The Transformation of China’s Economic Policies the 1980-2000s

Subject: History
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China before the 1980s

China is often referred to as the superpower to come and one of the most dynamic emerging economies. This growth is achieved during the past three decades. New economic and diplomatic policies account for the transformation of the country into one of the leading powers in the world. Before looking into the particular steps the country undertook, it is necessary to consider some trends that occurred in the middle of the 20th century.

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Although the Chinese economy was developing at a high pace at the beginning of the 20th century, the country’s achievements were completely lost during the following decades. Thus, the Great Depression had a detrimental impact on the country as it was accompanied by the change of the political system after significant social and political unrest as well as numerous military conflicts. Thus, the Japanese invasion in the late 1930s brought to the fore the communist party as thousands of Chinese people joined the Worker’s and Farmer’s Red Army and CPC to fight against the invaders.1 This empowerment of the Communist Party enabled Mao Zedong to become the sole leader of the country.

Mao Zedong was a brilliant Marxist leader, but the leadership often proved to be rather incompetent when it came to the economy.2 The Chinese planned economy stagnated as it was highly centralized and political and ideological rather than economic goals were often prioritized. For example, policies associated with the Great Leap Forward or the Cultural Revolution cost millions of lives and the stagnating economy.3 After the death of Mao Zedong in 1976, the reformist wing of the CCP led by Deng Xiaoping took the control of the party, and the country entered a new era of economic reforms.

The leader had to implement dramatic changes within a short period as the entire country was stagnating. The level of poverty was extensive, and the proximity of one of the so-called “Asian Tigers” (Hong Kong) created an unfavorable image of the socialistic paradigm. More so, people tried to escape from China. For example, over 500,000 people moved to Hong Kong between 1954 and 1980, which is often referred to as the “escape to Hong Kong”.4 Deng also visited such countries as Japan and witnessed the benefits of the capitalistic approach. He decided to change the economic agenda in the country to address numerous issues China faced.

Deng Xiaoping’s Leadership: Liberalization and Urban Development

The Chinese economy was in ruins, and Deng Xiaoping understood the complexity of the situation. Therefore, during the 11th National Congress of the Chinese Communist Party in 1978, Deng claimed that the country had to stop the “irrational class struggle” and concentrate on economic development.5 Notably, the talented reformer kept the political agenda and insisted on the rule of communist ideology, the leadership of one (Communist, of course) party and the socialistic approach.6 It is also important to add that the economic reforms were implemented alongside certain changes in the political sphere. Most importantly, Den Xiaoping undertook three major steps to mitigate the centralization. He enhanced the power of provincial leadership, made sure that there were no “reform losers” and utilized the “easy-to-hard sequence of reforms”.7

Deng believed that the major reason for the collapse of the Soviet Union was the failing economy and inability to develop.8 The Chinese leader managed to persuade the ruling elite that it was crucial to open the economy, enter the globalizing world and allow entrepreneurs to become wealthy.9 At that, he understood that some policies will be inconsistent with the communist ideology, but it was irrelevant for Deng who focused on the development of the Chinese economy. Thus, the policy of openness began in Fujian and Guangdong Provinces that were the most underdeveloped at that time. However, these provinces also had the most potential due to their geographic location (proximity to Hong Kong) and the population that had vast experience in entrepreneurship.10 Trade liberalization, as well as vast foreign investment (from Hong Kong), led to the considerable development of the region, and the two provinces became illustrations of the effectiveness of the economic policy of Deng and his supporters.

Cities were developing rapidly, and liberalization contributed to this process immensely. Deng managed to encourage people to start their own business and ensure more conservative officials that this was consistent with the Marxist ideology. For instance, after the policies associated with the Cultural Revolution, people started returning from rural areas. The government was unable to employ all those newcomers, and people were allowed to become self-employed. Many people started successful businesses and not only could be self-employed but could employ others, which was seen as exploitation by conservative officials. It was decided that employing up to eight people was not exploitation. At that, businesses developed, and entrepreneurs managed to employ several hundred people. Sometimes entrepreneurs were arrested for ‘exploitation’, but the economic sector was gradually becoming more liberalized.

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Another effective move was the dual-price system introduced in the early 1980s. The system implied that state-owned enterprises obtained an opportunity to sell their products exceeding the plan quotas. Importantly, the prices were established (planned) as well as market-driven.11 This made the Chinese market competitive, which led to the unprecedented development of industries. One of the illustrations of the growth in the steel industry.12 Private owners got shares in state-owned steel-producing companies. The Dual-price system also contributed heavily to the development of the industry. Importantly, the growth of the automobile, real estate, and consumer electronics sectors facilitated the growth of the industry. The entry into the global market was one of the most significant stimuli for the further development of steel enterprises. It is important to add that the growth of industries was also stimulated by the promotion of the foreign direct investment of the sector and export orientation.13

Apart from the development of entrepreneurship, privatization was another basic cornerstone of Deng’s reforms. It lasted ten years from 1993 to 2003 and contributed greatly to the development of the Chinese economy. Before the 1990s, it had been accepted that state-owned enterprises are “the foundation of the socialist economy.”14 However, it was evident that the centralized management was inefficient, which led to poor performance and stagnation of these enterprises. Importantly, the government (central as well as local) could not maintain all those failing organizations as due to the Asian crisis of 1997 the state-owned banks could not provide “stability and unity loans” to state-owned enterprises.15 Gradually, state-owned organizations turned into joint-stock companies that, eventually, transformed into public companies. This attracted extensive foreign investments and led to the development of the Chinese economy.

