Facts and Details

DENG XIAOPING'S ECONOMIC REFORMS

Buying a new TV in the 1980s In 1978, Deng Xiaoping launched what he called a "second revolution" that involved reforming China's moribund economic system and "opening up to outside world." The market-oriented economic reforms launched by Deng were described as "Socialism with Chinese Characteristics." Deng insisted the reforms were not capitalistic: "I have expressed time and again that our modernization is a socialist one," he said.

In the early 1980s, Deng and his allies promoted China’s experiment with the free markets in Guangdong Province. In 1992, Deng returned there symbolically repel party conservatives who opposed his reforms. “People here are proud of Guangdong’s progressive streak,” said Ding Li, a senior researcher at the Guangdong Academy of Social Sciences, told the New York Times. “We are also happy to be far away from Beijing — and the least controlled by it.”

Deng’s policies have been called “radical pragmatism.” Deng himself called it “crossing the river by feeling for the stones” and the policy in its early stages was called the “the household responsibility system.” The reforms set in motion one of the longest sustained economic expansions in history; three decades of annual growth near 10 percent.

The Deng era is known in China as the Period of Reform and Opening. Deng needed great political skill and patience to get his reforms past hard liners in the Chinese Politburo. There was always the belief that the Deng reforms would be reversed at any moment. Deng himself insisted the reforms kept the Communist party from being "toppled."

The Deng reforms decentralized the state economy by replacing central planning with market forces, breaking down the collective farms and getting rid of state-run enterprises. One of the most successful reforms—the "within" and "without” production plans—allowed businesses to pursue their own aims after the met their state-set quotas. Enterprises and factories were allowed to keep profits, use merit pay and offer bonuses and other incentives, which greatly boosted productivity.

In the Deng era there was a shift from central planning and reliance on heavy industry to consumer-oriented industries and reliance on foreign trade and investment. The 1978 reforms included efforts to boost foreign trade through the establishment fo 12 state companies to control imports and exports and the creation of Special Economic Zones (SEZs) along China's southern coastline. In 1982, communes began to be dismantled and peasants were allowed to grow and sell produce. In 1985, tariffs were cut from 56 percent to 43 percent beginning the long, gradual reduction of import barriers.

In their book, China’s Megatrends: The Eight Pillars of a New Society , futurologist John Naisbitt and his wife Doris argue that China liberated itself from its Maoist ideological mindset and reactivated China’s “entrepreneurial gene” when Deng Xiaoping came to power in 1978.” On China’s fundamental transformation between the Cultural Revolution and the present the Naisbitts wrote: “China in 1978: A visionary, decisive, assertive CEO takes over a very large, moribund company that is on the verge of collapse. The workforce is demoralized, patronized, and poorly educated. The CEO is determined to turn the run-down enterprise into a healthy, profitable, sustainable company, and to bring modest wealth to the people. And he has a clear strategy for achieving this goal.… China in 2009: The company has changed from an almost bankrupt state into a very profitable enterprise, the third largest of its kind in the world. It has made clever moves in its challenges and crisis, and its economic success is now recognized around the globe.” [Source: William A. Callahan, China Beat, November 15, 2010, William A. Callahan is Professor of International Politics at the University of Manchester and author of China: The Pessoptimist Nation (Oxford University Press, 2010)]

Websites and Resources

Good Websites and Sources: Wikipedia article Wikipedia ; Life of Deng Xiaoping cbw.com ; CNN Profile cnn.com ; New York Times Obituary nytimes.com ; China Daily Profile chinadaily.com. ; Wikipedia article on Economic Reforms in China Wikipedia ; Wikipedia article on Special Economic Zones Wikipedia ; Library of Congress Info from the late 1980s lcweb2.loc.gov

Books About Deng Xiaoping: Burying Mao: Chinese Politics in the Age of Deng Xiaoping by Richard Baum (1996, Princeton University Press); China After Deng Xiaoping: The Power Struggle in Beijing Since Tiananmen by Willy Wo-lap Lam (1995, P.A. Professional Consultants); Deng Xiaoping by Uli Franz (1988, Harcourt Brace Jovanovich); Deng Xiaoping and the Chinese Revolution: A Political Biography by David S.G. Goodman (1994, Routledge); Deng Xiaoping: Chronicle of an Empire by Ruan Ming (1994, Westview Press); Deng Xiaoping and the Making of Modern China by Richard Evans 1993, Hamish Hamilton); Deng Xiaoping: My Father by Deng Maomao (1995, Basic Books); Deng Xiaoping: Portrait of a Chinese Statesman edited by David Shambaugh (1995, Clarendon Paperbacks); The New Emperors: Mao and Deng—a Dual Biography by Harrison E. Salisbury (1992, HarperCollins); Deng Xiaoping and the Transformation of China by Ezra F. Vogel (Belknap/Harvard University, 2011) Books about Modern China worth reading include The Search for Modern China by Jonathan Spence, China-Alive in a Bitter Sea by Fox Butterfield, To Get Rich is Glorious by Orville Schell, The New Emperors by Harrison Salisbury, Coming Alive-China After Mao by Roger Garside and The Dragon Wakes by Christopher Hibbert.

