Beijing Law Review
2013. Vol.4, No.2, 55-60
Published Online June 2013 in SciRes (
Copyright © 2013 SciRes. 55
Legal Support of Planning in the PRC
Olga Kucher
Institute of Economics and Legal Research of the National Academy of Sciences of Ukraine,
Donetsk, Ukraine
Received February 25th, 2013; revised March 28th, 2013; accepted April 5th, 2013
Copyright © 2013 Olga Kucher. This is an open access article distributed under the Creative Commons Attribu-
tion License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original
work is properly cited.
Looking at the People’s Republic of China (PRC) reforms it is necessary to mention that they were not
resulted from foreign experts or from other countries experience they were a result of a long term Chinese
strategy. This strategy includes such aspects as economy system, social benefits national safety provided
that PRC is open to international influence. This long term strategy has its main tools of planning system.
With the help of such system government can control all market processes which, for sure, lead to the
growth and success in economy. Alongside of such model, Chinese government before and nowadays use
methods of direct and indirect regulations as well as administrative influence. It means that such govern-
ment interference in market process will make state structures powerful and experienced players in this
game. It is necessary to say that in the period of globalized world economy multinational corporations
started influencing all processes more and more, and we need to review role of government regulation. In
this work next step will be directed at legal support and identification of effective government functions
which can influence and control private sector. These government functions regulation can help to create
balance between state, private assets and international organization in order to have a good basis for
competitive world economic position. The article has a purpose to analyze key features of Chinese plan-
ning system, distinguish peculiarities and apply to other systems. In the article following methods are
used chronological development of the system starting from the beginning; dialectical method of making
conclusion basing on facts; and elements of comparative analysis. Result of this article is opportunity to
apply such characteristics to other countries.
Keywords: Planning System Genesis; Asian Planning System; Legal Mechanism; Legal Support
Nowadays world known scientists are divided into two op-
posite groups because of their opinions. The first group is cer-
tain that society need to have more liberalized economies which
can provide more development. The second one thinks that
planning economy is one of the most disciplined and stimula-
tive for stable economic growth. Those who are against plan-
ning system give a lot of arguments and justify their opinions
by the fact that market system and planning system can not
coexist, because they are mutually exclusive. The second group
supposes that it is possible to integrate these two systems.
Both groups of scientists can be backed up with the recent
historical precedents where it is possible to find economic re-
forms which we are going to research and consider and which
we are going to base on.
Firstly, so-called “shock therapy”, which comprises several
stages such as transference of governmental assets into private
ones. This way includes economic reforms on inside as well as
outside liberalization process and enterprises formation and
their maintenance. To sum up, it is a fast track from govern-
mental to private sector (Selishchev, 2004). Such scenario of
reforms is a typical feature of number of countries such as
Ukraine, Russia, Poland.
Secondly, so called “a gradual reforming system” which does
not consider full asset transference at all but insists on only
partial assets between governmental and business sector. In this
scenario government influence is the strongest and it has a right
to decide when and how much to transfer to a business sector.
Such transference is presupposed by situational necessity inside
the state (Selishchev, 2004). Such option was chosen by the
PRC and it is seen that the system approved itself and can be a
vivid example for other countries especially after crisis period.
As a consequence, it is a base for this work.
Among scientists who consider that market needs govern-
ment regulation there are leading Chinese economists and law-
yers such as Zhou Xincheng, Liu Guoguang, Lee Ji Shen. They
work with these questions and their views can be added to each
others’ ideas. The main message of this group is that market is
vulnerable to continuous recessions, high inflation and unem-
ployment. Market can not liquidate negative factors such as
polarization of population incomes, unequal regional develop-
ment ecological cataclysms. Market can never provide national
interests and needs. Markets react only at pay ability and buy-
ing powers.
Consequently, markets without government regulations can
lead to negative results and absolutely damage government and
state strategy, which have happened in many countries. That is
why, government interference and regulations is a necessity for
any state development.
Planning System Genesis
Being a method of government regulation planning has got a
fifty year history development.
First, discussion of this system started to be developed and
implemented in 1930s in Western European countries and
some developing countries such as Mexico and India. The
result of this discussion was the first plan creation.
