Chinese Economic ReformTwo years after the death of Mao Zedong in 1976, it became apparent to many ofChina’s leaders that economic reform was necessary. During his tenure as China’spremier, Mao had encouraged social movements such as the Great Leap Forward andthe Cultural Revolution, which had had as their base ideologies such as servingthe people and maintaining the class struggle. By 1978 “Chinese leaderswere searching for a solution to serious economic problems produced by HuaGuofeng, the man who had succeeded Mao Zedong as Chinese Communist Party (CCP)leader after Mao’s death” (Shirk 35). Hua had demonstrated a desire tocontinue the ideologically based movements of Mao.
Unfortunately, thesemovements had left China in a state where “agriculture was stagnant,industrial production was low, and the people’s living standards had notincreased in twenty years” (Nathan, Andrew J. China’s Crisis pg. 200). Thislast area was particularly troubling. While “the gross output value ofindustry and agriculture increased by 810 percent and national income grew by420 percent between 1952 and 1980; average individual income increased by only100 percent” (Ma Hong quoted in Shirk, Susan L. “The Political Logicof Economic Reform in China.
” Berkeley pg. 28). However, attempts ateconomic reform in China were introduced not only due to some kind of generosityon the part of the Chinese Communist Party to increase the populace’s livingstandards. It had become clear to members of the CCP that economic reform wouldfulfill a political purpose as well since the party felt, properly it would seemthat it had suffered a loss of support. As Susan L.
Shirk describes thesituation in The Political Logic of Economic Reform in China, restoring theCCP’s prestige required improving economic performance and raising livingstandards. The traumatic experience of the Cultural Revolution had erodedpopular trust in the moral and political virtue of the CCP. The party’s leadersdecided to shift the base of party legitimacy from virtue to competence, and todo that they had to demonstrate that they could deliver the goods. This movement”from virtue to competence” seemed to mark a serious departure fromorthodox Chinese political theory. Confucius himself had posited in the fifthcentury BCE that those individuals who best demonstrated what he referred to asmoral force should lead the nation. Using this principle as a guide, China hadfor centuries attempted to choose at least its bureaucratic leaders byadministering a test to determine their moral force.
After the Communisttakeover of the country, Mao continued this emphasis on moral force by demandingthat Chinese citizens demonstrate what he referred to as “correctconsciousness. ” This correct consciousness could be exhibited, Maobelieved, by the way people lived. Needless to say, that which constitutedcorrect consciousness was often determined and assessed by Mao. Nevertheless,the ideal of moral force was still a potent one in China even after theCommunist takeover. It is noteworthy that Shirk feels that the Chinese CommunistParty leaders saw economic reform as a way to regain their and their party’smoral virtue even after Mao’s death.
Thus, paradoxically, by demonstrating theirexpertise in a more practical area of competence, the leaders of the CCP feltthey could demonstrate how they were serving the people. To be sure, the movetoward economic reform came about as a result of a “changed domestic andinternational environment, which altered the leadership’s perception of thefactors that affect China’s national security and social stability” (Xu,Zhiming. “The Impact of China’s Reform and Development on the OutsideWorld. ” pg. 247). But Shirk feels that, in those pre-Tienenmen days, such amove came about also as a result of an attempt by CCP leaders to demonstrate, ina 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 wasembraced enthusiastically by all members of the leadership of the ChineseCommunist Party in 1978. To a great extent, the issue of economic reform becamepoliticized as the issue was used as a means by Deng Xiaoping to attain theleadership of the Chinese Communist Party. Mao’s successor, Hua Guofeng, had”tried to prove himself a worthy successor to Mao by draping himself in themantle of Maoist tradition. His approach to economic development was orthodoxMaoism with an up-to-date, international twist” (Shirk 35). This approachwas tied heavily to the development of China’s oil reserves.
“When, in1978, estimates of the oil reserves were revised downward, commitments to importplants and expand heavy industry could not be sustained” (Shirk 35). Dengtook advantage of this economic crisis to discredit Hua and aim for leadershipof the party. “Reform policies became Deng’s platform against Hua forpost-Mao leadership” (Shirk 36). Given this history of economic reform, itis evident that “under the present system economic questions arenecessarily political questions” (Dorn, James A.
