CHAPTER-II

CHINESE PERSPECTIVES ON DEVELOPMENT

If there is a perfect example of close interrelationship between economic

development and national power, it is China. China has always perceived

development as a vital state concern, as a tool of growth and as an approJo.ch to a

prosperous society and powerful nation. This was evident both in ancient times and

in the twentieth century, particularly in the last two and half decades. Under the

post-Mao leadership, development became a key element, rather the central

element in the Ghinese tlefinition of comprehensive national power (CNP).

According to the China Institute of Contemporary International Relations, CNP

means the "sum total of the powers or strengths of a country in economy, military

affairs, science and technology, education and resources and its influence". 1 More

abstractly, it refers to the "combination of all the powers possessed by a country

for the survival and development of a sovereign state, including material and

ideational ethos, and international influence as we11".2 Although there could be

many indices of CNP and the Chinese Academy of Social Sciences (CASS) has

itself mentioned eight resources of CNP, the fact is that in the Chinese case,

development and security form the key components. 3 Between development and

security, the Chinese state took keen interests in developmental efforts and

prioritised its national strategies in such a manner so as to enable China attain CNP

in the shortest possible time and restore China to its ancient glory. In fact, the

2

Cited in Hu Angang and Men Honghua, 'The rising of modem China: comprehensive national power and grand strategy', available on http://www.kiep.go.kr/pr

Huang Shuofeng quoted in Ibid.

These eight resources are: economic, human, natural, capital, knowledge and technological, governmental, military and international. Among these, economic resources get the topmost weighted average in the calculation of the CNP. Cited in Ibid.

86

Chinese state has always taken a keen interest in the economic development of

China. This chapter, therefore, seeks to study China's development record, both

past and present and how the state played a key role in it. Having done that, the

chapter would tum to highlight the main features of China's development

experience.

History of China's development status:

There is a near consensus that except for the last two hundreds years, China

has always been a developed country since the eleventh century. By the virtue of

this developed status, China was a recognised great power. It had a self-sufficient

economy and other countries were traded with China on Chinese terms. Its

neighbours respected its supremacy and China was able to project itself as a

virtuous state willing to patronise its neighbours under a tribute system. The

difference of opinion is, however, about a more fundamental issue: the nature of

the Chinese economic development. According to some scholars, (traditional)

China had been industrialized, commercialised, monetized and urbanized far in

excess of any other state in the world.4 Others have difficulties in accepting this

and rather contend that Chinese economy, even though well developed, was based

on the old Confucian formula, 'respect agriculture and despise trade'. China was

also the leading agricultural country in the world. 5 It seems both the versions have

some elements of truth, as the main basis for China's prosperity was crops,

handicrafts and trade. China was unrivalled in porcelain, ceramics and had few

4 Andre Gunder Frank, Reorient: Global Economy in the Asian Age (New Delhi: Vistaar Publications, 1998), p. 219; Albert Feurwerker, 'Economic trends in the late Ch'ing empire, 1870-1911', in John K. Fairbank and Dennis Twitchett (eds.), The Cambridge History of China. Vol. 11, Late Ch 'ing, 1800-1911, Part 2 (Cambridge: Cambridge University Press, 1980), p. 58.

Jean Chesneaux, Marianne Bastid and Marie-Claire Bergere, China from the Opium Wars to the 1911 Revolution (London: Random House, 1976), p. 25. •

87

rivals in silk that was China's largest export product. . China also exported

quicksilver, tea (after 1600A.D.) and was the source of cupronickel, both of which

were used as alloys for coinage elsewhere. China's perennial export surplus

enabled it to function as the final 'sink' for the world's production of silver. Such

was the vastness of China's export network that it has been called a Sino-centric

international order in which other courytries could trade with China only in a

'tributary' network.6 The developmental achievements of China were reflected as

late as in 1793 when Emperor Qian Long wrote to England's King George III that,

"there is nothing we lack, as your principle envoy and others have themselves

observed. We have never set much store on strange or ingenious objects, nor do we

need any more of your country's manufacturers."7

F. W. Mote argues that this emergence of China as an important player in

the world economy had no official support. Unlike Europe where contemporary

states were essentially 'mercantile' and played an active role in· development

activities and trade, Chinese rulers were content with a governance role. Neither

they had any notion of a 'Chinese economy' nor did they perceive their country to

be in competition with other nations for the benefit of trade or access to resources.

Trade was conducted with little official support or supervision beyond collecting

modest tariffs on goods landed in Chinese ports.8 However, Mote's is an

exceptional opinion and others writings see a strong role of stat'e in China's

economic development. Marc Mancall, for example, says that the state had a major

role to play in the Chinese economy. Internally, it was directing a fundamentally

6

7

Cited in Andre Gunder Frank, Reorient: Global Economy in the Asian Age. Others also agree with this. For a representative example, see, Mark Mancall, China at the Center: 300 Years of Foreign Policy (New York: The Free Press, 1984), p. 40.

Quoted in Mark Mancall, Ibid. pp. 44-45.

