Chinese Economic Reform

Two years after the death of Mao Zedong in 1976, it became apparent to many of China’s leaders that economic reform was necessary. During his tenure as China’s premier, Mao had encouraged social movements such as the “Great Leap Forward” and the “Cultural Revolution” which had had as their bases ideas such as serving the people and maintaining the class struggle. By 1978 Chinas leaders were searching for a solution to serious economic problems. Hua Guofeng, the man who had succeeded Mao Zedong as CCP (Chinese Communist Party) leader after Mao’s death, had demonstrated a desire to continue the ideologically based movements of Mao.

Unfortunately, these movements had left China in a state where agriculture was stagnant, industrial production was low, and the people’s living standards had not increased in twenty years (Nathan 200). While the gross output value of industry and agriculture increased by 810 percent and national income grew by 420 percent [between 1952 and 1980] … average individual income increased by only 100 percent (Shirk 28). However, attempts at economic reform in China were not solely due to generosity on the part of the Chinese Communist Party to increase living standards.

It had become clear to members of the CCP that economic reform would fulfill a political purpose as well since the party felt that it had suffered a loss of support. (Shirk 23) This movement “from virtue to competence” seemed to mark a serious departure from orthodox Chinese political theory. Confucius himself had said that those individuals who best demonstrated what he referred to as moral force should lead the nation. Using this principle as a guide, China had for centuries attempted to choose its leaders by administering a test to determine their moral force.

After the Communist takeover of the country, Mao continued this emphasis on moral force by demanding that Chinese citizens demonstrate what he referred to as “correct consciousness. ” This correct consciousness could be exhibited by the way people lived. Thus, by demonstrating their expertise in a more practical area of competence, the leaders of the CCP felt they could demonstrate how they were serving the people. Economic reform came about as a result of an attempt by CCP leaders to demonstrate, in a more practical way than Mao had done, their moral force.

Xu 247) This is not to say that the idea of economic reform was embraced enthusiastically by all members of the Chinese Communist Party in 1978. To a great extent, the issue of economic reform became politicized when the issue was used as a means by Deng Xiaoping to obtain the leadership of the Chinese Communist Party. Hua Guofeng, had tried to prove himself a worthy successor to Mao by draping himself in the mantle of Maoist tradition. His approach to economic development was “orthodox Maoism with an up-to-date, international twist” (Shirk 35).

This approach was tied heavily to the development of China’s oil reserves. When estimates of the oil reserves were reported to be dropping, commitments to import plants and expand heavy industry could not be sustained. Deng took advantage of this economic crisis to discredit Hua and aim for leadership of the party. Reform policies became Deng’s platform against Hua. (Shirk 35-36) Once Deng and his faction had prevailed, it was necessary for some sort of economic reform to evolve.

The initial form the new economy took was not a radical one. China was still a state in which the central government retained the dominant power in economic resource allocation and local officials worked for the interest of the units under their control (Solinger 103). However, as time passed, some basic aspects of the old system were altered either by design or by the process of neglect. In 1985, further reforms were introduced. For example, long-term sales contracts between farmers and the government were established.

In addition, in an effort to allow the market to determine prices, the prices of fruits and vegetables, fish, meat, and eggs, were freed from government controls so they could respond to market demand. Most importantly a surge of private and collective industry and commerce in the countryside occurred. This allowed a great percentage of the populace to become involved in private enterprise and investment in family or group ventures. (Shirk 39-40) Another important aspect of Chinese economic reform was the decision of China to join the world economy.

In doing this Deng Xiaoping and his allies hoped to affect the economy in two ways: by expanding foreign trade, and by encouraging foreign companies to invest in Chinese enterprises. This policy (called the Open Policy) was a drastic removal from the policies of Mao Zedong and, in fact, from centuries of Chinese political culture. (Shirk 47) The Open Policy was limited to only a small number of areas in China, but it was extremely successful in the areas where it was implemented. In the beginning stages however, it was looked upon by many Chinese as nothing less than an avenue to economic dependency.

When the policy was first implemented, many Chinese seemed to fear that Deng’s policies were drawing China back toward its former semi-colonial status as a place where the “imperialist countries dump their goods, a raw material base, a repair and assembly workshop, and an investment center. ” (Nathan 51) These feelings were manifested in “denying foreign businessmen multiple entry visas, resisting increased foreign economic contacts and alteration of current ways of doing things, and disinclination to become involved in government-to-government loans and joint ventures” (Nathan 50-55)

Given these hesitancies it is impressive that Deng and his allies were able to create and implement the Open Policy, since many members of the society at large were resistant to becoming involved in a policy so antithetical to the Chinese national character. However, once the success of the Open Policy was apparent, resistance to the plan by the Chinese people lessened. The implementation of the Open Policy was so successful that by 1988 the leaders of the CCP were encouraged to create a new program called the “coastal development strategy.

In this program, even more of the country was opened up to foreign investment. It was modeled on the experiences of Taiwan and the other Asian countries. (Nathan 55-99) One analyst maintained that “China stands at the threshold of the greatest opportunity in human history: a new economic era promising greater wealth and achievement than any previous epoch” (Gilder 369). Illustrative of this optimistic feeling is Shanghai, an area that was designated for preferential conditions for foreign investment and as a base for the development of exports in 1988.