Secondly, in 1937 in the United States of America (USA)
there was a scientific article published and a new book
“Theory of national economy planning” was introduced. In
this stage a planning system had anti-crisis nature and all
scientists were sure that markets could not exist without
government regulations (Atamanchuk, 2000).
Shortly after this, in the Union of Soviet Socialist Republics
(USSR) a New Economic Policy started and this policy fi-
nally showed that market could be regulated by the gov-
The difference between development of these mechanisms is
that in the USSR market processes were completely abolished
and planning system was introduced but in European countries
where there were attempts to make markets work under gov-
ernment regulations and control. That is why, for them it was
very interesting to watch and analyze American experience
because European community believed that such combination
was a right to exist. Foreign experts’ interest was gradually
growing and increased after the USSR published their first
Fife-Year Plan and started working on their long term Fifteen-
Year Plan, so called strategic plan (Lortikyan, 1995).
More than that, some conceptual changes of understanding
classical capitalism took place. These changes were connected
with “New Deal” Franklin D. Roosevelt. The Franklin D. Roo-
sevelt course was based on principles:
Firstly, government regulation economy with restriction in
monopolistic positions;
Secondly, state control of monopoly activities;
Thirdly, planning system elements (Pawlowski, 1997).
The results were impressive and met expectations. That is
why, the USA government decided to borrow some elements
and implement them into their planning system.
At that time, the USSR planning was a powerful and central-
ized system with a lot of branches. This system was backed
with legal documents, which detailed and described all inter-
pretations from different angles (Shvetsov, 2009). That is why,
it functioned effectively. But in 1985 because of economic
crisis and irrational political decision it was destroyed. It can be
explained by the Soviet Institute establishment destruction and,
as a consequence, ineffective management of this system.
Meanwhile, American and European countries government
using, as we mentioned earlier, elements of the USSR planning
system created indicative planning which proved to be effective
(Mamutov, 1982). Evaluating the USSR experience, it is pos-
sible to say that system stopped working because of irrational
political steps, but not because of planning system nature
(Lortikyan, 1995).
Nowadays concepts of planning are used in many countries
and it does not depend on their political and economic strategy.
In the world it is possible to recognize 3 types of planning
Firstly, North American model (the USA, Canada);
Secondly, European model (France, Sweden);
Thirdly, Asian model (the PRC, Japan, South Corea).
For this research, it is interesting to focus on Asian model.
Asian Planning System Characteristics
Planning System Evolution in the PRC
Development of planning system was provoked with changes
in economy. Retrieval from command-administrative system
into market took place in all spheres of social and economic life.
It included also changes reforming institutions such as Institute
of Ownership of Government Regulation and of Legislative
Bodies. These changes led to creation of new ones. So far, the
PRC has been dealing with planning for more than 50 years.
Planning was created in the period of planning economy and it
is being created now in the period of “socialist market econ-
First planning program was introduced in 1953 and at that
time the USSR experience was used as a base. The PRC annual
and Fife-Year Plans were created on the basis of the USSR
plans and sometimes were named as “plan of national econ-
omy” (narodnokhozyajstvenij plan) (Shi Tszichun, 2007), exact-
ly as such plans were named in the USSR at that time.
According to Chinese leading specialists such retrieval from
command administrative system into market one was carried
out on the basis of “territory and sector” principle (Mikheev,
So called “territorial principle” means that market mecha-
nism was introduced into special economic zones and
coastal areas of the PRC. After successful results this me-
chanism expanded into the center of the country.
So called “sect oral principle” means that market relation-
ships were firstly developed in such spheres as small and
medium-sized enterprises (SMEs), services, export manu-
facturing. These sectors were chosen for such experiments
because they are not essential for the state and can be ex-
perimental models.
If we analyze planning system evolution in the PRC, we need
to say it completely differs from the process of indicative plan-
ning evolution in developed countries. In developed countries
government regulation is a new element but necessary for mar-
ket system and, as a consequence, it was imposed from out-
side. In comparison to developed countries, in the PRC new
market elements were fixed in an existing government regu-
lation. In this way market mechanism changed goals, methods,
ways of plans implementation. So, it means that Chinese re-
formates did not copy European model but created their own
system. This model was named as “a process of crossing the
river trying to identify stones at the bottom”. This is a quote of
one of the most famous Chinese reformates Wang Xiaoqian
(Shen, 2002).