F. W. Mote, Imperial China, 900-1800 (Cambridge, Massachusetts: Harvard University Press, 1999), p. 953.

88

redistributive economy while externally the trade was administered as part of the

tribute system.9 According to Mark Elvin, one of the reasons why the Chinese

government always played a lead role in China's trade with other countries was

because of its huge revenue potential. Since 1284, the state was made the sole legal

agent entitled to trade overseas. The early Mongol government adopted a policy of

restricted foreign trade. Under the Ming dynasty, the system of controlled trade

was converted into purely tributary trade from foreign nations acknowledging

Chinese suzerainty. 10 The state itself took many maritime voyages that saw a great

upsurge in development of handicrafts, silks, textiles, mining, metallurgy,

ceramics, paper and printing with movable metal types. 11

China's development status, however, began to stagnate by the beginning

of the nineteenth century. The Qing dynasty had become weak due to internal strife

and rise of feudalism. 12 By the mid-nineteenth century as a result of Opium, and

subsequently other wars, China had to accept a series of 'humiliating treaties',

which started eating into its economic base. By the early nineteenth century, the

damage to the Chinese economy was complete. This was evident in huge

budgetary deficits, trade imbalances, and soon, the dominating role exercised by

foreigners in modem Chinese industries and enterprises. In many ways, the

Chinese economy became "semi-colonial". 13

It was this 'economic plight' that led the state in China to reconsider its

apathy towards economic issues. Sun Yatsen, the most important leader in the

9

10

II

12

13

Marc Mancall, op. cit. n. 6, p. 55.

Mark Elvin, The Pattern of the Chinese Past (London: Eyre Methuen, 1973), pp. 217-219.

Haraprasad Ray, Trade and Diplomacy in India-China Relations: A Study of Bengal during the Fifteenth Century (New Delhi: Radiant Publishers, 1993), pp. 21-22.

Warren I. Cohen, East Asia at the Center: Four Thousand Years of Engagement with the World (New York: Columbia University Press, 2000), p. 271.

Immanuel C. Y. Hsu, The Rise of Modern China (Oxford: Oxford University Press, I 990), pp. 430-438.

89

Republican phase, came out for the first time, with a systematic VIew on

development in his 'Three Principles' theory. The Three Principles of the People

are understood to be the political doctrine that Sun was constantly elaborating

throughout the last decades of his political life in order to bring China out of a

political and economic morass and make it a great power again. The first principle,

. -~·

the pri . .,dple of nationalism was a philosophy of liberation for the Chinese race not

only against the Western imperialists who constituted the 'white peril' but also the

dynastic rule in China. The second principle, the rights of the people: an

instrumental democracy put faith in popular sovereignty and democracy as an

expression of nationalism. It was the third principle- the principle of the livelihood

of the people that contains his ideas on development. In The International

Development of China (1921) he broadened the programme of livelihood of the

people by defining it within the perimeter of state socialism. He was of the belief

that in a backward courttry like China, any (possibility of) development would

depend upon state intervention. He, therefore, spoke of state socialism, which

"would concern the fundamental sectors of transport, mining and manufacture". At

the same time, he was also in favour of space for private capital. As he said,

"China is poor .... other countries have a surplus of production while China is not

producing enough. So China must not only regulate private capital but she must

also develop state capital and promote industry". Also, he stressed the imperative

need to call upon foreign capital and experts. "We shall not be able to promote

these great industries by our own knowledge and experience, with our own

capital". 14 However, in practice, neither Sun Yatsen nor his successor, Chiang

Kaishek could deliver. The Chinese economy just failed to 'take-off and a great

14 Marie-Claire Bergere, Sun Yat-sen (translated by Janet Lloyd) (Stanford, California: Stanford University Press, 1998), pp. 352-394.

90

majority of people were forced to live at a subsistence level. Part of the reason was

the low revenue base of the government. In the bitter decade of wars and civil wars

that began in the mid 1930s, even the limited revenue of the state was largely spent

in maintaining a 'hypertrophic' military establishment and financing the civil war

or servicing the foreign and domestic debts. The cumulative effect of these •

developments led to a decline in the standard of life for many Chinese even belO\V:

the customary level. 15 By the time the People's Republic of China came into

existence in 1949, the country exhibited the classic symptoms of political-

economic underdevelopment: poverty, inequality, exploitation, social anomie and

inertia, political paralysis;~d depe,ndence. 16

China's experiment with development strategies

Just before the formal inauguration of the People's Republic of China

(PRC), On 21st September 1949, while addressing the delegates to the People's

Political Consultative Conference, Mao said, 'We have a common feeling .... our

nation will never again be an insulted nation". 17 This summed up the desire to

excel among the Chinese Communist Party (CCP) leadership to overcome a

century of humiliation arising out of colonial exploitation and unequal treaties.

When the CCP was waging guerrilla warfare against the Kuomintang (1927-1937)

and the Japanese (1937-1945), Mao had been giving shape to his vision for a

communist China. He carefully delineated a development strategy that included an

agrarian revolution and the nationalization of the bureaucratic capital while

IS

16

17

. For details, see, Albert Feurwerker, 'Economic trends, 1912-49' in John K. Fairbank (ed.), The Cambridge History of China. Vol. ll (1912-1949), Part 1 (Cambridge: Cambridge University Press, 1983), pp. 28-127.