Links in this Website: DENG XIAOPING Factsanddetails.com/China ; CHINA UNDER DENG XIAOPING Factsanddetails.com/China ; DENG XIAOPING’S ECONOMIC REFORMS Factsanddetails.com/China ;TIANANMEN SQUARE DEMONSTRATIONS Factsanddetails.com/China ; TIANANMEN SQUARE MASSACRE Factsanddetails.com/China ; AFTERMATH AND LEGACY OF TIANANMEN SQUARE Factsanddetails.com/China ; DISSIDENTS, POLITICAL ACTIVISTS AND POLITICAL PRISONERS IN CHINA Factsanddetails.com/China ; ECONOMIC HISTORY AFTER DENG XIAOPING Factsanddetails.com/China ; GLOBAL ECONOMIC CRISIS OF 2008 AND 2009 IN CHINA Factsanddetails.com/China ; BASIC ECONOMIC INFORMATION ON CHINA Factsanddetails.com/China ; MACROECONOMICS AND ECONOMIC POLICY IN CHINA Factsanddetails.com/China ; THE YUAN, FOREIGN RESERVES AND SOVEREIGN WEALTH FUNDS IN CHINA Factsanddetails.com/China ; CHINESE REGIONAL ECONOMICS Factsanddetails.com/China

Deng the General Manager

In a review of Deng Xiaoping and the Transformation of China by Ezra Vogel, John Pomfret of the Washington Post wrote, “When Deng finally returned to power for good in 1977, he avoided any direct criticism of the man who united China under the red flag of communism. Here again, Vogel provides great insight into how Deng succeeded in dismantling Maoism, liberating China's economy from the shackles of its ridiculous ideology and maintaining the man as a hero to the Chinese people. Deng did this, Vogel argues, because he believed that if he openly criticized Mao, it would threaten Communist Party rule. Deng thought that the party's aura of legitimacy must be preserved at all costs because only the party could save China. Deng's formula for success, as Vogel puts it, was simple: "Don't argue; try it. If it works, let it spread." [Source: John Pomfret, Washington Post, September 9, 2011]

Vogel calls Deng "the general manager" of China's latest revolution. As he pushed and pulled his country into the modern world, he was careful not to get out in front of the changes. He used younger officials such as Hu Yaobang and Zhao Ziyang for that. (He ended up sacrificing both.) In fact, as Vogel reports, Deng wasn't even at the forefront of some of the most important political and economic moves - such as the 1976 arrest of the Gang of Four, including Mao's widow, Jiang Qing, and the decision to launch market-oriented special economic zones in the south that became hothouses for capitalist-style experimentation.

Vogel also provides enlightening details of Deng's efforts to use ties with the United States and Japan to China's advantage. While Mao opened China to the West as a way to counter the Soviet Union, Deng realized that American and Japanese technology, investment and knowledge would be keys to his country's advance. They were. Indeed, no nation has been more important to China's modernization than the United States - a fact that no Chinese official has ever acknowledged.

Vogel also has a skewed view of the events that forced Deng to reform China's economy,” Pomfret. According to him, Deng and his lieutenants, such as Wan Li, engineered the reforms. In reality, it seems that the Chinese people demanded them by, among other things, dismantling the commune system, and Deng and others were smart enough to get out of the way. Indeed, the Chinese people get short shrift in this book about China.

Zhao Ziyang and the Deng Economic Reforms

Zhao Ziyang In the memoir, Zhao Ziyang presses the case that he pioneered the opening of China’s economy to the world and the initial introduction of market forces in agriculture and industry — steps he says were fiercely opposed by hard-liners and not always fully supported by Deng, the paramount leader, who is often credited with championing market-oriented policies.[Source: Erik Eckholm, New York Times, May 14, 2009]

Adi Ignatius, an editor of a book on Zhao and editor in chief of the Harvard Business Review, wrote in Time, ‘Although Deng generally gets credit for modernizing China’s economy, it was Zhao who brought about the innovations—from breaking up Mao’s collective farms to creating special economic zones...And it as Zhao who had to continually outflank powerful rivals who didn’t want to see the system change.’

In the late 1970s, as the party chief in Sichuan Province, Zhao had started dismantling Maoist-style collective farms. Deng, who had just consolidated power after Mao’s death, brought him to Beijing in 1980 as prime minister with a mandate for change. Zhao, who like other Chinese leaders had little training in or experience of market economics, describes his political battles and missteps as he tried to give more reign to free enterprise. [Source: Erik Eckholm, New York Times, May 14, 2009]

Roderick MacFarquhar, a China expert at Harvard, said Zhao’s memoirs gave him a new appreciation of Zhao’s centralrole in devising economic strategies, including some, like promoting foreign trade in coastal provinces, that he had urged on Deng, rather than the other way around. Deng Xiaoping was the godfather, but on a day-to-day basis Zhao was the actual architect of the reforms, MacFarquhar said in an interview.