“Pricing andProperty: The Chinese Puzzle. ” pg. 43). Once Deng and his faction hadprevailed, it was necessary for some sort of economic reform to evolve. Theinitial form the new economy took was not a radical one. China was “still astate in which the central government retained the dominant power in economicresource allocation and responsible local officials worked for the interest ofthe units under their control” (Solinger, Dorothy J.
China’s Transitionfrom Socialism: Statist Legacies and Market Reforms pg. 103). However, as timepassed, some basic aspects of the old system were altered either by design orvia the process of what might be called benign neglect. As Shirk points out, inrural areas, decollectivization was occurring: “decision making power wasbeing transferred from collective production units (communes, brigades, andteams) to the family” (38); purchase prices for major farm products wereincreased (39).
In 1985, further reforms were introduced. For example, long-termsales contracts between farmers and the government were established. Inaddition, in an effort to allow the market to determine prices, “cityprices of fruit and vegetables, fish, meat, and eggs, were freed from governmentcontrols so they could respond to market demand” (Shirk 39). Mostimportantly, “a surge of private and collective industry and commerce inthe countryside” (Shirk 39) occurred.
This allowed a great percentage ofthe populace to become involved in private enterprise and investment in familyor group ventures. The conditions also allowed rural Chinese to leave thevillages and become involved in industry in urban centers (Shirk 40). Theeconomy grew so quickly that inflation occurred and the government had toreinstitute price controls. China’s economy retains these characteristics ofpotential for growth–and inflation–to this day. Another important aspect ofChinese 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 inChinese enterprises. This policy–denoted the “Open Policy” (Shirk47)–was a drastic removal from the policies of Mao Zedong and, in fact, fromcenturies of Chinese political culture. The Open Policy, which designatedlimited areas in China “as places with preferential conditions for foreigninvestment and bases for the development of exports” (Nathan 99), wasextremely 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 firstimplemented, many Chinese seemed to fear that Deng’s policies were drawing Chinaback toward its former semi-colonial status as a “market where theimperialist countries dump their goods, a raw material base, a repair andassembly workshop, and an investment center.
” (Nathan 51). It isinteresting to note the symptoms of a national character that would subscribe tothe above sentiment. In an article written in 1981, just two years after theOpen Policy was first proposed, Andrew J. Nathan noted the almost pathologicalresistance to foreign intervention in the Chinese economy: “Some Chinesefear that reliance on imported technology will encourage a dependent psychology. .
. Many Chinese perceive joint ventures as a costly form of acquisition. ‘Somepeople worry: Won’t we be suffering losses by letting foreigners make profits inour country?'” (52). The Chinese were as vociferous about issues ofsovereignty.
Nathan maintained that the Mao-led revolution, which culminated invictory in 1949, had been fueled by “an intense patriotism: . . . once Chinahad ‘stood up,’ no infringement on its sovereignty, no matter how small, shouldbe permitted” (53). These feelings were manifested in denying foreignbusinessmen long-term, multiple entry visas, resisting “increased foreigneconomic contacts” and alteration of current ways of doing things, anddisinclination to become involved in government-to-government loans and jointventures lest Chinese become exploited in some way (Nathan 53-55).
Given thesehesitancies on the part of the Chinese society vis-a-vis foreign relations, itis impressive that Deng and his allies were able initially to create andimplement the Open Policy since many members of the society at large wereresistant to becoming involved in a policy so antithetical to the Chinesenational character. However, once the successes of the Open Policy wereapparent, resistance to the plan by the populace waned. Moreover, given theconfluence of politics and economics in China, it seems apparent that somemembers of the CCP would also not be in favor of the plan. Nevertheless, theOpen Policy was implemented and has become instrumental in the success of theburgeoning Chinese economy.
The implementation of the Open Policy was sosuccessful that by 1988 the leaders of the CCP were encouraged to create a newprogram called the “coastal development strategy. ” In this program,even more of the country was opened up to foreign investment–an area that, atthe time, included nearly 200 million people. Moreover, by involving moreoverseas investors, “importing both capital and raw materials,” and”exporting China’s cheap excess labor power,” the new policy was oneof “‘export-led growth’ or ‘export-oriented industrialization. ‘ It wasexplicitly modeled on the experiences of Taiwan and the other Asian ‘smalldragons'” (Nathan 99). One analyst has maintained that “China nowstands at the threshold of the greatest opportunity in human history: a neweconomic era promising greater wealth and achievement than any previousepoch” (Gilder 369).