Gordon White, 'Why did China fail to follow the Japanese road?' in M. Bienefeld and M. Godfrey (eds.), The Struggle for Development: National Strategies in an International Context (New York: John Wiley and Sons Ltd., 1982), p. Ill.

Roger Howard, Mao Tse-tung and the Chinese People (London: George Allen & Unwin Ltd., 1977), pp. 243-244.

91

guarding against excessively radical policies which threatened to damage the

economy. While seeking the rehabilitation of the Chinese economy, the 'Common

Programme' of the CPC in 1949 borrowed these ideas of Mao into its vision.

Articles 26-40 set the basic guidelines for economic development. Agrarian reform

was given the topmost priority. China was to adopt the principle of state-owned

economy wherein all enterprises vital to the economic life of the country and to the

people's livelihood was to be placed under the unified operation of the state. The

Programme also talked of establishing cooperative economy based on the Soviet

experience. Interestingly, the Programme also talked of encouraging private

economic enterprises. 18 While the agricultural reforms were going on with a great .

zeal as promised in the Common Programme, the CCP leadership also decided to

study the Soviet model of development that put emphasis on industrialization and

industrial development. Within the Soviet Union itself, the classic Marxist doctrine

had been replaced by another Marxist variant- Stalinism. Its emphasis on the law

of value, primitive socialist accumulation and the predominant role of socialist

production was more appealing to the CCP than the classic doctrine that aimed at

the withering away of the state. 19 The decision to follow the Soviet model was,

however, taken after much discussion and many factors were considered. These

included the political decision of the CPC to 'lean towards one side' in foreign

policy, the relative inexperience of the Party in development administration,

ideological affinity with the Soviet Union and, above all, the Chinese leaders' deep

commitment to socialist modernization. The fact that the Soviet Union was the

only existing example of a state that was both socialist and had achieved rapid

18

19

Mark Selden (ed.), The People's Republic of China: A Documentary History of Revolutionary Change(), pp. 169-193.

James A. Gregor, Marxism, China and Development: Reflections on Theory and Reality (London: Transactions Publications, 1995), p. 72.

92

growth on a backward economic base, made the decision to follow the Soviet path

all but inevitable?0 The surplus coming from agricultural reforms enabled China to

dedicate more resources for industrial development. Thus, the adoption of the

Soviet model was accompanied by emulation of Soviet methods, study of Soviet

theory, placing Soviet experts in key ministries, enterprises, dispatching Chinese

students and specialists to Russia and the pubEcation of large number of translated

Soviet texts?1 The first five-year plan (1953-57) was an unusually successful

programme of economic development. With limited resources and experience, the

Chinese Communist Party was able to sustain economic growth and complete the

1 institutional transformation that was initiated between 1949 and 1952. National

income grew at an average annual rate of 8.9 percent (measured in constant prices),

with agriculture and industrial output expanding annually by about 3.8 and 18.7

percent respectively. All this was made possible through overwhelming

investments in large- scale industries producing capital goods?2 However,

beginning with 1956, the strategy of the first five-year plan was being seriously

questioned particularly in the wake of lagging performance in agriculture and the

rising grain deficit. Mao himself took the lead in reassessing the performance of

20

21

22

Frederick C. Teiwes, 'Establishment and consolidation of the new regime', in Roderick Mac Farquhar and John K. Fairbank (eds.), The Cambridge History of China. Vol. 14, 1949-65 (London: Cambridge University Press; 1987), pp.64-66. According to one argument, given the unfavourable international environment, the Soviet Union was the only credible source of industrial, technological and possible financial assistance for China. Hence, the preference for the Soviet model of development. However, like the Soviets, Mao and the leadership did not resort to a hasty and brutal agricultural collectivisation. See, Christopher Howe, Y.Y. Kueh, and Robert F. Ash, China's Economic Reform: A Study with Documents (London: Routledge Curzon, 2003), p.2.

Ibid .... p. 96.

Nicholas R. Lardy, 'Economic recovery and the first five year plan', in Roderick Mac Farquhar and John K. Fairbank (eds.), The Cambridge History of China. Vol. 14, 1949-65, pp. 155-158. The institutional transformation refers to the reorganisation of agricultural land. About 46.6 million hectares of land was distributed among 300 peasants who were supposed to work under various forms of cooperatives. However, because of little investment, agriculture did not record high growth rate. See, S. Aziz, Rural Development: Learning from China (London: The Macmillan Press Ltd., 1978).

