A statue of Deng Xiaoping, the Chinese politician who introduced the socialist market economy to China.
The transition from a command economy to a market economy requires adjustments in legal, economic and political institutions and a significant implementation period. One of the most important changes is that government-controlled industries must go into private hands and prices must be determined by the market. At the same time, major adjustments must be made to the financial system to ensure that private companies seeking to get involved in new projects can obtain funds. New ways of doing business must be introduced and laws passed to regulate new customer relationships. New foreign investment laws must be passed to open the country to foreign investment, and customs regulations and tariffs may need to be modernized.
The legal system needs to be adapted to include definitions of new private forms of doing business, such as limited liability companies, partnerships, and sole proprietors, and contract law may need to be expanded. New business laws must be passed to regulate business operations and introduce the protection of private property. A new judicial system and training of lawyers must be introduced to ensure that private companies can enforce their contracts. The transition to a market economy requires new accounting and corporate laws to introduce the concept of accountability to shareholders and define the responsibilities of directors.
The banking system will need to adapt to ensure that it is up to the task of evaluating private company projects and making decisions on lending to private companies. There will often be a legacy of non-performing loans to government-owned industries and decisions will need to be made on how to deal with this. Banks will have to deal with the concept of venture capital investment and venture capital investments in start-ups. In the transition to a market economy, banks may need to adapt to a customer service mindset and learn to deal with small businesses and entrepreneurs.
The tax system must be adapted to move towards the idea of taxing the income and profits of natural and legal persons. The transition to a market economy may require the introduction of new business taxes, such as a sales or value-added tax. Foreign trade should be facilitated by amending customs laws and regulations, including a measure to reduce tariff and quota barriers for foreign products. Investment protection laws may need to be introduced to promote foreign investment and protect investors from asset grabbing or nationalization. New international treaties may need to be negotiated with trading partners regarding investment and taxes, and the country may need to join international organizations such as the World Trade Organization (WTO) and the World Customs Organization (WCO) .