CHINESE ECONOMIC REFORM

This essay has a total of 4883 words and 21 pages.

CHINESE ECONOMIC REFORM




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 base 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 Chinese Communist Party (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, Andrew J. China's Crisis pg. 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 between 1952 and 1980; average individual income increased by only 100 percent" (Ma Hong quoted in Shirk, Susan L. "The Political Logic of Economic Reform in China." Berkeley pg. 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.

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, Zhiming. "The Impact of China's Reform and Development on the Outside World." pg. 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. "When, 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, James A. "Pricing and Property: The Chinese Puzzle." pg. 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 retained the dominant power in economic resource allocation and responsible local officials worked for the interest of the units under their control" (Solinger, Dorothy J. China's Transition from Socialism: Statist Legacies and Market Reforms pg. 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 seemed 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 that, 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, Patrick E. "Economic Focus in Shanghai: Catching Up." sct. 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). China and foreign investors in a joint venture are also rebuilding the financial district, which will feature a new stock exchange. 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, Marc. "China Leaps Upward." pg. 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 spending from the workers and executives of the companies represented (Tyler A8). It is conditions like these that have caused at least one analyst to predict that China will be "the richest economy in the world within the next 25 years" (Gilder 372).

Shanghai is by no means unique to this growth. Additional foreign investments have continued to pour into other areas of China. For example, the Boeing Company recently announced its intention to "invest $100 million in a plant in Xian China to make tail sections for 737 jetliners" ("Boeing Planning to Invest $100 Million for China Plant." New York Times sct.

Read essay without registering

Donate an essay now and get the full essay emailed you




Acceptable files: .txt, .doc, .docx, .rtf

Email Address