Illustrative of this optimistic feeling is Shanghai,an area that was designated for preferential conditions for foreign investmentand as a base for the development of exports in 1988. This city and environs inthe Yangtze Delta area have a population of approximately 400 million people andthe city has become the nation’s financial hub for international and nationalinvestors. For political reasons, this area was excluded from the original OpenPolicy designation in 1978, but is currently in the process of catching up withother areas so designated. Indeed, the increase in foreign investments in thelast two years is striking. The area received 3. 3 billion dollars in foreigninvestments during the 1980s.
The area received the same amount from foreigninvestments in 1992 alone. In only the first ten months of 1993, the area hadreceived over six billion dollars worth of foreign investments (Tyler, PatrickE. “Economic Focus in Shanghai: Catching Up. ” sct. A8). Westernanalysts have asserted that the Open Policy and the coastal development strategyhave allowed Deng to entrench his political power (Shirk 47) and will allow hispower to be sustained even after death.
If this is true, Deng should be verypopular in Shanghai. With its new designation, and with the billions of foreigndollars coming into the area, it has become necessary to improve the city’sfacilities. To that end forty billion dollars worth of public works projectshave 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 theconstruction of a second international airport, a container port, a new subwaysystem, and more roads and bridges (Tyler A8). China and foreign investors in ajoint venture are also rebuilding the financial district, which will feature anew stock exchange.
By being designated for preferential conditions, Shanghaireceived from the central government tax exemptions for enterprises doingbusiness with foreign companies, tax holidays for new factories set up withforeign investments, and a bonded zone–the largest in China–for duty freeimports 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 newShanghai does nothing less than signal “the end of the ideological debateover China’s free market experiments” (Tyler A8).
Shanghai has joined theranks of the modern metropolis. However, this is not necessarily a beneficialdevelopment. Inflation is rampant: prices have doubled in the industrial zonesin the last five years. Nevertheless, the fact that Shanghai currently possessesthe fifth most expensive office space in the world demonstrates that demand ishigh and that the prospects for future growth are promising (Tyler A8). Indeed,Pudong, a free export-manufacturing zone described as “the future sight ofShanghai’s Manhattan” (Tyler A8) boasts more than twenty factories built orbeing built with names like Siemens and Hitachi prominent. This area has becomeparticularly attractive to foreign investors and companies because of its taxconcessions, duty free imports of raw materials, and cheap labor.
Shanghaistands to benefit, too, as it receives ancillary technology and discretionaryspending from the workers and executives of the companies represented (TylerA8). It is conditions like these that have caused at least one analyst topredict that China will be “the richest economy in the world within thenext 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 737jetliners” (“Boeing Planning to Invest $100 Million for ChinaPlant.
” New York Times sct. D4). In addition, E. I. du Pont recentlypredicted “that its investments and business in China could increase asmuch as ten times by the end of the century” (“Du Pont Plans IncreaseIn Chinese Investment. ” New York Times, sct.
D2). Tellingly, du Pont’schairman attributed the company’s negotiations of “as many as 28 newprojects in China” to the fact “that the country’s financial changes,improved infrastructure and rising disposable income has encouraged the companyto expand its business activities” (Du Pont” pg. 23). The Chinesegovernment has made conscientious attempts to promote the strength of thecountry’s economy while protecting its citizens. Just a few weeks ago, thegovernment instituted “tight-money policies, intended to control inflationand slow what has been the world’s fastest growing major economy” (Shenon,Philip. “China Halts Listing of New Stock.
” New York Times, sct. D1). However, after doing so, China’s Securities Regulatory Commission was forced tostop the issuing of new issues on the Shanghai and Shenzhen Stock exchangesbecause the value of the markets had decreased so greatly. This latter move was”meant to calm millions of first-time Chinese investors who evidently wentinto the market believing that stock prices could only go up” (Shenon”China Halts” D1).
Might this policy show a union of economic andmoral concern? If so, it demonstrates the desire on the part of the governmentto show some kind of responsibility, some moral force, to its citizenry. At thevery least, the strategy appears to show a practical desire on the part of thegovernment to take control over what could have been a bad economic situation. Indeed, after these measures were instituted, China’s trade deficit decreased (HansellD2) and the stock markets’ volume attained record highs (“Stocks Surge inChina as Volume Sets Record. ” New York Times sct. D2).