In the early ‘80s writer Hu Yua was working as a dentist in a small town between Shanghai and Hangzhou. From his window he often observed workers of the local Cultural Bureau, the Chinese state’s salaried writers and artists, loafing in the streets. We were all very poor in those days, Yu recalled. The difference was that you could work hard to be poor as a dentist, or you could do nothing and still be poor as a worker in the Cultural Bureau. I decided I wanted to be as idle as the workers in the Cultural Bureau and become a writer. [Source: Pankaj Mishra, New York Times, January 23, 2009]

Zhao Ziyang on His Impact on the Deng Economic Reforms

Zhao wrote in his memoirs, ‘The reason I had such a deep interest in economic reform and devoted myself to finding ways to undertake this reform was that I was determined to eradicate the malady of China’s economic system at its roots. Without an understanding of the deficiencies of China’s economic system, I could not possibly have had such a strong urge for reform.’ [Source: Zhao Ziyang’s Prisoner of the State ]

Of course, my earliest understanding of how to proceed with reform was shallow and vague. Many of the approaches that I proposed could only ease the symptoms; they could not tackle the fundamental problems. The most profound realization I had about eradicating deficiencies in China’s economy was that the system had to be transformed into a market economy, and that the problem of property rights had to be resolved. That was arrived at through practical experience, only after a long series of back-and-forths. “ [Ibid]

But what was the fundamental problem? In the beginning, it wasn’t clear to me. My general sense was only that efficiency had to be improved. After I came to Beijing, my guiding principle on economic policy was not the single-minded pursuit of production figures, nor the pace of economic development, but rather finding a way for the Chinese people to receive concrete returns on their labor. That was my starting point. Growth rates of 2 to 3 percent would have been considered fantastic for advanced capitalist nations, but while our economy grew at a rate of 10 percent, our people’s living standards had not improved. “ [Ibid]

As for how to define this new path, I did not have any preconceived model or a systematic idea in mind. I started with only the desire to improve economic efficiency. This conviction was very important. The starting point was higher efficiency, and people seeing practical gains. Having this as a goal, a suitable way was eventually found, after much searching. Gradually, we created the right path. “ [Ibid]

Starting the Deng Economic Reforms

Zhao Ziyang in Berlin in 1987 Even with his unchallengeable authority, it was difficult for Deng to start the country's process of economic reform and opening up - nearly every step was a hard struggle. With the society in turmoil and especially after seeing the collapse of the Soviet Union, Deng began pressing even harder, in his waning years, for market-style changes. [Source: Erik Eckholm, New York Times, May 14, 2009]

In the memoir, Zhao Ziyang wrote, ‘It was not easy for China to carry out the Reform and Open-Door Policy. Whenever there were issues involving relationships with foreigners, people were fearful, and there were many accusations made against reformers: people were afraid of being exploited, having our sovereignty undermined, or suffering an insult to our nation. I pointed out that when foreigners invest money in China, they fear that China’s policies might change. But what do we have to fear? [Source: Zhao Ziyang’s Prisoner of the State ]

Zhao wrote, ‘In summary, there were two aspects: one was the market economic sector outside of the planning system, and the other was the planned economic sector. While expanding the market sector, we reduced the planned sector. While both planned and market sector existed, it was inevitable that as one grew the other shrank. As the planned sector was reduced and weakened, the market sector expanded and strengthened. “ [Ibid]

At the time, the major components of the market sector were agriculture, rural products, light industries, textiles, and consumer products. Products involved with the means of production were mostly still controlled by state-owned enterprises. “ [Ibid]

If the enterprises that controlled the means of production were not weakened or reduced, if a portion was not taken out to feed the market sector, growth could not continue for the emerging market economic sector. If no part of the means of production was allowed to be directly sold on the free market; for example, if small enterprises producing coal or concrete were all under central control; then the new emerging market sector would have run into great difficulties for lack of raw materials and supplies. Therefore, for more than ten years, though there was no fundamental change to the planned economic system and the system of state-owned enterprises, the incremental changes in the transition from planned to market economies had an undeniably positive effect. “ [Ibid]

Of course, it is possible that in the future a more advanced political system than parliamentary democracy will emerge. But that is a matter for the future. At present, there is no other. “ [Ibid]

Based on this, we can say that if a country wishes to modernize, not only should it implement a market economy, it must also adopt a parliamentary democracy as its political system. Otherwise, this nation will not be able to have a market economy that is healthy and modern, nor can it become a modern society with a rule of law. Instead it will run into the situations that have occurred in so many developing countries, including China: commercialization of power, rampant corruption, a society polarized between rich and poor. “ [Ibid]

Zhao on the Ideology Behind the Deng Reforms

Zhao Ziyang with Reagan Zhao wrote in his memoirs, ‘We had practiced socialism for more than thirty years. For those intent on observing orthodox socialist principles, how were we to explain this? One possible explanation was that socialism had been implemented too early and that we needed to retrench and reinitiate democracy. Another was that China had implemented socialism without having first experienced capitalism, and so a dose of capitalism needed to be reintroduced. [Source: Zhao Ziyang’s Prisoner of the State ]

