THE NON-STATE SECTOR, SOFT BUDGET CONSTRA INT, AND OPEN-DOOR POLICY IN CHINA (SOME ASPECTS OF CHINESE ECONOMIC-REFORMS AS VIEWED BY AN OUTSIDER)

The article first reviews the successes of Chinese economic reforms. T he sustained entry and expansion of the non-state sector, including jo int ventures and foreign direct investments, is identified as the main achievement of the reforms. The soft budget constraint and the patern alism of the state enterprises are then isolated as their main obstacl es. While the market conditions on the ''entry'' side are somehow prov ided (particularly in the Special zones), these conditions do not exis t on the ''exit'' side. Hence the Chinese market socialism, as other f orms of market socialism, is deprived of the dynamic mechanism of ''cr eative destruction''. Finally, the paper discusses three possible meas ures for furthering the reforms in general and the open door policy in particular, namely (a) the decentralization of the banking system, (b ) the denationalization (and not the privatization) of the state secto r, and (c) the elimination of provincial protectionism and the free mo vement of capital and labour between regions.