93

the first five-year plan and the development strategies adopted in it. 23 He raised

questions about whether China's long-range national economic development needs

could be met by a continued reliance on the Soviet model of development. He

noted, in particular, the impoverishment of a majority of peasants and came to the

conclusion that socialization of agriculture was the only means to "throw off

poverty, improve the standard of living and withstand natural calamities." It was

not simply the means to higher investments in the urban industrial sector of the

economy. Industrialization and the socialist transformation of the countryside were

two interlocking-revolutionary tasks, Mao argued, warning against attempts to

"over-estimate the one and underrate the other". Behind this warning then~ lay a ,

deep resentment that the first five-year plan had led to the exploitation of the rural

areas for the benefit of the cities- and a challenge to the whole strategy of urban

industrialization and the Soviet model of socio-economic development. 24 Also

Mao now rejected the Stalinist proposition he himself had supported in 1949: the

view that socialization of agriculture was dependent on the prior development of "a

powerful industry". Instead, Mao argued that, "In agriculture, under the conditions

prevailing in one country, cooperation must precede the use of big industry".25

By 1957, therefore, China groped for a strategy that would enhance

agricultural output while still permitting the rapid growth of capital-intensive

heavy industry. The Great Leap Forward (GLF) strategy in 1958 that was supposed

to overcome China's~ development dilemma was a consequence of this. While it is

true that the GLF was primarily a Maoist alternative to Soviet development

23

24

25

See, Mao Zedong, 'On the ten major relationships', in Selected Works, Vol. V. (Beijing: Foreign Languages Press, 1964), pp. 310-319.

Maurice Meisner, Mao's China: A History of the People's Republic (London: The Free Press, 1979), p. 151.

Ibid .... p. 229

94

strategy, it is not clear how much support Mao had over the issue within the Party.

While one view holds that Mao got full initial support from Liu Shaoqi, Deng

Xiaoping and most other leaders for various reasons, the dissenting opinion

coming only from Premier Zhou Enlai and Defence Minister Peng Dehuai,26

another view holds that Mao was single-handedly responsible for launching the

GLF.27 In any case, the strategy ofthe GLF had four key elements.

26

27

• To make up for a lack of capital in both industry and agriculture by fully

mobilizing under-employed labour power.

• To carry out "planning" by setting goals for China's leading econom1c

sectors and, in essence, simply encouraging any type of innovation ..

necessary to permit the other sectors to catch up with these key sectors.

• In industry, to rely on both modem and traditional methods to enhance

output. Thus, for example, major steel complexes would receive substantial

new investments at the same time that "backyard" steel would be smelted

by arty group capable of doing so.

• In all areas, to disregard technical norms (and the specialists who stressed

them) in favour of, in the lexicon of terms, achieving "more, faster, better,

Kenneth Lieberthal, 'The Great Leap Forward and the split in the Yen'an leadership, 1958-65' in Roderick Mac Farquhar (ed.), The Politics ofChina, 1949-89 (New York: Cambridge University Press, 1993), pp. 99-101. For a full discussion on the collaborative role of these leaders, see, Frederick C. Teiwes and Warren Sun, China's Road to Disaster: Mao, Central Politicians and Provincial Leaders in the Unfolding ofthe Great Leap Forward, 1955-59 (London: M. E. Sharp, 1999).

See, Alfred L. Chan, Mao's Crusade: Politics and Policy Implementation in China's Great Leap Forward (9xford: Oxford University Press, 2001). However, it is disputable if the GLF was a comprehensive programme of development on its own. Under the new slogan of 'walking on two legs', simultaneous development of industries and agriculture was aimed to seek rural development. While the GLF was essentially a programme for industrial development, agricultural development was sought through 'People's Communes', which emerged as a result of a restructuring of agricultural cooperatives. The number of communes, which was 26,000 at the beginning in 1958, rose to 74,000 in 1962. See, Gargi Dutt, Rural Communes of China: Organizational Prop/ems (New Delhi: Asia. Publishing House, 1967), p.l02. .

95

and more economical results" In practice, the "more and faster"

overwhelmed the "better and more economical".Z8

In practice, however, the GLF failed to overcome the economic woes of

China. Instead it led to the 'great depression' of 1959-6129 in which millions of

Chinese perished in perhaps one of the biggest famines in rural China.30 Mao's

attempts to revive and rationalize the GLF failed, his overall development strategy

criticized as a "Giant Step Backward"31 and his own leadership was for a while

undermined. The forefront of leadership was now occupied by a post-GLF

coalition of Liu Shaoqi, Deng Xiaoping, and Chen Yun who wanted to bring the

Chinese economy out of the morass, p¥ticularly in the rural areas. While not ·'

attempting a direct challenge to Mao's leadership, they stood for certain pragmatist

and capitalist forms of economic activities. For example, in agriculture,

concessions were made to 'petty capitalism' primarily through permitting an

extension of the private plots worked by industrial peasant households. In industry,

greater emphasis was placed on 'profitability' in the operation of enterprises, and

the authority of managers and technocrats was strengthened. Overall, the new

leadership was not averse to some form of free play of market and prices and

28

29

30

31

Kenneth Lieberthal. .. op. cit ... n.26 .... p. 98.

Christopher Howe, China's Economy: A Basic Guide (London: Graneda Publishing 1978), p. XXIX.

For details, see, Jasper Becker, Hungry Ghosts: China's Secret Famine (London: John Murray, 1996); Kenneth R. Walker, 'Food and mortality in China during the Great Leap Forward', in Robert F. Ash (ed.), Agricultural Development in China, 1949-1989: The Collected Papers of Kenneth R. Walker (Oxford: Oxford University Press, 1998), pp. 106-47; B. Ashton, K. Hill, A. Piazza, and R. Zeitz, 'Famine in China: 1958-1961', Population and Development Review No. 10 (1984), pp. 613-645. For overall impact of the GLFP, see, DatiL. Yang, Calamity and Reform in China: State, Rural Society, and Institutional Change since the Great Leap Famine (Stanford, California: Stanford University Press, 1996).