Neither argument was entirely unreasonable, but they had the potential of sparking major theoretical debates, which could have led to confusion. And arguments of this kind could never have won political approval. In the worst-case scenario, they could even have caused reform to be killed in its infancy. “ [Ibid]

While planning for the 13th Party Congress report in the spring of 1987, I spent a lot of time thinking about how to resolve this issue. I came to believe that the expression initial stage of socialism was the best approach, and not only because it accepted and cast our decades-long implementation of socialism in a positive light; at the same time, because we were purportedly defined as being in an initial stage, we were totally freed from the restrictions of orthodox socialist principles. Therefore, we could step back from our previous position and implement reform policies more appropriate to China. “ [Ibid]

Stages of the Deng Reforms

Deng had a ‘three-step’ plan for China: 1) step one, double GDP from 1981 to 1990 and ensure enough food and shelter for all people; 2) step two, double GDP again in the 1990s and make sure people live a moderately prosperous life; and 3) step three, achieve modernization by 2050 by raising incomes to the levels of medium-size developed countries.

Deng launched the reforms with the words: “only development makes sense.” China’s approach was defined by carefully controlled reform, a strategy once described by the late Communist Party patriarch Chen Yun as “crossing the river by feeling for the stones.” (It is wrongly credited to Deng Xiaoping most of the time.)

Deng’s “reform and opening” policy was approved by the party elite at the same party meeting in December 1978 in which his rival Hua Guofeng was ousted and Deng became the de facto leader of China. Launched two years after Mao’s death when China was still emerging from the Cultural Revolution, the policy opened the way for perhaps the most astonishing economic turnaround in human history.

Gradualism, successful integration into the world economy, high levels of growth and investment and a trial and error approach to policy have all contrubuted to China's growth and success. The first special economic zone (SEZ) was established in Shenzhen in 1980. Wary of a rival power bases in economically powerful Shanghai, Deng chose the extreme south to launch his reforms and economic experiments.

In 1986, Deng promoted the “open door” policy to encourage foreign investment. At the time spiraling inflation and corruption limited the amount of foreign investments and money that flowed in.

Fang Lizhi wrote in the New York Review of Books, “Beginning in the 1980s, tens of millions of migrant workers from the countryside crowded Chinese cities to sell their labor in construction, sanitation, and other menial tasks. They were the bedrock that made Deng’s “economic miracle” possible.

China’s First Business License

In 1979, the first business license in China was given to Zhang Huamei a 19-year-old daughter of workers in a state umbrella factory who illegally sold trinkets from a table, who wanted to conduct her business legally. A few years earlier just seeking such a license would have earned her the label of “capitalist roader,” possibly making her a target of Red Guards attacks. Unable to obtain such a license in her home town she traveled 480 kilometers to Wenzhou, a region of China with a tradition of entrepreneurship. [Source: Jonathan Margolis, Times of London, January 2010]

Zhang is now a dollar millionaire and head of the Huamei garment Accessory Company, a supplier of many of the world’s buttons. Looking back on her early years as a pioneering entrepreneur she told the Times of London, “My classmates were ashamed of me for starting my own business. They would turn their heads away when passing my house and pretend not to know me.” On her first sale she said, “the first thing I sold was a toy watch. It was a sunny morning in May 1978, I bought it for 0.15 yuan and sold it for .20. I was very, very excited to make a profit. But I was also very nervous and very afraid the local government staff would come to stop it.”

Soon she expanded into ferry trips to Shanghai, needles, thread, elastic, buttons and was able to make two yuan a day, ten times the state wage. When officials first came to her house she feared the worst but was told what she was doing was alright in light of new reforms. The official said all she needed to do was fill out some forms and provide two photos and she could be legitimate, She was still hesitant, worried about what would happen if the policy changed and she was an record as being a capitalist.

Deng's Economic Reforms in the Countryside

Deng’s economic reforms first really took hold in the countryside where peasants were encouraged to participate in the market economy. Communes and collectives were dismantled and were divided up into plots of land that was leased back to peasants who were encouraged to raise crops to sell in private markets.

The reforms began with the "household contract" and "responsibility system," developed and launched quietly in 1978 by an 18-year-old villager, Yan Hongchang, who started a production group with the leaders of 20 villages. In the little-known village of Xiaogang in east Anhui Province 18 farmers signed a secret agreement to divide communally owned farmland into individual sections called ‘household contracts’. At the time, this should have been regarded as a hefty ‘counter-revolutionary crime’. But the experiment won the support of Deng and was quickly implemented across the nation, becoming the first major breakthrough in economic reform and opening up. In the late 1970s, Chinese farmers and rural cadres were frustrated with the commune system, seeing it as an obstacle to improving agricultural production and their lives. Thus, Xiaogang village's privatization experiment quickly won popular support and was opposed only by a few diehard Maoist ideologues and conservatives.

Later the "responsibility system" became common place all over China and incentive price bonuses for above-quota grain production were introduced. Many have said that Deng set up a system that allowed the Chinese do what they do best—make money.