This city, and the area around the Yangtze Delta area, has a population of approximately 400 million people and the city has become the nation’s financial hub for international and national investors. For political reasons, this area was excluded from the original Open Policy designation in 1978. However, the increase in foreign investments has helped it catch up to those areas previously opened to the policy. The area received 3. 3 billion dollars in foreign investments during the 1980s. The area received the same amount from foreign investments in 1992 alone.

In only the first ten months of 1993, the area had received over six billion dollars worth of foreign investments (Tyler A8). Western analysts have asserted that the Open Policy and the coastal development strategy have allowed Deng to entrench his political power and will allow his power to be sustained even after death. (Shirk 47) With the influx of business into the area, it was necessary for the CCP to pump billions of dollars into improving the cities facilities. To that end forty billion dollars worth of public works projects were allocated by the central government for Shanghai in 1993 (Tyler A1).

These public works projects include new sewers, a new water system, new gas lines, a new bridge, and extensive roadwork. With all the new public works improvements Shanghai joined the ranks of the modern metropolis. However, this was not necessarily a beneficial development. Inflation was rampant: prices more than doubled in the industrial zones in only five years. Nevertheless, the fact that Shanghai possessed some of the most expensive office space in the world showed that demand was high and that the prospects for future growth were promising.

Tyler A8) Shanghai is by no means the only city to show growth. Additional foreign investments have continued to pour into other areas of China. For example, in 1994 the Boeing Company announced its intention to invest $100 million in a plant in Xian, China, to make tail sections for 737 jetliners (“Boeing” D4). In addition, the Du Pont Company predicted that its investments and business in China could increase as much as ten times by the end of the century (“Du Pont” D2).

Du Pont’s chairman attributed the company’s negotiations in China to the fact that the country’s financial changes, improved infrastructure and rising disposable income has encouraged the company to expand its business activities (“Du Pont” D2). The Chinese government had to make conscientious attempts to promote the strength of the country’s economy while protecting its citizens. And so, in 1994, the Chinese government instituted tight-money policies, intended to control inflation and slow what was the world’s fastest growing major economy (Shenon “China Halts” D1).

However, after doing so, China’s Securities Regulatory Commission was forced to stop the issuing of new issues on the Shanghai and Shenzhen Stock Exchanges because the value of the markets had decreased so greatly. This move was “meant to calm millions of first-time Chinese investors who evidently went into the market believing that stock prices could only go up” (Shenon “China Halts” D1). This demonstrates the desire on the part of the government to express some kind of responsibility, some moral force, to its citizens.

At the very least, the strategy appears to show a practical desire on the part of the government to take control over what could have been a bad economic situation. Given the apparent strength of the Chinese economy as shown by huge public works projects, extensive foreign investments, participation in the world economy, and a generally higher standard of living by the citizens, it would appear that China is now ready to join the world as a modern capitalistic and democratic society. However, this is not quite the case.

The CCP still shows characteristics of narrow-mindedness and inflexibility. Because of its human rights record, the country’s economic growth is being impeded. That is, the politics of China, which have always been allied with its economics, restrict international growth. The United States, especially, has been concerned with China’s treatment of political dissidents. China is fully aware of the United States’ concerns about its human rights record, especially given the fact that the United States has made it clear to China that that record will be allied with trade status.

China cracks” A1-5) Many of China’s problems in joining the community of the world market have had a lot to do with its political ethos and practices. China appears not to understand or to be able to follow through on fundamental modern economic practices. For example, the United States has complained that “China has not complied with international rules on access to its markets and protection of copyrights and patents” (Gargan 14). Such non-compliance could make it difficult for China to become a founding member of the World Trade Organization.

The specific nature of the United States’ complaint has to do with China’s pirating of musical compact discs, video laser discs and computer software. In fact, it is estimated that such pirating costs American companies a billion dollars a year. Clearly, this is not the way that the trade system works. It is the United States’ position that China must adhere to the rules of trade before it can be included in a trade organization. Needless to say, exclusion from WTO would be disastrous for any country, but particularly for an emerging market such as China. (Nathan 52)

That is, his comments appeared to demonstrate the beneficence, or the moral force, of the Chinese Communist Party vis–vis economic reform. He noted that such reform involves the essence of socialism: “to liberate and develop productive forces; to eradicate exploitation; to remove polarization; and … to attain the goal of common prosperity” (“Official” 12). CCP leaders still appear to see their roles as representatives of a moral force. CCP members and leaders wish economic reform not to be judged on just its practical merits, but also as an effect of the moral force of the leadership.

Economic reform, then, becomes nothing less than a moral crusade and it is easy to see why China “has staked its national prestige on becoming a founding member of the World Trade Organization” (Gargan 14). Once the Chinese attain more sophisticated international and national markets, institute a more manageable banking system, and make a good faith effort to insure acceptable human rights, the country may well become “the richest economy in the world within the next 25 years” (Gilder 372).

Chinas economic reform is truly an impressive advancement considering the short time span in which the Chinese government has so greatly improved its countrys economy. However, China, with all its emphasis on morality and “correct consciousness” still retains much of the dictatorial nature inherent in its state controlled governments. Much of the country still lives in poverty, and it seems as though the elite member of society exercise a totalitarian approach to running their local governments.

Along with all their economic reform must also come a reform of their political environment. The most impressive and far-reaching display of moral force by the CCP may well have to be a voluntary reduction of its power over the people. Paradoxically, by weakening itself politically, the party may demonstrate its true moral force by liberating, politically and economically, over one billion Chinese citizens.

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