Raphael Shen, China's Economic Reform: An Experiment in Pragmatic Socialism (Westport, Connecticut: Praeger, 2000), p. 8. For a liberal critique of Mao's development strategies, see, Maria Hsia Chang, The Labours of Sisyphus: The Economic Development of Communist China (London: Transaction Publishers, 2000), pp. 47-61. However, according to Adrian Chan, the GLFP failed mainly because Mao could not maintain enough control of the CCP to get it to support his policies. See, Adrian Chan, Chinese Marxism (London: Continuum, 2003), p. 5.

96

material incentives over moral ones.32 However, Mao was not willing to take all

these developments in his stride for too long. He was critical of any ideological

deviations, in particular, of attempts for decollectivization in agriculture. For much

of the years 1963-65, this two-line struggle between the Mao camp and Liu- Deng

headquarters characterized China's development approach often resulting in a

compromise. 33

By 1966, however, Mao re-established himself as the arbiter of China's

economic strategy, thanks to his Great Proletarian Cultural Revolution (GPCR). He

got most of the pragmatist leaders purged and imposed his old development

strategies. The net result was that by the close of the Maoist period, economic

performance in China was identified with serious imbalances 'between industry

and agriculture, an irrational economic structure, a blind search for higher output

and not for better quality, and a decline in living standards.34 Even after the death

of Mao Zedong in 1976, there was no immediate change in traditional Maoist

development policy. The 'whateverists' led by Hua Guofeng, Mao's personally

selected heir, were convinced that Maoism, animated by Stalinist theory, was a

development success. Hua insisted that China had brilliantly succeeded in its

programme of agricultural and industrial development- a success "acknowledged

by the whole world". However, by 1978 those in the highest positions in the

People's Republic recognized the massive impairments that characterized the

Chinese economy because of Mao's policies. By the middle of 1978, more and

more domestic Chinese publications appeared raising critical questions about

32 Maurice Meisner, op. cit.. .. n.24 .... p. 275. 33 Kenneth Lieberthal. .. op. cit.. .. n.26 .... pp. 122-125. 34 James A. Gregor, op. cit.. .. n.19 .... p. 93. Also see, Christopher Howe, Y.Y. Kueh, and

Robert F. Ash, opp. cited, n.20, p.11.

97

socialist China's development programme.35 Mao's developmental failures were

more evident when China was compared with other Asian economies such as

Japan, SouthKorea, Taiwan, Hong Kong and Singapore. His search for power and

prestige for China in global community remained inconclusive despite some good

progress in relations with the United States since 1972. China had become

internally weak and externally vulnerable.

Towards a new development strategy

After the death of Mao, those opposed to him rose to criticise him, albeit

indirectly, for his utopian development strategies. His successor, Hua Guofeng also

came in for criticism for adherence to 'whateverism' and not showing the political

will to launch a new development strategy to restore comfort to the Chinese nation.

It was realised that China needs to reconsider its development strategies and also

rethink its political and economic relations with the· outside world. All this meant

political eclipse of Hua Guofeng and re-emergence of pragmatic leaders within the

Party. As Deng Xiaoping said much later:

Modernisation is the essential condition for solving both our domestic and our external problems. Everything depends on our doing the work in our own country well. The role we play in international affairs is determined by the extent of our economic growth. If our country becomes more developed and prosperous, we will be in a position to play a greater role iri international affairs.36

His own (re) emergence on the political scene of China prepared the

grounds for experimentation with a new development strategy.37 Deng's own

35

36

37

See the discussion in Gilbert Rozman, The Chinese Debate Abo1,1t Soviet Socialism, 1978-1985 (Princeton, New Jersey: Princeton University Press, 1987), pp. 17-71.

Deng Xiaoping, 'The present situation and the tasks before us', 16th January 198b, In Deng Xiaoping, Selected Works of Deng Xiaoping (Beijing: Foreign Policy Press, 1983), p.225.

Although the 'local initiative thesis' says that the lead was taken by a coalition of local officials and managers who had been promoting the development of rural industry in the wake of failure of Great Leap Forward Programme. The main proponent ofthe theory Daniel Kelliher says that early components of rural reform - that is, decollectivization, commercialisation, and the rise of a private economy-were all initiated by peasants rather than the state. See, Daniel Kelliher, Peasant Power in China (New Haven, Connecticut: Yale

98

ideological background and experience helped him to shape the contours of the

new development strategy. Unlike Mao, who had no formal training in Marxist

thought, Deng had the opportunity not only to train himself in Marxist thought so

as to know its finer nuances, but also had long experience as a Marxist. In spite of

this, there were fundamental differences in the economic thoughts of Mao and

Deng. Mao conceived the superstructure, not the productive forces, to be primary

in the process of socio-economic changes. He was determined that super structural

elements like revolutionary commitments, political intransigence, personal

sacrifice and selfless dedication would shape reality to his utopian vision. In

contrast, Deng, like the first Marxists, argued that it was not productive relations .,.