The early economic reforms meant that people could make money selling produce at local markets and doing work at home, such as mending clothes, repairing pots, or giving piano lessons, and opening up small businesses. One official told Theroux in 1988, "China is the first stage of socialism—we are just beginning to develop. In some ways, we are underdeveloped and we are proceeding slowly and carefully. In the countryside the reforms have gone smoothly. But in the cities much remains to be done."

The system has relied on Township and Village enterprises (TVEs), which has produced a class of wealthy and corrupt autocrats.

Deng Era Agricultural Reforms

In 1979, three years after Mao's death, Deng Xiaoping began dismantling the "rigidly" controlled agriculture collectives and encouraging farmers to raise crops in individual plots. According to rules that varied from province to province, farmers were allowed to hire a certain numbers of laborers, and sell their surplus. Peasants were not allowed to own land but they were given long term leases and rights to renew the leases so their was an incentive for them to take care of the land.

Land rights—except in terms of buying, selling and titled ownership—was given to agriculture labor organization to individual families. In effect the pre-revolutionary system was restored with state holding claim to part of the crop instead of the landlord.

In the 1980s, families in areas affected by the reforms were given a little over half an acre to tend. Those that possessed good fertile land were able to make a healthy profits growing rice, vegetables, sugar and other products. Those that wanted more joined together with other farmers and improved irrigation and roads and became more productive an made even more money.

Deng also introduced incentive price bonuses for above-quota grain production and launched a "responsibility system" which allowed farmers to sell surplus crops on the open market after the met their government quotas. In 1984, in an effort to increase production, the quota was dropped completely in 1984 for all crops expect cotton and grain.

Even though many farmers used hoes instead of tractors, crop yields jumped dramatically. Wheat production doubled between 1978 and 1985 from 41 million to 87 million tons. By 1987 the output of grains and tubers was three times that of India and almost equal to that of the U.S. and Soviet Union.

Agriculture has been neglected in the later stages of the economic reforms. By the 1990s the benefits received by farmers began to level off and the real farm incomes decreased as the costs of fertilizer, hybrid seeds and other necessities rose faster than crop prices.

See Deng Reforms and the Poor, Poor, Life

Chinese Communes After Deng Reforms

Under Deng, some communes were kept going. Members of the most productive collective in China, the Western Pass Commune near Shandong, saw their earnings per person jump from about 100 yuan in 1971 to 9,000 yuan in 1986. In 1971, the commune had one function: raising wheat. Beginning in 1979, each person was given about a 1,000 yuan a year and the rest of the money earned by the commune was reinvested into the commune. After 1979 the commune began raising many kinds of crops and later it opened a hotel, set up transportation services and established different kinds of industries. The commune even had a hospital with modern equipment. Other communes didn’t do so well. Some commune workers go months without getting paid.

Most communes and collectives were broken up or abandoned and their land was divided up among private landowners. In most cases the commune land was divided equally among families that lived on the commune, leaving some places dotted with farms that were only a fifth of an acre in size.

Farming households typically received about a half acre per person to cultivate themselves. They had to pay for seeds and fertilizer themselves and fulfil production quotas but otherwise they were free to grow what the wanted. Many grew lucrative crops they could sell for profit such as melons. In many cases productivity increased and harvests were much bigger.

China's 700 million farmers are largely considered independent. Still they raise crops on government land and many sell them to state-owned grain companies. Some collective farms were purchased entrepreneurs and turned into large farms that grow cash crops.

Crops yields have been improved through intercropping, interplanting, winter farming, improved technology and using plastic greenhouses to raise vegetables out of season. Mainly with the help of irrigation and flood control schemes, food production in China doubled between 1952 and 1992. The use of chemical fertilizer increased four times from 1978 to 1993 but the grain output was only 50 percent higher. These improvements have been cancelled out as the amount of arable land has shrunk and the population increases.

Deng's Economic Reforms in the Coastal Areas

In the mid-1980s, the "coastal strategy" was emphasized. Agricultural reforms were extended to the industrial sector and manufacturing centers, modeled after those in Taiwan and South Korea, were established in coastal areas of China.

Special economic zones set up in the late 1970s near Hong Kong in Shenzhen, near Macau in Zhuhau and across from Taiwan in Xiamen and Shantou grew in the 1980s. Industry was reformed by modernizing management, encouraging private business, implementing price reforms, and encouraging foreign investment and trade.

China began welcomed foreign investment and money began flowing in, much of it initially from overseas Chinese investors. Beijing also began streamlining the economy by "squeezing spendthrift state-run companies, overhauling trade, simplifying taxes, canceling preferential policies and reforming banks."

The Deng's reforms were not a complete success. In 1995, grain rationing had returned to 29 cities, price caps were placed on sugar and cotton because of problems in the agricultural sector. Economic reforms in the industrial sector created sweat shops and a society of haves and have-nots.

Changes After the Deng's Market Reforms

Although the momentum and push for economic reforms came from Deng. Many of the concrete changes have been the result of small, incremental bureaucratic adjustments that loosened the draconian controls that existed in the Mao era. Among these was the introduction of national identity cards in the 1980s that allowed people to travel and find work easier. Before that travelers needed a letter from local officials. Later the system of food coupons which could only used in local markets was abolished and gradually the household registration system was eased.