Finally, entry into the global market was another important step to a more efficient economy. One of the examples of this process is joining the World Trade Organization. It was essential for the country as membership in the organization required particular changes in various sectors of the Chinese economy. Deregulation and liberalization were key requirements China followed. The membership in the WTO also opened new markets and led to increased international and domestic investment. It also led to the development of managerial capacity as Chinese companies had to compete with well-established international businesses.16

It is important to add that the easy-to-hard policy was beneficial for the development of the country. At that, it led to rather disproportional growth. For example, the higher degree of liberalization in the eastern regions resulted in a considerable concentration of foreign investment and industrial growth in the area. In the 2000s, the eastern regions produced almost 60% of the country’s GDP, more than 60% of China’s industrial value-added, 85% of the country’s foreign direct investment inflow and around 90% of China’s exports. 17 This trend is still persistent, but it does not undermine the substantial achievements of the Chinese economy. Thus, the country’s GDP in 2005 was eight times more than the GDP in 1978 when the reforms started.18 The foreign investment grew from $57 million in 1980 up to almost $53 billion in 2002.

Technological Development

Of course, the economic miracle China displayed was impossible without technological development. The policies of the Mao era were characterized by centralized planning and bureaucratization. These features slowed down any development and innovation in all the sectors of the Chinese economy.19 Deng understood the benefits of innovations and technological development and paid significant attention to this sphere. It is necessary to add that innovation was the core priority for the Chinese government that enacted the law (in 1983) that brought into play “the role of science and technology as the primary productive forces.”20 The governmental support translated into the rapid development of various research institutions both governmental and commercial.

The innovation in the Chinese economy was characterized by two paths. One of these was the adoption of Western technologies. Researchers argue that underdeveloped countries often adopt innovative technologies used in developed countries, which leads to their growth.21 This model enables underdeveloped countries to reveal extensive economic growth within a short period. China also benefited from this approach as the country heavily relied on the use of Western technologies. Moreover, being a late-comer, China produced such innovative products as cars, airplanes, computers and so on, which were innovations from the West. The Chinese companies often imitated products and services produced in Western countries. They managed to obtain large profits and expand considerably as they did not invest in the development of innovative products.

The path of adoption could not account for such an unprecedented growth of the economy and society. The second path was genuine innovation and technological development. Importantly, Deng understood the importance of education and, hence, promote the significant “rebuilding of the country’s human and physical infrastructure.”22 Thus, the CP League was also established among Chinese universities.

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The Chinese Academy of Sciences became one of the most successful research institutions in the country as well as the entire world. One of the most important steps undertaken was the change of the institution’s management. In the Mao era, the assignment of administrators was highly politicized, which resulted in poor performance of the Academy. However, in the early 1980s, leadership posts were given to talented managers and scientists. In 1987, the institution adopted a new system of administration often referred to as ‘one academy, two systems’.23 The system implied that the academy’s researchers worked on the governmental as well as commercial enterprises’ projects. It is noteworthy that CAS invested in many high-tech companies, which led to the development of the innovation and development of industries. It is possible to mention various technological advances of that period. For instance, high-power laser devices produced in Shenguang, free-electron laser produced in Beijing, first physical mapping of the rice genome, different types of meteorological satellites are only a few innovations. Interestingly, CAS also invested directly into the project that resulted in the creation of Chinese-language processing computer cards, which resulted in the establishment of the famous company Lenovo Computer Corporation.24 Importantly, these innovations facilitated the development of industries and contributed greatly to the growth of the Chinese economy. For example, such advances as innovative types of polymer engineering plastics or heat-shrinkable polymer materials were used in many industries.

Conclusion

In conclusion, it is possible to note that Deng Xiaoping’s vision and leadership enabled a once stagnating country to transform into one of the leading states in the world. He managed to create the platform for further development in the country governed by a single party. Such steps as privatization, liberalization, development of entrepreneurship, technological advancement and entry to the global market led to the unprecedented economic growth that is often referred to as a miracle. There were some constraints and even opposition to Deng’s reforms. However, the inspirational leader managed to implement the change and undertake a genuine leap forward.

Bibliography

Ahrens, Joachim, and Philipp Mengeringhaus. “Institutional Change and Economic Transition: Market-Enhancing Governance, Chinese-Style.” The European Journal of Comparative Economics 3, no. 1 (2006): 75-102.