but the development of the 'forces of production' that constituted the engine of

progressive history. Deng recognized that China's poverty was a consequence of

its immature industrial and technological base. It followed then that the dream of

socialism required the resources of a fully developed industrial system. 38 The crux

of Deng' s position was that the definition of socialism had to involve a return to its

earlier link with modernization - particularly economic modernization. Indeed,

Deng essentially defined socialism as the means to economic development. "The

essential quality of socialism", he wrote, "is the liberation of production and

elimination of exploitation and dualism, leading ultimately to a conimon

prosperity".39 However, as long as Mao lived, Deng could not express his position

very openly. His advocacy of an alternative programme of economic development

based on pragmatism in early 1960s led to his purge during the Cultural

38

39

University Press, 1992). Also see, Kate Xiao Zhou, How the Farmers Changed China: Power of the People (Boulder, Colorado: Westview, 1996).

Maria Hsia Chang ... opp. cited .... n.3l .... p.69.

Deng Xiaoping cited in Christopher Howe, Y.Y. Kueh, and Robert F. Ash, opp.cited, n.20, p. 15.

99

Revolution.40 Similarly, in April 1976, months before the death of Mao Zedong,

Maoists identified Deng Xiaoping's 'General Programme' of 1975 for the

economic modernization of China as a 'programme for capitalist restoration' and

Deng was purged for a second time.41 By 1978, two years after Mao's death, Deng

was no longer coy in his anti-Maoist beliefs. He identified the fundamental task

that faced China to be that of eco'1o~ic development. Deng was prepared to draw

the outline of a strategy for economic development in which an emphasis on the

'forces of production' would be the primary theoretical justification for reforming

the system inherited from Mao.42 This involved four major changes in Maoist

development strategy: a shift from class struggle to economic development as the

main goal of the Party; a shift from Mao's emphasis on 'big and public'

institutions to a system that retained the public as the main form of ownership, but

encouraged private and collective forms; a shift from detailed micro-planning to

macro-economic control; and finally, a shift from a closed to an open door

mentality. In this last respect, analysts noted that while Deng's thought was a

contrast to Mao's it was actually a reversion to the radical tradition established by

Sun Yat-sen.43

Politically speaking, there was a problem. Deng had been rehabilitated in

1978 but his position in the Party was still shaky. Not _only was there resistance

from the conservative Maoists but also from his old colleagues such as Chen Yun

who, while supporting reforms cautioned against any form of 'adventurism'. Deng,

therefore, shrewdly opened to debate the nature of the proposed development

40

41

42

43

Gordon White, Riding the Tiger: The Politics of Economic Reform in Post-Mao China (London: Macmillan Press Ltd., 1993), pp. 29-30.

James A. Gregor, op. cit.. ... n.22 .... p.IOO.

Maria Hsia Chang ... op. cit .... n.3l .... p.69.

See the various references cited in Christopher Howe, Y.Y. Kueh, and Robert F. Ash, opp. cited, n.20, p.l6.

100

strategy. In this debate, Deng emphasized 'seeking truth from facts'. Although this

was a Maoist slogan, it was, nevertheless, used to portray the economic deprivation

China faced as a result of Maoist economic policies. At the same time, Deng was \

not willing to discard Maoism so soon. Therefore, he proposed that the new

development strategy would abide by 'four cardinal principles': a commitment to

Marxism-Leninism-Mao Zedong Thought, Party leadership, socialism and the

l . d' h' 44 pro etarian tctators tp.

As the debate progressed, it allowed many economists and economic

officials to question the fundamental causes of China's economic problems and the

market's role in economic reforms. Striking a positive yiew on market economy,

Deng said in November 1979:

It is surely not correct to say that market economy is only coilfmed to capitalist society. Why cannot socialism engage in market economy? . . . . A market economy existed already in the feudal society. Socialism may also engage in market economy.45

Deng, therefore,· was trying to push forward a development strategy which

would be based on market principles such as 'profitability' but which would

nevertheless operate under the ethics of socialism. Deng sought to defend this as in

his views:

The capitalist road can only enrich less than 10 percent of the Chinese population; it can never enrich the (other) 90 percent. The socialist principle of distribution to each according to his work will not create an excessive gap in wealth. Consequently, no polarisation will occur as China becomes rich in the next 20 to 30 years.46

Although the structures of the new developmental model were not yet clear,

one could guess Deng's intentions from his support to incremental reforms in

44

45

46

Wei-Wei Zhang. Ideology and Economic Reform Under Deng Xiaoping, 1978-1993 (London: Kegan Paul and International, 1996), p.29.

Ibid .... pp. 59-60.

Deng Xiaoping, Fundamental issues in Present Day China (Beijing: Foreign Languages Press, 1987), p.55.

101

various sectors. One of them was the 'household responsibility system' started on

an experimental basis in the Anhui province of China wherein peasant families

were allowed to lease land from the communes and sell part of their farm produce

in free markets. Deng sought to justify this by saying that some people and some

regions should be encouraged to get rich to set an example for others to emulate.