As the Deng reform picked up speed there was a marked switch from dogmatist socialism towards a large undefined mix of authoritarianism, corruption and capitalism described by some as "market Leninism." In the 1980s managers gained freedom from central, but not local authorities. Small worker-owned firms proliferated as did corrupt officials. Before long 80 percent of industrial enterprises employed less than 75 people and consumers enjoyed unprecedented choice.

The state continued to control the prices of raw materials and grains and set acceptable price ranges for consumer goods and services. Businesses had to beware. At any time they could be shut down by the government for engaging in unfair trading practices. Whether they really were or not didn’t really matter. What matter was sucking up to the right individuals and agencies.

China’s opened it first stock exchange in Shanghai in 1990. In 1996 Chinese currency became convertible. In the late 1980s and early 1990s, fledgling entrepreneurs were invited to join the Communist party. Businesses and factories were required to have a Communist party cell and businesses and politics became intertwined.

China's Aims to Get Rich

In the 1980s Deng Xiaoping said, "To get rich is glorious" and later added "some should be allowed to get rich first." Many Chinese have taken this maxim to heart and have become very rich.

Dutch journalist Willen van Kemendade wrote in his book China, Hong Kong, Taiwan, Inc. that the Chinese people had evolved from being "Mao-worshiping blue ants" to "nihilistic, ultra-individualistic, money-worshiping hedonists."

Fueling the drive to get rich has been cheap labor often working under horrid conditions. “ China,” wrote Sheryl Wudunn in the New York Times magazine in the mid 1990s, "is something of a cross between Dodge City and Dickensonian England. It's a lawless place motivated by a strange mix of greed and apprehension that this wonderful money-making opportunity could end at any moment. China may not use little boys as chimney sweeps, but the textile and garment industries work children 14 hours a day, seven days a week, and often they sleep by their looms. If you lose your arm in the loom, you're fired. That may sound grim, but 19th-century capitalism is a big improvement over 18th-century feudalism.

SEZs in Shenzhen and the Pearl River Delta

The first special economic zone (SEZ) was established in Shenzhen in 1980. Wary of a rival power bases in economically powerful Shanghai, Deng chose the extreme south to launch his reforms and economic experiments.

The heart of Deng's economic reforms was the establishment of Special Economic Zones (SEZs) along China's southern coastline. Here Chinese businesses and foreign investors were lured with chances to make huge profits and incentives such as low taxes, cheap land, cheap labor and comparative economic freedom.

The most productive SEZs—Shenzhen and other places in the Pearl River Delta—are located near Hong Kong and Guangzhou (Canton). Shenzhen has posted economic growth of an astounding 45 percent a year, and population growth of 20 percent a year. It has been so successful that for a while it was protected by an electric fence intended to keep mobs of Chinese opportunity seekers out. See Shenzhen

Worried that the Special Economic Zone will be overrun with job seekers, the government has barred people from entering Shenzhen that don't have government-issued permits which are usually only given to people with needed skills and connections. Factories outside of Shenzhen in places like Dongguan have accepted workers without government permits.

The SEZs emerged around the same time that Hong Kong and Taiwan were moving from light manufacturing into more high tech manufacturing and businessmen were looking for new place to do their sweat shop labor. The SEZs in China were less than a hour away, with China providing a bottomless pit of cheap labor.

The Chinese government modernized the infrastructure, attracted Chinese entrepreneurs with tax exemptions for doing business with foreign companies, and lured foreign investors with tax holidays and a large bonded zone for duty-free imports of raw materials. By 1989 nearly 22,000 joint ventures had been launched, 952 with American firms. Chrysler and Coca-Cola were among the first American firms to launch joint ventures.

Relatively litle paper work was needed to get a business started. One businessman in Shenzhen told National Geographic, "If we had chosen Beijing as our site we would have spent years obtaining the necessary bureaucratic approvals. The people her got the factory ready for us in one year."

See Shenzhen, Pearl River Delta, Places; Regional Economics, Economics

Deng’s Southern Tour

Momentum for the China’s economic reforms accelerated in 1992, when Deng, fed up with three years of stalled economic reforms and a lack of imagination and will among the party faithful, took his famous “Southern Tour.” He traveled to Shenzhen—then a boomtown—and coined the term “socialist market economy,” in the process giving a ringing endorsement to privatization and free enterprise and encouraging foreign investors to bring their money to China.

In 1992 Deng made his southern China try to relaunch economic reforms in the face of criticism from conservatives. The tour was primarily a political gambit to address the rising power and obstacles created by hard liners in the party that used Tiananmen Square as an illustration as what reforms have brought. John Delury, associate director of the Center on U.S.-China Relations, wrote: After the massacre “Deng temporarily withdrew, letting the central planner around the party elder Chen Yun slow down marketization and weather China’s international isolation in Tiananmen’s wake.”

Deng re-emerged into public life in dramatic fashion with his southern tour. In Shenzhen, with television cameras rolling, he raised his finger in the air and said, “If China does not practice socialism, does not carry on with ‘reform and opening’ and economic development, does not improve the people’s standard of living, then no matter what direction we go, it will be a dead end.” With this gesture Deng reaffirmed his support for reforms that started in 1979 and had been stalled by Tiananmen square and purged or at least diminished the power of the hardliners.