Even, in a period of Door-Opening Policy Chinese ideolo-
gists proved themselves as tolerant, patient and alternative to
foreign ideas but they saved their originality and independence.
This was reflected in the philosophy of such schools as Confu-
cianism, Taoism and Legalism. All foreign ideas had a right to
exist and be used, but the main beacon was a Chinese strategy.
As a result, Chinese model was created as a symbiosis of all
tendencies with one and the same denomination. Such Chinese
reformates basing on Confucianism principles said that it is
possible to use any ideas if they do not contradict to each other
and principles of humanity and if such ideas affect family and
state positively (Pakhomov, 2008). These ideas worked all the
Copyright © 2013 SciRes.
time and they are actual nowadays.
When Chinese reformers studied and analyzed some of such
new ideas they had to stick to their government authorities in-
structions. It was considered as a moral principle for them. The
reason why we mentioned this fact is that the same principle is
essential for planning system: if you plan something in econ-
omy, you have to know links between different economic spheres.
Planning is a process of organization of those links. Prognoses
in economy are based on such links.
Chinese economic system is a system that is able to combine
different and opposite ideas which can be mutually exclusive in
other contexts. This demonstrates successful combination of
market principles and government regulation (Pakhomov,
2008). Chinese leaders not only examined and implemented
foreign ideas but also diversified and moved them in different
angles taking into account government strategy and goals.
As a result, they took the best ideas from Western market as
well as they selected effective Soviet practices. Using Soviet
effective practices we mean a long period of time when a New
Economic Policy was created. Such practices proved them-
selves viable even in the period of 1979 when Western coun-
tries imposed a trade embargo on the PRC. At that time Chi-
nese governmental bodies made a decision to implement USSR
development economic model. The specific features of this
model were:
Centralized planned economy and government regulation;
Economy growth as a main focus;
People, raw materials, financial resources were used to re-
alize ambitious projects (Selishchev, 2004).
The first experience in marketing reforming of Chinese eco-
nomy was made in 1980s. It was connected with agrarian
sphere and private sector, development in industry. These chan-
ges influenced all aspects of strategic regulations. As a result,
centralized system started being transferred into decentralized
system. A lot of economic figures happened to be under control
of ministries, controlling organs, government agencies with the
help of economic instruments such as taxation, loans, interest
free loans, government purchases. Government influence was
transferred into indirect form.
The PRC did not make “a shock therapy” but used “gradual
approach” to transition from the old system to a new one. It can
be explained with the fact that Chinese economists used 2 crite-
ria about how reforms can be made:
The first criteria is that reforms need to give a real effect for
absolute majority of population;
The second criteria is that a reform implementation cost
must be value for money (Pakhomov, 2008).
“Gradual Appro ach” to Transition from the Old
System to a New One
“Gradual Approach” Comprised Different Steps.
The first stage is from 1978 to 1991. This step was devoted
to the development of a tool how to combine market and plan-
ning systems with a leading government role. The first legal
documents which provided the idea of planning was so called
government program “a Project of Reforms of Economic Regu-
lations”. This project was implemented when Deng Xiaoping
was a Chinese leader. This program declared a leading role of
Chinese government and principles of planning (Li Chi Shen,
2002). In 1982 the first plan was created. Its name is “a Plan of
National Economy and Social Development”. This plan fo-
cused on appealed to the world development tendencies that
were based on building economy which takes into account an
increase of living standards of people (Ian Yuntsyu, 2010).
The second stage is connected with a new leader appoint-
ment. His name is Zhao Ziyang and he was appointed in 1992.
He took a New Course of Reforms to form a policy with the
help of which he could use market elements in socialism. So the
main idea of the second step was to develop driving forces or
work with a help of planning. If market stimulates workforce
increase, it does not conflict with principles of socialism.
At the same year, on the International Conference of the
United Nations Organization (UNO) on Ecology and Develop-
ment, the PRC was recognized as the first country that accepted
such program with the name “The 21-st Century Program”. The
PRC is the first country in the world which published in 1994 a
long term strategy development program (Selishchev, 2004).