To be sure, Chineseinvestors remain somewhat wary about the stock market and, ironically enough,more control of the stock markets appears to be necessary (Shenon, Philip. “A Nail-Biting Ride in Shanghai. ” New York Times sct. D1). But, indiscussing Chinese attempts to control inflation, Philip J.
Suttle, head ofemerging markets research at the investment firm of J. P. Morgan, has predictedthat “it looks as though the Chinese are going to have the soft landingthey are aiming for” (quoted in Hansell D2). China’s interest in stockmarkets is no longer restricted to within its own boundaries.
This month,Shandong Huaneng Power Development Company, “the first mainland Chinesecompany to have its primary listing on the New York Stock Exchange”(“China Stock Is Most Active. ” New York Times, sct. D5), began tradingshares. The stock should be an attractive one to investors: Chinese electrical”demand . .
. is expected to grow by a whopping 17 million kilowatts a yearuntil the turn of the century” (Zuckerman, Laurence. “A ForeignOffering’s Unsure Pedigree. ” New York Times, sct.
D6). Moreover, Chinastands to gain from the issue’s sales. “The company plans to use the $311million dollars it received from the offering to retire $83 million in loansfrom . . .
Chinese State entities. It also plans to expand its overall generatingcapacity” (Zuckerman D6). Nor does this signify the only Chinese attempt ofraising capital from foreign sources on foreign soil. “Three more powercompanies are expected to be listed in New York and Hong Kong in the comingmonths” (Zuckerman D6). Given the apparent strength of the Chinese economyas shown by huge public works projects, extensive foreign investments,participation in the world economy, and a generally higher standard of living bythe populace, it would appear that China is now ready to join the world as amodern capitalistic and democratic society. However, this is not quite the case.
The CCP retains vestiges of those characteristics of insularity andintransigence as discussed by Nathan. Because of its human rights record, thecountry’s economic growth is being impeded. That is, the politics of China,which have always been allied with its economics, are now restrictinginternational growth. The United States, especially, has been concerned withChina’s treatment of political dissidents. In May of 1999, President Clintondecided to end linking China’s trade status with the United States with itsrecord on human rights. The president has been criticized for this because ofsituations like the following: trials for “‘counterrevolutionaryactivities’, including plans to use a remote-controlled airplane to droppro-democracy leaflets over Tienenmen Square” (“China cracks down ondissent after trade threat lifted, report says.
“Hartford Courant, sct. A13)have recently begun for fifteen dissidents and labor organizers who wereinvolved in the Tienenmen Square protests. These trials have “been delayedtwice, first to avoid negative international reaction just before the decisionlast September on China’s failed bid to host the 2000 Olympics and then thisspring to avoid influencing Clinton’s trade decision” (“Chinacracks” A13). In addition, China has instituted “new laws effective inJune which give sweeping powers to China’s State Security Bureau to clamp downon dissidents” (“China cracks” A13). China is fully aware ofUnited States’ concerns about its human rights record.
Given the fact that theUnited States has made it clear to China that that record will be allied withtrade status, China’s timing of such restrictive activities has caused UnitedStates legislators and administrators to question China’s sincerity in itsdesire to have a favored trade status with the United States. Indeed, just inthe past few days, it took a last-minute lobbying campaign by President Clintonand his Cabinet to head off a potentially embarrassing vote by the House ofRepresentatives to restrict trade with China as a way to punish Beijing forreported human rights violations. (Bradsher, Keith. “Bill to RestrictChina’s Imports Loses in House. ” A7). But China’s problems in joining thecommunity of the world market have more to do than with its political ethos andpractices.
China appears not to understand or to be able to follow through onfundamental modern economic practices. For example, the United States hasrecently complained that “China has not complied with international ruleson access to its markets and protection of copyrights and patents” (Gargan,Edward A. “U. S.
May Thwart China’s Trade Goal. ” New York Times pg. 14). Such non-compliance could make it difficult for China to become a foundingmember of the World Trade Organization, the successor to the General Agreementon Tariffs and Trade and the body that is intended to promote global free tradeby lowering tariffs and other barriers, which will be formally constituted onJanuary 1, 1994.
(Gargan 14) The specific nature of the United States’ complainthas to do with China’s pirating of musical compact disks, video laser disks andcomputer software. In fact, it is estimated that such pirating costs Americancompanies a billion dollars a year. This phenomenon seems to have to do with theChinese psychology as described by Nathan. In his 1981 essay he noted that Chinadid not wish to become a “technological client of the west. The preferredsolution is to buy one item and copy it” (Nathan 52). Clearly, this is notthe way trade works today.