Legacy of Deng’s Southern Tour

Delury wrote that in the tour “Deng orchestrated the eclipse of the anti-market conservatives faction. ...Having begrudgingly purged the reformers in 1989...Deng in 1992 seized the opportunity to sideline the central planers, and bring China’s neo-liberal hero, Zhu Rongji, to refire the engines of the economy. Deng judged the mood of the nation shrewdly: the people were ready to be told that: “to get rich is glorious.” The new party leadership of the 1990s and 2000s did not waver from Deng’s line: steady expansion of market reforms, active involvement in international commerce, massive urbanization and urban development, and total dedication to to party unity.”

In doing this Deng is credited with saving the Chinese Party by providing a valve for discontent. Economic prosperity has sustained internal political stability and given people something other than politics to think about.

Achievement's of the Deng Reforms

Some have called the “reform and opening” policy the greatest poverty-reducing program in history. It not only launched a period of economic prosperity in China it lifted 200 million people out of poverty. At the time the “reform and opening” policy was approved China was still suffering from famines and the per capital GDP of China was 381 yuan. In 2007 it reached 18,900 yuan ($2,760).

In the late 1980s people still largely wore gray Mao jackets and rode bicycles. Finding a jar of instant coffee was difficult. A single plastic bag was considered a luxury. Lights were generally out by 9:00pm even in Beijing and Shanghai,

It has been said the party’s polices lifted hundreds of million out of poverty but it can also be argued that the policies simply freed them and the people that lifted themselves out of poverty through their hard work and long hours.

GDP growth in the PRC has averaged more than 9 percent since 1989 and reached as high as 14.2 percent in 1992 and 2007, according to the World Bank. Savings increased 14,000 percent and exports went from $10 billion a year to almost $1 trillion between the 1980s and 2000s. An estimated 400 million people have been lifted out of poverty; perhaps 100 million people have been booted up the middle class; and China rose from an economic backwater into the world's third largest economy.

Michael Anti, the columnist and blogger, said the breakdown of old restrictions meant that “you could break all of your contracts, your promises. You could do whatever you wanted.” Jack Ma, lead founder of the Alibaba Group, said, “The change, to me, is that people were not ashamed to be businesspeople.” [Source: Evan Osnos, The New Yorker]

See Deng Reforms and the Poor, Poor, Life

Shanghai Emerges

Places in southern China near Hong Kong and Guangzhou were selected as the over Shanghai—the traditionally center of Chinese commerce— in part because Beijing was worried it would not be able to keep control over Shanghai’s notoriously capitalist-minded people.

Shanghai was not opened up economically until 1991, after Tiananmen Square, when Beijing wanted to appease popular discontent by distracting them with the potential to make money. Once cut loose the Shanghaiese quickly made up for lost time. To attract foreign investment it offered cheap office space, tax breaks and promised minimal red tape. Foreigners came in droves. Within 15 years Shanghai surpassed Shenzhen and Pearl River Delta as China’s primary industrial zone

A number of new SEZs and SEZ-like areas were opened up near Shanghai, particularly in Zhejian Province. Lishui Economic Development Zone is one of the newest of these. Situated in the mountains of Zhejian Province, far from anything, it is connected to the outside world by a new highway and has among the cheapest land rates and labor costs on China.

Lishui’s population grew from 160,000 in 2000 to 250,000 in 2006. The local government invested $8.8 billion in infrastructure. A factory zone was created by relocated thousands of people and chopping of the tops of 108 separate mountains and hills, using dynamite. bulldozers, excavators and dump trucks to knock down the highest areas and fill in the lowest areas. Thousands of companies set up shop there.

Phenomenal Growth in China

Congestion outside
the Shanghai port China has the fastest growing economy in the world for many years now, an astounding fact when you consider how large the country is. It has managed to maintain a 10 percent growth rate through the 1980s, 1990s and 2000s and did not suffer to much from the Asian Economic Crisis in the late 1990s and a global slump in the early 2000s.

Growth has averaged over 10 percent for the last 30 years. It was 9.4 percent between 1978 and 1995. It was 11.2 percent between 1990 and 1998 and 11.2 percent between 1990 and 1998 and just under 10 percent between 1999 and 2007.

China’s growth rate has been five and six times higher than the growth rate in the United States, Japan and the major countries in Europe. The only countries that have posted similar growths rates over extended periods of time in recent years have been Japan in the 1960s, 70 and 80s and South Korea in the 1970s, 80s and 90s. If the Chinese economy continues growing a rate of 9 percent it will double every ten years.

Some economist are a bit skeptical of the miraculous growth figures. According to The Economist inflation figures often don’t reflect the growth in food prices and inflation have not been adequately integrated int the growth figures. According to the Economist, "depending on your methodology...China's GDP per head” can be “as little as $425 or more than $3,500.” Incomes are low but many goods are very cheap in China.