In the 20th century, they came from directive to indirect
planning and it is possible to name four forms of planning in
the indicative planning. These four forms are based on criteria
of enterprises importance for government tasks fulfillment, that
is what role this or that enterprise plays in the governmental
The First type of enterprises which produce strategically
important and essential types of goods to provide govern-
ment with necessary raw materials due to governmental
purchase. Such enterprises deliver high gross output of in-
dustry and agriculture with the small range of products. It is
almost connect with natural resources and agriculture.
The Second type of enterprises is those which change their
production line due to the market processes and in accor-
dance with the state plan. The first type makes gross margin
for the state, but the second one introduces major part of
SMEs but without big margin.
The Third type of enterprises includes production of goods
which are regulated by the state plan mostly and in minor
part by economic supply and demand.
The Fourth type includes enterprises which are mostly regu-
lated by market processes and only a small part is regulated by
the government.
The third stage of development strategy in Chinese planning
was in the 21-st century. The goal of this stage was to increase
level of economy to high standards in developed countries. This
stage brought in the PRC from administrative to planning
economy system. This stage was based on ideas developed by
Deng Xiaoping. These ideas are popular now. He said that the
PRC built “socialism with Chinese specific features” (Sukharev,
2001). It is not only theory. It is a mechanism which can work
in practice. This mechanism can be defined as a program with a
long term strategic plan.
One of the reasons of high economy level in the PRC is the
fact that Chinese reformers while reforming something assessed
results of success or failures with special criteria. This helps to
develop production and improve living standards. For Chinese
reformers, development was a goal, stability was a prerequisite
and reforming is a driving force.
“Socialism with Chinese specific features” means market
with socialistic economy and this term is an official one which
we see in Chinese Constitution. As Institution, we understand
socialism as a variety of business forms with state power
dominance above collective property. This mechanism is based
on market self-regulation with powerful macro-economic state
Copyright © 2013 SciRes. 57
Five Directions of Changes in Planning System
During three chronological stages of development it is possi-
ble to point out 5 directions of changes in planning system
(Kuzyk, 2008). These directions were reflected in “the Re-
form and Opening Up” concept.
First direction was spotted before 1980s (so called the sixth
Five-Year Plan). The idea of this direction was a quantified
assessment of agriculture and industry. Social sphere left
behind this figures. Later, these figures would become fig-
ures of economic and social development and also it in-
cluded environment and protection of natural resources.
Second direction started in 1990 (it was the eighth Five-
Year Plan). It was the first time when they started to create
long term plans for 10 years. Consequently, in 1996 when
the ninth Five-Year Plan started, Chinese reformates pre-
pared long term 15 year plan.
The third direction was focused on transition from com-
mand into market economy. Directives power decreased
and indicative planning power grew. Figures of planning
changed their function and they started predicting more
than indicating.
The fourth direction was connected with the growth of re-
gional planning. At that time government planning had a
predictable character and regional figures showed real si-
The fifth direction was connected more with high technolo-
gies and information resources. Nowadays, business envi-
ronment has more power for corrective actions. This direc-
tion helped enterprises meet expectations and reach planned
figures using more technologies and information resources
which make them more flexible and advanced (Kuzyk,
As a conclusion, Chinese planning system had a complicated
vertical and horizontal development in terms of state and busi-
ness relationship as well as interaction of different spheres. In
this development Chinese reformates reached the first goal to
regulate economy structure and illuminate disproportion. More
than that, they managed to have multisided strategic regulation.
Modern Legal Mechanism of Planning
in the PRC
Plans by Spheres
Nowadays the PRC has multilevel system of legal regulation.
They use 2 methods: direct and indirect. Usage of these meth-
ods depends on different business forms which define owner-
ship of such enterprises. Though, Chinese main approach to
planning is a complex balancing. All businesses are considered
in government planning and they have to drive this plan. The
reason for this is that government can control development of
these businesses (Тymoshchuk, 2005). That is why, we can say
about 3 types of planning: planning by programs, planning by
objects, regional planning and planning of branches.
Planning by programs means that it is necessary to develop
programs for economy development. Such programs play
the main and driving role among others. It concentrates on
macro-economic policies.
