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Chinese Economic Reform Under Communist Rule Essay, Research Paper

Chinese Economic Reform under Communist Rule

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 ideologies such as serving

the people and maintaining the class struggle. By 1978 “Chinese leaders were

searching for a solution to serious economic problems produced by Hua Guofeng,

the man who had succeeded Mao Zedong as CCP leader after Mao’s death” (Shirk 35).

Hua 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). This last area was particularly

troubling. While “the gross output value of industry and agriculture increased

by 810 percent and national income grew by 420 percent [between1952 and 1980] …

average individual income increased by only 100 percent” (Ma Hong quoted in

Shirk 28). However, attempts at economic reform in China were introduced not

only due to some kind of generosity on the part of the Chinese Communist Party

to increase the populace’s 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, properly it would seem, that it had suffered a loss of support. As

Susan L. Shirk describes the situation in The Political Logic of Economic Reform

in China, restoring the CCP’s prestige required improving economic performance

and raising living standards. The traumatic experience of the Cultural

Revolution had eroded popular trust in the moral and political virtue of the CCP.

The party’s leaders decided to shift the base of party legitimacy from virtue to

competence, and to do that they had to demonstrate that they could deliver the

goods. (23) This movement “from virtue to competence” seemed to mark a serious

departure from orthodox Chinese political theory. Confucius himself had posited

in the fifth century BCE 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 at least its bureaucratic

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, Mao believed, by

the way people lived. Needless to say, that which constituted correct

consciousness was often determined and assessed by Mao. Nevertheless, the ideal

of moral force was still a potent one in China even after the Communist takeover.

It is noteworthy that Shirk feels that the Chinese Communist Party leaders saw

economic reform as a way to regain their and their party’s moral virtue even

after Mao’s death. Thus, paradoxically, 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. To be sure, the move toward

economic reform came about as a result of a “changed domestic and international

environment, which altered the leadership’s perception of the factors that

affect China’s national security and social stability” (Xu 247). But Shirk feels

that, in those pre-Tienenmen days, such a move came about also as a result of an

attempt by CCP leaders to demonstrate, in a more practical and thus less

obviously ideological manner than Mao had done, their moral force. This is not

to say that the idea of economic reform was embraced enthusiastically by all

members of the leadership of the Chinese Communist Party in 1978. To a great

extent, the issue of economic reform became politicized as the issue was used as

a means by Deng Xiaoping to attain the leadership of the Chinese Communist Party.

Mao’s successor, 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. “[W]hen [in 1978] estimates of the oil reserves were revised

downward[,] commitments to import plants and expand heavy industry could not be

sustained” (Shirk 35). 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 for post-Mao leadership” (Shirk 36). Given this history of economic

reform, it is evident that “under the present system economic questions are

necessarily political questions” (Dorn 43). 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 retain[ed] the dominant power in economic

resource allocation and responsible local officials work[ed] 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 via the process

of what might be called benign neglect. As Shirk points out, in rural areas,

decollectivization was occurring: “decision making power [was being transferred]

from collective production units (communes, brigades, and teams) to the family”

(38); purchase prices for major farm products were increased (39). 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, “city prices of fruit and vegetables, fish, meat,

