Economic–social interaction in China1

This paper analyzes economic–social interaction in China in connection with the country's change of economic system. I define an economic system in terms of a multi‐dimensional vector of broad institutional characteristics, and I emphasize that important features of the social development are closely related to specific changes in these various dimensions. I classify China's options for future social improvements into three broad categories: (i) policies that improve the stability and distribution of factor income; (ii) government‐created wedges between factor income and disposable income; and (iii) improvements in the quantity, quality and distribution of human services, such as education and healthcare.