Socialist market economy with Chinese characteristics is the official term for the economy of the People's Republic of China. In order to understand what this term actually means in a Chinese context, it is necessary to first explain Chinese political theory.
First it is commonly believed by many in the West that the People's Republic of China has abandoned Marxism. This is incorrect. To do so would have cast doubt on the legitimacy of the Communist Party of China and China has not done so. Rather what the PRC did do is to radically redefine many of the terms and concepts of Marxist theory to justify its economic efforts.
In Marxist theory, history progresses through a number of stages from slave society to feudal society to capitalist society to socialist society to communist society. In Maoist theory, the revolution of 1949 was a change from capitalism to socialism. The result of this view of history is that it becomes impossible to term China to be a capitalist society without either arguing that history was regressing or to throw away Marxist theory altogether. Both were considered to be unacceptable.
So the solution that the Chinese Communist Party came upon was to redefine socialism and to argue that socialism was not incompatible with economic policies such as markets, free trade, or anything else that appears to work. In current Chinese Communist thinking, China is in the primary stage of socialism, and this redefinition allows the PRC to undertake just about any economic policy it wants without running into theoretical difficulties or without undermining its justification for existence.
Another problem with the formula is that if you can't use theory to decide what to do and the experiences of other nations is not generalizable then what do you do. The answer is to use Deng Xiaoping's dictum seek truth from facts and just do whatever seems to work. In this sense, Chinese statesmen usually follow this line: "China respects the diversity of the world. There are nearly 200 countries in the world with a population of more than 5 billion. There should not and cannot be only one mode of development, one concept of values and only one type of social system in the world due to differences in historical conditions, social systems, development levels, cultural traditions and concepts of values."
The final objection is the most serious and one which with which the Chinese Communist Party is still trying to deal. The problem is that much of the attraction of Marxism as a theory is that it offers a total view of the world (i.e. it claims to explain everything with scientific certainty). The Chinese reformulation of Marxism removes this attraction and therefore requires the CCP to find new sources of support to justify its rule. The general response of the CCP has been to move toward Chinese nationalism as an emotional motivator.