Accorr!ingiy, he also promoted the setting up of some 'special economic zones'

(SEZ's) that would allow China to open itself to the outside world to 'absorb

advanced foreign technology, managerial experience and capital'. The first four

zones were Shenzhen, Zhuhai, Shantou and Xiamen located respectively in

Guangdong and Fujian provinces.47 Simultaneously, Deng encouraged research on

various models of development. Research groups were sent to study the experience

of Hungary, Italy, France, the Netherlands, and Switzerland. Officials and

economists were sent to some 'Little Dragons' and many other countries to study

the developmental experience of these countries. Inside China, specialists were

ordered to conduct research on what China would be like in the year 2000. Such

studies all suggested that China should not copy any foreign experience, not even

that of socialist countries. The consensus was for China exploring its own approach

to modernization. 48 As Deng said:

47

48

49

In our national construction, we must act in accordance with our own situation and find a Chinese path to modernization .... To accomplish modernization of a Chinese type, we must proceed from China's special characteristics. For example, modem production requires only a small number of people, while our population is enormous. How shall we reconcile these two facts? Unless we take all factors into account, we shall be faced for a long time with the social problem of insufficient employment. 49

Wei-Wei Zhang, ... op. cit ..... n.44 .... pp. 69-77.

Ibid .... p. 45.

Deng Xiaoping, 'Uphold the four cardinal principles', in Deng Xiaoping, Selected Works of Deng Xiaoping, p. 172.

102

The green signal for China's modemization drive was formally given at the

Third Plenum of the Eleventh Central Party Committee of the Chinese Communist

Party (CCP) in December 1978.50 Deng Xiaoping was not only able to re-establish

his authority, but also persuaded the CCP to approve his 'four modernizations' in

the field of agriculture, industry, science and technology and defence. 51 The

intended reforms were supposed to be experimental and gradual52 though it was

also described as China's 'second revolution' .53 At this stage, the contours of the

development model were not very clear and this gave rise to debates over its

nature.54 However, the consensus was for (1) abandonment of the principle of

market socialism, (2) imm~f!.iate estttblishment of private property rights, (3) ·'

immediate freeing of prices to reflect market forces, (4) a rapid transition froin

central planning to a market economy and (5) political as well as economic

50

51

52

53

54

For a full text, see the 'Communique of the Third Plenary Session of the 11th Central Committee of the Communist Party of China' (adopted on December 22, 1978), Peking Review, Volume 21, Number 52, December 29, 1978, pp.6-16.

Deng had been advocating modernization in these four areas since early 70s. See, 'The whole party should take the overall interest into account and push the economy forward', March 5, 1975, Selected Works of Deng Xiaoping, Vol.2, www.english.peoplesdaily.com.cn He defmed the goal of four modernization as shaking off China's poverty and backwardness, gradually improving the people's living standards, restoring a position for China in international affairs commensurate with its current status, and enabling China to contribute more to mankind. See, 'China's goal is to achieve prosperity by the end of the century', December 6, 1979, Selected Works of Deng Xiaoping, Vol.2, www.english.peoplesdaily.com. en However, Deng was not the first to use the term 'four modernizations'. In December 1964, Zhou Enlai in his Government Work Report at the Third National People's Congress presented a new economic plan to overcome China's difficulties in which he incorporated a vision of the four modernizations as the country's long-term objectives (i.e. the modernization of agriculture, industry, defence, science and technology). Even Mao had sometime used the term. See the reference cited in Christopher Howe, Y.Y. Kueh and Robert F. Ash ... opp.cited ... n. 20, p.4.

Liu Suinian and Liu Qungan, 'The lessons of history', Extract from The National Economy during the Cultural Revolution (1966-16), (Heilongjiang: People's Publishing House; 1986). Reprinted as Document 2.1 in Christopher Howe, Y.Y. Kueh and Robert F. Ash ... opp.cited ... n. 20, pp.56-66. For present reference, see, p.59.

Harry Harding, China's Second Revolution: Reform After Mao (Washington, D.C.: Brookings Institution, 1987).

For a discussion, see, Peter Nolan, 'Introduction' in Peter Nolan and Dong Fureng (eds.), The Chinese Economy and its Future: Achievements and Problems of Post-Mao Reforms (Cambridge: Polity Press, 1990), pp. 22-24.

103

reforms. 55 The economic reforms were characterised by certain peculiar features.

