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more fully liberalized than its factor markets. The percentage of prices for commodities set by the state has fallen significantly. At the beginning of reform, in terms of aggregate value, the state set the prices for 93 percent of agricultural products, 100 percent of industrial production materials, and 97 percent of retail commodities.123 In the mid- 1990s, according to Thomas Rawski, market forces determined the prices of 93 percent of retail commodities, 79 percent of agricultural products, and 81 percent of production materials.124 An official Chinese government research report claimed that in 2000, the prices of 90 percent of agricultural products and 86 percent of production materials were set by the market.125 But these numbers may have greatly understated the government’s effective control in setting prices. One Chinese economist argued that the government’s ability to set prices for coal, steel, railroad transportation, crude oil, electricity, and other goods and services gave it enormous influence. As a result, only about 60 percent of the prices in China in the mid-1990s were fully set by the market.126

In the factor markets, the state has maintained considerable control. By one estimate, the level of marketization in the labor market was below 30 percent in the mid-1990s because of the government-imposed restrictions on the labor market, especially on the flow of rural labor into the cities.127 But two other estimates suggested a higher level of marketization (in the range of 65 to 70 percent).128 The state continues to dominate the real estate market, mainly through its ownership of land and restrictions on land transfers. Similarly, the market for corporate control has not fully emerged in China as a result of government limits on transfers of ownership rights. China’s progress in developing a market for technologies has been very slow due to the weak protection of intellectual property rights. 129

Without doubt, the financial sector remains the least marketized. Even the State Planning Commission admitted in its own assessment in the mid-1990s that the level of marketization in the financial sector was only 28 percent.130 Rawski’s study also confirms that China’s capital market is least liberalized. Such conclusions are not surprising, given the government’s direct ownership of the largest banking and other financial institutions and its tight control over access to capital. The distorting effects of low marketization on economic activities seem to be very large. Rawski argues that the government’s control over investment is responsible for a pattern of macroeconomic behavior indicative of a command economy, instead of a market economy. His study of the seasonable fluctuations of the Chinese economy shows that its quarterly performance is erratic and volatile, with huge growth registered in the fourth quarter and large declines occurring in the first. Because growth in China is largely investment driven and the government maintains control of most investment capital, Rawski believes that such fluctuation is evidence of the government’s strong influence in the economy.131

The degree of marketization also varies significantly across regions. Estimates by Chinese economists suggest, for example, that the most marketized regions scored three to four times higher than the least marketized regions on a range of indexes approximating progress in moving toward a market economy.132 A study led by Fan Gang shows that, in 2000, Guangdong was ranked as the most marketized province (scoring 8.41 on a 0-10 scale); it was followed by Zhejiang (8.32), Fujian (8.10), Jiangsu (7.90), and Shandong (7.15). By comparison, the least marketized five regions were Xinjiang (3.15), Qinghai (3.40), Ningxia (4.02), Shaanxi (4.15), and Shanxi (4.53).133 The results of this study reconfirm conclusions reached by previous, albeit less rigorous, analyses that demonstrated that coastal provinces were more marketized than central agrarian provinces, which were, in turn, more marketized than the western region.134

Fragmentation of