and eggs, were freed from government controls so they could respond to market

demand” (Shirk 39). Most importantly, “a surge of private and collective

industry and commerce in the countryside” (Shirk 39) occurred. This allowed a

great percentage of the populace to become involved in private enterprise and

investment in family or group ventures. The conditions also allowed rural

Chinese to leave the villages and become involved in industry in urban centers

(Shirk 40). The economy grew so quickly that inflation occurred and the

government had to reinstitute price controls. China’s economy retains these

characteristics of potential for growth?and inflation?to this day. Another

important aspect of Chinese economic reform was the decision of China to join

the world economy. Deng Xiaoping and his allies hoped to effect this 1979

resolution in two ways: by expanding foreign trade, and by encouraging foreign

companies to invest in Chinese enterprises. This policy?denoted the “Open

Policy” (Shirk 47)–was a drastic removal from the policies of Mao Zedong and,

in fact, from centuries of Chinese political culture. The Open Policy, which

designated limited areas in China “as places with preferential conditions for

foreign investment and bases for the development of exports” (Nathan 99), was

extremely successful in the areas where it was implemented (Shirk 47). However,

it was looked upon by many Chinese as nothing less than an avenue to “economic

dependency” (Nathan 50). Indeed, when the policy was first implemented, many

Chinese seem[ed] to fear that Deng’s policies [were] drawing China back toward

its former semi-colonial status as a “market where the imperialist countries

dump their goods, a raw material base, a repair and assembly workshop, and an

investment center.” (Nathan 51) It is interesting to note the symptoms of a

national character that would subscribe to the above sentiment. In an article

written in 1981, just two years after the Open Policy was first proposed, Andrew

J. Nathan noted the almost pathological resistance to foreign intervention in

the Chinese economy: “Some Chinese fear that reliance on imported technology

will encourage a dependent psychology … [Many] Chinese perceive joint ventures

as a costly form of acquisition. ‘Some people worry: Won’t we be suffering

losses by letting foreigners make profits in our country?’” (52). The Chinese

were as vociferous about issues of sovereignty. Nathan maintained that the Mao-

led revolution, which culminated in victory in 1949, had been fueled by “an

intense patriotism: … once China had ’stood up,’ no infringement on its

sovereignty, no matter how small, should be permitted” (53). These feelings were

manifested in denying foreign businessmen long-term, 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 lest Chinese become exploited in some way

(Nathan 53-55). Given these hesitancies on the part of the Chinese society vis-

a-vis foreign relations, it is impressive that Deng and his allies were able

initially 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 successes of the Open

Policy were apparent, resistance to the plan by the populace waned. Moreover,

given the confluence of politics and economics in China, it seems apparent that

some members of the CCP would also not be in favor of the plan. Nevertheless,

the Open Policy was implemented and has become instrumental in the success of

the burgeoning Chinese economy. 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?an area which, at the time,

included nearly 200 million people. Moreover, by involving more overseas

investors, “importing both capital and raw materials,” and “exporting China’s

cheap excess labor power,” the new policy was one of “‘export-led growth’ or

‘export-oriented industrialization.’ It [was] explicitly modeled on the

experiences of Taiwan and the other Asian ’small dragons’” (Nathan 99). One

analyst has maintained that “China now 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 environs in the Yangtze Delta area have 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, but is currently

in the process of catching up with other areas so designated. Indeed, the

increase in foreign investments in the last two years is striking. 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 (Shirk 47) and will allow his power to be sustained even after

death. If this is true, Deng should be very popular in Shanghai. With its new

designation, and with the billions of foreign dollars coming into the area, it

has become necessary to improve the city’s facilities. To that end forty billion

dollars worth of public works projects have been allocated by the central

government for Shanghai within the last year (Tyler A1). These public works

projects include new sewers, a new water system, new gas lines, a new bridge,

and extensive roadwork. Future plans include the construction of a second

international airport, a container port, a new subway system, and more roads and

bridges (Tyler A8). The financial district, which will feature a new stock

exchange, is also being rebuilt by China and foreign investors in a joint

venture. By being designated for preferential conditions, Shanghai received from

the central government tax exemptions for enterprises doing business with

foreign companies, tax holidays for new factories set up with foreign

investments, and a bonded zone?the largest in China?for duty free imports of raw

materials. Shanghai now has all the trappings of a modern city: discos,

construction projects, and conspicuous consumption. In short, where “revered

monuments and golden arches exist side by side” (Riboud 12), the appearance of

the new Shanghai does nothing less than signal “the end of the ideological

debate over China’s free market experiments” (Tyler A8). Shanghai has joined the

ranks of the modern metropolis. However, this is not necessarily a beneficial

development. Inflation is rampant: prices have doubled in the industrial zones

in the last five years. Nevertheless, the fact that Shanghai currently possesses

the fifth most expensive office space in the world demonstrates that demand is

high and that the prospects for future growth are promising (Tyler A8). Indeed,

Pudong, a free export manufacturing zone described as “the future sight of

Shanghai’s Manhattan” (Tyler A8), boasts more than twenty factories built or

being built with names like Siemens and Hitachi prominent. This area has become

particularly attractive to foreign investors and companies because of its tax

concessions, duty free imports of raw materials, and cheap labor. Shanghai

stands to benefit, too, as it receives ancillary technology and discretionary

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