Béja, Jean-Philippe. “The Massacre’s Long Shadow.” Journal of Democracy 20, no. 3 (2009): 5-16.

Chai, Joseph C.H. An Economic History of Modern China. Northampton: Edward Elgar Publishing, 2011.

Gao, Xudong and Jizhen Li. “Technological Capability Development in Complex Environments: The Case of the Chinese Telecom Equipment Industry.” In China’s Evolving Industrial Policies and Economic Restructuring, edited by Zhen Yongnian and Sarah Y. Tong, 120-137. New York: Routledge, 2014.

Liu, Yawei. “How China’s Quest for Political Reforms Is Undercut by the China Model.” China Elections and Governance Review 5 (2010): 1-15.

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Sullivan, Lawrence R., and Nancy Y. Liu. Historical Dictionary of Science and Technology in Modern China. New York: Rowman & Littlefield, 2015.

Wilson, Jeffrey D. Governing Global Production: Resource Networks in the Asia-Pacific Steel Industry. New York: Palgrave Macmillan, 2013.

Yongnian, Zhen, and Sarah Y. Tong. “Introduction.” In China’s Evolving Industrial Policies and Economic Restructuring, edited by Zhen Yongnian and Sarah Y. Tong, 1-15. New York: Routledge, 2014.

Zhang, Qizhi. An Introduction to Chinese History and Culture. New York: Springer, 2015.

Zhang, Weiying. “The Power of Ideas and Leadership in China’s Transition to a Liberal Society.” Cato Journal 35, no. 1 (2015): 1-40.

Footnotes

  1. Qizhi Zhang, An Introduction to Chinese History and Culture (New York: Springer, 2015), 435.
  2. Ibid., 436.
  3. Ibid., 449.
  4. Joseph C.H. Chai, An Economic History of Modern China (Northampton: Edward Elgar Publishing, 2011), 23.
  5. Yawei Liu, “How China’s Quest for Political Reforms Is Undercut by the China Model,” China Elections and Governance Review 5 (2010): 1.
  6. Ibid.
  7. Joachim Ahrens and Philipp Mengeringhaus, “Institutional Change and Economic Transition: Market-Enhancing Governance, Chinese-Style,” The European Journal of Comparative Economics 3, no. 1 (2006): 83.
  8. Jean-Philippe Béja, “The Massacre’s Long Shadow,” Journal of Democracy 20, no. 3 (2009): 7.
  9. Ibid.
  10. Weiying Zhang, “The Power of Ideas and Leadership in China’s Transition to a Liberal Society,” Cato Journal 35, no. 1 (2015): 15.
  11. Joseph C.H. Chai, An Economic History of Modern China (Northampton: Edward Elgar Publishing, 2011), 172.
  12. Jeffrey D. Wilson, Governing Global Production: Resource Networks in the Asia-Pacific Steel Industry (New York: Palgrave Macmillan, 2013),129.
  13. Zhen Yongnian and Sarah Y. Tong, “Introduction,” in China’s Evolving Industrial Policies and Economic Restructuring, ed. Zhen Yongnian and Sarah Y. Tong (New York: Routledge, 2014), 2.
  14. Joseph C.H. Chai, An Economic History of Modern China (Northampton: Edward Elgar Publishing, 2011), 19.
  15. Ibid., 20.
  16. Xudong Gao and Jizhen Li, “Technological Capability Development in Complex Environments: The Case of the Chinese Telecom Equipment Industry,” in China’s Evolving Industrial Policies and Economic Restructuring, ed. Zhen Yongnian and Sarah Y. Tong (New York: Routledge, 2014), 122.
  17. Zhen Yongnian and Sarah Y. Tong, “Introduction,” in China’s Evolving Industrial Policies and Economic Restructuring, ed. Zhen Yongnian and Sarah Y. Tong (New York: Routledge, 2014), 3.
  18. Joachim Ahrens and Philipp Mengeringhaus, “Institutional Change and Economic Transition: Market-Enhancing Governance, Chinese-Style,” The European Journal of Comparative Economics 3, no. 1 (2006): 75.
  19. Yawei Liu, “How China’s Quest for Political Reforms Is Undercut by the China Model,” China Elections and Governance Review 5 (2010): 18.
  20. Lawrence R. Sullivan and Nancy Y. Liu, Historical Dictionary of Science and Technology in Modern China (New York: Rowman & Littlefield, 2015), 237.
  21. Weiying Zhang, “The Power of Ideas and Leadership in China’s Transition to a Liberal Society,” Cato Journal 35, no. 1 (2015): 30.
  22. Lawrence R. Sullivan and Nancy Y. Liu, Historical Dictionary of Science and Technology in Modern China (New York: Rowman & Littlefield, 2015), 3.
  23. Ibid., 96.
  24. Ibid., 97.