Between 1980 and 2000 China relied mainly on light industry to generate growth. Some economists also claim much of the growth has been artificial, stimulated by heavy government spending, subsidies, cheap electricity and bank loans that will never be repaid (See Banks). The environmental costs of the rapid expansion have been huge: foul air, water shortages. With its low wages and prices China exported deflation abroad.

Along with the economic growth came high prices. In Chinese cities. the prices of office space and housing have soared. Very quickly Shanghai went from being one of the world’s cheapest cities to one of the most expensive, with Western-style, two-bedroom apartment going for $8,000 a month or more. Along with affluence come an increase in crime and corruption, with some of the biggest windfalls hauled in by by government and military officials and "princelings"—the children of officials.

Regions in China Left Out of the Economic Boom

Daily life in much of China Development and growth has been spotty and uneven. While Beijing and Shanghai have been ranked by the United Nations as equivalent to Greece and Singapore on a per capita GDP level the provinces of Gansu and Guizhou have been ranked with Haiti and Sudan.

The economic boom has mainly benefitted the 300 million or so urban Chinese living in and around the coast. The 18 central and western provinces have mainly been left out of the economic miracle and the majority of China's 900 million rural residents still live in feudal conditions as subsistence farmers.

Some places like Heliongjong and the northeast in general—the home of China’s oil and heavy machinery industry—prospered in Maoist era have declined since the Deng reforms kicked in. The oil and heavy machinery industry there have declined; places like Harbin have an unemployment rate double those in the the rest of country; governments have been unable to attract much new industry; and some of the jobs that remain pay only $12 a month. The people who seem most well off in Harbon are the official that live in what has been dubbed Corruption Street.

Closer Look at Deng’s Economic Policies

Fang Lizhi wrote in the New York Review of Books, “On a per capita basis, China’s GDP is still only a quarter of Taiwan’s, a fifth of South Korea’s, and a tenth of Japan’s. Moreover the engine of China’s growth remains, for the most part, low-end products produced by cheap labor, where China has a competitive advantage. In history China has had this kind of “superiority” before. In 1820, under the Qing dynasty, the GDP of China’s largely agricultural economy was six times that of industrialized England. But England had gunboats, and when the Opium Wars came, it had its way with China. [Source: Fang Lizhi, New York Review of Books, November 10, 2011, in a review of Deng Xiaoping and the Transformation of China by Ezra F. Vogel]

The Chinese government likes to claim that it has lifted millions from poverty as part of the greatest program to improve the condition of the poor the world has ever seen. Westerners sometimes echo such claims. Vogel tells us that “today hundreds of millions of Chinese are living far more comfortable lives than they were living in 1989” thanks to “the most basic changes since the Chinese empire took shape during the Han dynasty over two millennia ago.” In such claims, terms like “poverty” and “famine” are never defined with enough rigor to allow much quantitative measurement through history, and people unfamiliar with Chinese history can be led to suppose that China for two thousand years resembled something like Somalia today.

But this is hardly the case. Chinese history does contain many records of poverty and famine, but, insofar as these events can be quantified, it is hard to say that their extent, on average, exceeds what occurred in other parts of the world. The suggestion that two thousand years of Chinese history were mired in chronic poverty is inconsistent with what we know about the rise and fall in the size of the population. Wars and invasions often caused the population to decline, but in times of peace the consistent pattern was that population grew rapidly. The huge Mao-made famine of 1959–1962 (which killed thirty or forty million people) showed us that, in times of famine, pregnancy rates fall drastically and population growth slows, even to zero. Peacetime population growth, the standard pattern in China’s long history, is a clear sign of absence of poverty. To say that Deng is responsible for the largest program to eliminate poverty and famine in world history is political hype.

Moreover, the claim that Deng “lifted” millions from poverty confuses the doer and the receiver of action. To the extent that economic “lifting” has happened in post-Mao times, it has been the menial labor of hundreds of millions of people—working without labor unions, or a free press, or a neutral judiciary, or protections like OSHA rules—that has done the heavy lifting. This workforce has improved not just the lives of the millions themselves but, even more, of the Communist elite, who in many cases have soared to stratospheric heights of opulence. World Bank figures show that in China the Gini coefficient, which measures income inequality in populations, has skyrocketed from 0.16 before Deng’s reforms to a current 0.47, near the high end of the scale. This dramatic change has much less to say about “hundreds of millions” than it does about one of the maxims that Deng delivered at the outset of reform: “Let a part of the population get rich first.”

Deng never specified which “part” he had in mind. He left this for Chinese people themselves to figure out. For me personally, the realization arrived most clearly with a surprising series of events that happened to me in the late 1980s.

Western observers have found it incongruous that Deng was so active in pushing economic reform but so stubborn in preventing political reform—as if these were in some way contradictory policies. But there was no contradiction: one policy was aimed to bring wealth to the Party-connected elite and the other was aimed to preserve its power. To use the Party’s army to suppress student protesters who threatened Party wealth and power was entirely consistent with his basic principles.

Image Sources: Wikimedia Commons; Deng poster, Landsberger; Market, Nolls China website; buying a TV, Ohio State University

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2008 Jeffrey Hays

Last updated March 2012