It is the United States’ position that China mustadhere 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, butparticularly for an emerging market such as China. Even on a day to day basis,China’s economic leaders seem unable to understand how some aspects of a marketeconomy work. In discussing the status of the Shanghai Stock Market, forexample, one stock dealer referred to it as “crazy” (“StocksSurge” D2). Moreover, American analysts have been amazed to discover in theShanghai market “the lack of regulation and the poor disclosurerequirements. Some companies have been listed for two or three years and havenot issued an annual report” (Hansell, D2).
It is no wonder that Chineseinvestors become anxious about their investments. The issuance of shares in theShandong Huaneng Power Development Company also demonstrates the lack ofexpertise on the part of the Chinese in the modern world market. In fact,according to one Hong Kong investment analyst, “‘the company wasn’t reallya company. It was just a bunch of discrete plants that they tied a bow aroundand wrote a prospectus on'” (Zuckerman D6).
The prospectus guaranteed afifteen percent annual return on investments. In fact, the return will no doubtbe less than that because of prevailing currency exchange rates and debt thatthe company will have to assume. To be sure, the problems of the ShandongHuaneng Power Development Company and the Shanghai Stock Exchange maydemonstrate only the problems of an immature economy. Nevertheless, if Chinawishes to become a viable member of the world economic community, suchshortcomings will have to be eliminated quickly. These apparent problems mayalso be the result of an economic system that is run by the state.
Certainly,one thing that the CCP has attempted to do is create a market economy whileretaining a state controlled system. This structure may be possible but it doeshave its critics. Steven N. S.
Cheung, in an essay written in 1989, argued forthe “creation of private property by mandate” (31), feeling thatprivatization in China would lead to necessary additional investment in thesociety’s infrastructure and the establishment of a “judicial system thatis based firmly on the principle of equality before the law” (Cheung,Steven N. S. “Privatization vs. Special Interests: The Experience of China’sEconomic Reforms. ” pg. 32-250).
Echoing Cheung’s sentiments, James Dorn sawproblems in the areas of Chinese banking and finance. In this arrangement, Dornargued, “the state controls the bulk of investment resources. The lack of aprivate capital market has handicapped economic development in China andhampered rational investment decision making” (43). In order to become amodern economic state Dorn argued for the necessity of circumventing”China’s ruling elite who oppose the dismantling of state monopolies andwho benefit from price fixing and non-price rationing” (51).
Xu Zhimingalso saw the necessity for a revamping of the Chinese system: “We mustthrow off the traditional system completely” (249) in order for economicreform to thrive. Communist Party members, of course, articulate a differentposition. In a recent interview that appeared in the Beijing Review, Feng Bing,Deputy Secretary-General of the State Commission for Restructuring the EconomicSystem, spoke to the issue of economic reform in China. It is striking that Fengspoke of the benefits that the populace has received as a result of the economicreform now occurring in China.
That is, his comments appeared to demonstrate thebeneficence, or the moral force, of the Chinese Communist Party vis-a-viseconomic reform. He noted that such reform involves the essence of socialism:”to liberate and develop productive forces; to eradicate exploitation; toremove polarization; and . . .
to attain the goal of common prosperity”(“Official on Economic Reform. ” Beijing Review: pg. 12). Thus, CCPleaders still appear to see their roles as representatives of a moral force. CCPmembers and leaders wish economic reform not to be judged on just its practicalmerits, but also as an effect of the moral force of the leadership.
Economicreform, then, becomes nothing less than a moral crusade and it is thus easy tosee why, for example, China “has staked its national prestige on becoming afounding member of the World Trade Organization” (Gargan, pg. 14). WillChina succeeds in taking its place among the nations of the world market? Willthe CCP succeed in retaining its political power given the drastic changes inthe societal makeup of China that are occurring due to the changing economicrealities? I would suggest that the chances are better for the former than forthe latter. Once the Chinese attain more sophistication relative tointernational and national markets, institute a more manageable banking system,and make a good faith effort to insure acceptable human rights, the country maywell become “the richest economy in the world within the next 25years” (Gilder pg. 372). However, whether or not these conditions can occurwithout a weakening of the state-controlled system is problematic.
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