affordable residents may end up paying double more than they would have paid in the absence of rent price control. In this matter, many of the people that the rent controls do help are primarily present occupants, regardless of their income, and those lucky enough to find the premises are not those they are intended to help (the poor) (Bian, Timothy, and Pedro, 2015). A more direct means of helping poor tenants in china, one that would best fit without interfering with the functioning economy, would be to provide them with incentives or subsidize their incomes. These may have links with price floors, interfering with the market operations and mechanism may solve one problem, but this eventually leads to many other challenges to the wealthy people in the economy. Accordingly, this study recommends that “pricing and reimbursement schemes effected must strike a balance between promoting innovation and education in all market segments to keep the economy growing at a balanced rate

In an unregulated market, wealthy business heads and tycoons take advantage of organizing monopoly powers that raise the cost of products, hence limit infrastructural developments. Without price regulations, wealth cartels can influence the negative externalities without a source to exploit the poor. Diminished resources, less trade and stiffed developments reduce beneficial market effects; therefore, the government should take part in regulating these issues. Other important goals are promoted through price restriction in the market, although they may not be felt directly by sellers and buyers severely affect the state. These are national goals like promoting the military to protect citizens, causing improved country’s security and acting as a national pride for economically growing countries like china today, hence requiring the government to control some of the market prices if not all.