Planning by objects is mostly controlled by government
goals and aims and considered as a means of primary func-
tions. For example, this type of planning was used in build-
ing railway in Tibet or hydro-electro station on the Yangtze
River. This type of planning is rooted from planning by
programs. It helps to locate these objects on the territory to
distribute natural resources effectively.
Regional planning and planning of branches. Regional
planning is a plan created by regional government and au-
thorities. It is a level of provinces. These plans must be in
compliance with planning by programs. Regional planning
is concentrated on the situation in the region. Planning of
branches takes into account some tendencies in different
industries. It is closely connected with technological and
business specific features also it considers inter-industrial
integration. These plans help to analyze tendencies of the
market development inside the country. These plans make
the country be competitive on international level (Kuzyk,
Plans by Terms
All plans such as by programs, objects, regions and branches
can be divided into long term (10 - 20 years plans), middle term
(5 years plans) and short term (1 - 3 years plans).
Long term plans are based on planning by programs. They
focus on economy, science, new technologies and innova-
tions in social spheres. Such plans do not include details but
they concentrate on economic growth, main objects of the
economy, economy policy and main measurement with the
help of which it is possible to implement such strategic
plans. Such long term plans play the main role in the plan-
ning system.
Chinese specialists explain this fact with 3 reasons:
1) When we create long term plan it helps to use scientific
technologies at full capacity including scientific prognosis as
well. In such long term plans it is possible to take into ac-
count real prognosis. It is more accurate to assess economy
in such prognosis and make rational and correct conclusion;
2) Such long term plans can improve industrial development
and technological structure;
3) Long term plans have several functions such as mobiliza-
tion, stabilization and stimulation of inhabitants activities
(Kuzyk, 2008).
Middle term plan is a bridge between long term and short
term plans. This kind of planning is focused on details:
1) Economic growth pace;
2) Main assets for natural economy development;
3) Spheres and impacts of capital investments;
4) Problems which are connected with development and im-
plementation of science and technological progress results;
5) Living standards of rural and village settlements;
6) Usage of natural and environmental resources in effective
way under government control;
7) Birthrate and natural demographic growth;
8) Measures to implement strategic plan (Popova, 2008).
Short term planning considers and includes aspects of middle
term plans. Results of short term plans are combined in long
term plans. As an example we can analyze situation in 2000
when Chinese government in their long term plan set a goal to
improve industrial development. That is why, in the middle
term plan they decided in which region it could be more effec-
tive taking into account laws about natural resources, birthrate,
labor force in different regions. Consequently, in the short term
Copyright © 2013 SciRes.
plan they set concrete tasks such as construction process, labor
force management, etc.
Legal Process of Planning
Chinese lawyers have two approaches to back up reforming
procedure legally.
The first approach, they can make up laws which they need
on the basis of strategic plan which can be made from Pro-
grams of Economic and Social development. For example,
if we take the tenth Fife-Year Plan of economic and social
development (2001-2005), one of the goal was to imple-
ment a Five-Year employment scheme in which it was nec-
essary to provide agricultural sphere with labor resources.
According to this, they had to reach 40 ml employment
level in agriculture and maintain urban employment level at
more than 5% intentionally. Certainly, a new law about
employment appeared. One more goal of this program was
to encourage development of SMEs. To realize this goal in
2002, a special law was created. It was called “Small and
medium-sized enterprises stimulation” (16). This is how the
first approach works.
The second approach to law making process can be formu-
lated as a creation of sub-laws for separate branches. Basing
on economic and social plans, lawyers study which laws are
needed for this or that sector. In comparison to the first ap-
proach, the second one allows to avoid some laws which are
not needed for this or that branch. It is like a tailor-made
law making process. Sub-laws are created as experimental
ones. If such laws give positive effect then government can
make a law for the whole country (Ian Yuntsyu, 2010). To-
day, if we look at the system of laws in the PRC we can see
that Chinese lawyers need to summarize the whole legal
procedure while they are preparing some laws.
Mechanism of Law Making Process in Different
Types of Programs
It has following options:
“From up to down”;
“From down to up”;
“Combination of these both options”.
If we say about long term and middle term plans we have the
following procedure:
First of all, the government creates recommendations about
figures and results that they would like to see and send these
numbers to all regions. Regions work on these recommenda-
tions and prepare drafts and after this they send these recom-
mendations back to the government. The government improves
such plans, and taking into consideration all aspects prepare the
final program of economy and social development.
Five stages of law making process in different types of pro-
The first stage is to create programs for economy develop-
ment. The government considers a macroeconomic model
and the strategy for development focusing on certain re-
gions. These regions must be developed more than any oth-
The second stage is to create development plans for all re-
gions taking into account main objects of the country. Such
plans are created by institutions and province administration.
All of those parties, taking into account prognoses of eco-
nomic and social development plans with supply and de-
mand market laws, create these plans. They do this in a
form of consulting meetings taking into account all opin-
ions of interesting parties and shareholders. After such
meetings, as a result, they get a project plan. This project
plan is usually given back to the government for confirma-
The third stage of law making process is based on planning
by branches. This plan is closely connected with previously
discussed stages. Here government institutions create pro-
grams of development for different branches taking into
account demand and supply in this sector. When they have
a project of planning in branches, sectoral institutions check
these programs in forms of all aspects and after conforma-
tion they approve them as documents.
The fourth stage is connected with regional program devel-
opment. Regional institutions prepare project of regional
plan which must be in connection with government pro-
gram of economic development. It can be explained with
the fact that all these planning programs have their own in-
fluence on strategic development program. This project of
regional program must be discussed and adopted on a
meeting of local level and after this it goes up to the gov-
ernment institutions.
The fifth stage is correction in all types of programs. Ini-
tially, strategic development plans give general figures but
after it goes to regional or sublevels, number and figures are
checked and adopted. After this moment these figures can
not be changed at all. All such corrections have regulatory
nature (Kuzyk, 2008).
Having analyzed, this information we can make following
Firstly, planning is actual and essential for economic growth.
Secondly, it is one of the main regulatory functions of gov-
ernment, which we can analyze in Chinese economy. With
legal instruments, the PRC made effectively functioning eco-
Thirdly, accumulated experience shows that mechanism that
was formulated in Chinese legal system could mitigate negative
results of crisis. This mechanism proved to be vital in creation
of market economy with strong government influence and it
helped the PRC to survive in the world crisis. With the help of
planning system it is possible to stimulate the world economy
use different resources effectively and rationally.
Fourthly, Chinese model showed that it is possible to com-
bine market mechanisms with government regulation of econ-
omy. That is why, in the PRC we can see multisided economy
where private Foreign Direct Investment (FDI) and government
sectors functioned together.
Fifth, in creating a market economy the PRC has not de-
stroyed their planning system. They showed a specific model
where we could connect planning and market relationship. It is
possible to come from command methods of regulation econ-
omy to market, from directive to indirective. Chinese model
demonstrated that liberalization in contrast with shock therapy
moves to its aim gradually.
More than that, Chinese lawyers and economists proved that
socialism can function together with market. Social economy
mechanism can be based on planning and market systems. They
do not contradict each other. With corresponding legal basis,
Copyright © 2013 SciRes. 59
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planning works on macro-level and market system on micro-
level, but in Chinese model they have influence on each other.
Chinese reforms turned out to be successful because society
of Chinese people are not consuming but they have strict prin-
ciples of consumption basing on Confucianism’s principles.
These principles say that motherland is more important for
them than own success and wealth. The most surprising feature
of this process is combination of traditions and modernization.
These days it is very important to use this mechanism of
harmonization during reforms in order to combine planning
system with innovations and new technologies. That is why,
strategic planning has the main role in strategic development.
This concept of planning because of long term, middle term
and short term plans with exact goals and real figures makes
effective model. Chinese government institutions can easily
change some mechanism in planning system because this sys-
tem is flexible. And this fact allows to connect the whole sys-
tem with some changes in the world and in the country.
Today, planning is not a centralized directive plan with fig-
ures which need to be done, but it is like one of the element of
government regulation which allows to reach developed econ-
omy. Strategic planning gives opportunity to have milestones to
develop countries or see the way how to develop country and
presuppose factors which could influence other countries. That
gives maximum competitive advantages to international econ-
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PRC: People’s Republic of China
USA: United States of America
USSR: Union of Soviet Socialist Republics
UNO: United Nations Organization
SMEs: Small and Medium-sized Enterprises
FDI: Foreign Direct Investment