Firstly, there was no overall reform blueprint from the outset. Chinese officials

described the process of the reforms as "crossing the river while groping for the

stones." Secondly, China adopted an incremental approach. Reforms were first

carried out in the sector where resistance was weakest and then spread to those

sectors where the reform measures were more cqmplex and less popular. Thirdly,

China adopted a 'two steps forward, one step backward' strategy. Reforms were

halted or even reversed whenever they gave rise to problems. Fourthly, China

adopted the populist approach towards reforms. Unlike refonns in other socialist

countries, those in China were initiated not from above but from below. The

central ·authorities simply accepted what had happened in the provinces and at the

local level. This was best reflected in rural reforms, which first started in Anhui

Province, and urban reforms which first started in Szechuan Province. 56 The actual

process of reforms underwent four stages.57 During the first stage of reforms

(1979-1984), only partial reforms were undertaken: The beginning was made with

agriculture where some institutional changes were effected which was primarily

directed at improving peasants' incentives through the decentralisation of property

rights and the abolition of the commune system as well as the upward adjustment

of agricultural prices. 58 Reforms in the ll!ban sector were very modest such as

administrative streamlining of the industrial system and the state enterprise

55

56

57

58

Peter Nolan, 'Introduction: the Chinese puzzle' in Q. Fan and Peter Nolan (eds.), China's Economic Reforms: The Costs and Benefits of Incrementalism (London: Macmillan, 1994), pp. l-20.

Joseph C.H. Chai, China: Transition to a Market Economy (Oxford: Oxford University Press, 1997), pp. 6-9.

There seems to be no agreement over the actual stages of reforms, which varies from two to four. For the sake of convenience, a four-fold classification has been adopted.

Robert F. Ash, 'Agricultural policy under the impact of reform' in Y.Y. Kueh and R.F. Ash (eds.) Economic Trends in Chinese Agriculture: the Impact of Post- Mao Reforms (Oxford: Clarendon, 1993), pp.11-45. Also see, Robert F. Ash, 'The evolution of agricultural policy', The China Quarterly, 116, (1988), pp. 529-55.

104

reforms. The latter were experimental in nature and focussed mainly on expanding

enterprise autonomy and the restoration of enterprise financial incentives.

Externally, the open door policy was initiated during this period with the intention

to increase trade and attract foreign direct investment. During the second stage

(1984-1989), focus was on urban reforms. A comprehensive reform programme

was launched to change China's economic system so_ that market logically would

become the basis for resource allocation and the government would exercise

control only indirectly. A package of reform measures was introduced

simultaneously to establish a functioning market mechanism in cities and the

countryside. They included the reduction in the scope of planning, the enterprise

autonomy and accountability, the liberalisation of product and factor prices, the

creation of both product and factor markets, and finally, liberalization of foreign

economic relations. 59 The third stage (1989-1991 ), although brief, was marked by a

slump in the economy and in the wake of Tiananmen incident politics took priority

over economics.60 The fourth stage (1991 onwards) began with Deng Xiaoping's

Southern tour when he made a series of important remarks about the need to

accelerate reforms. Somewhat later, the CCP's 14th National Congress determined

to establish a full-fledged market economy as reform objective. Since then, the

pace of reform and opening up was accelerated, and the effort entered a new

period.61 It would be prudent, however, to analyse the policy changes sector wise.

59

60

61

Joseph C.H.Chai, opp.cited, n.56, pp.S-6.

For a brief account, see Colin Mackerras, Pradeep Taneja and Graham Young. China Since 1978: Reform, Modernisation and 'Socialism with Chinese Characteristics' (New York: St. Martin's Press, 1994), pp.45-62.

Gao Shangquan and Chi Fulin, (chief editors), Theory and Reality of Transition to a Market Economy (Beijing: Foreign Languages Press; 1995), p.l. For a full text analysis of the 14th Party Congress (1992) of the CCP, see, 'Accelerating reform and opening- up', Beijing Review, Vol.35, No.43, October26- Novemberl, 1992.

105

Agricultural and rural reforms

The Third Plenary Session of the 11th Central Cortunittee of the CCP

decided to begin the reform process by undertaking reforms in the countryside. To

this end, it even decided to distribute to the provinces, municipalities and

autonomous regions for discussion and trial use the Decisions of the Central

Committee of the CCP on Some Questions Concerning the Acceleration of

Agricultural Development (Draft) and the regulations on the Work in the Rural

People's Communes (Draft for Trial Use).62 But why did the priority go to the

countryside? One argument is that Chinese leaders were mindful of the

catastrophic famine of 1959-1961 and the damage done to the agricultural sector

by the Maoist planning system. The. fact that the countryside was where more than

80% ofChina's population lived and worked (farming alone accounting for 71% of

national employment) no doubt encouraged the rural focus of early refortns.63 On a

deeper analysis, it is found that the rural residents were always treated as 'second

class citizens', whose employment, medical care and welfare were not guaranteed

despite the emphasis on egalitarianism. In cities, they were treated as unwanted

guests. The peasants were always under the weight of communes and brigades and

there was no space for individual economy. Commercial initiatives were abolished

in order to 'cut off the tail of capitalism'. The system of work, administrative

mismanagement and obsession with size, public ownership and unified planning

led to countryside poverty. People became so poor that they did not even have

enough food to eat and had no alternatives but to rely on supplies, loans, and relief

funds from the state to see them through. In 1978 average per capita net income of

62

63

'Communique of the Third Plenary Session of the 11th Central Committee of the Communist Party of China', opp. cited, n. 50, pp.6-16.

Christopher Howe, Y.Y. Kueh and Robert F. Ash ... opp.cited ... n. 20, pp. 217-218.

106

farmers was 133.57 Yuan. More than 90% of this was paid in kind, leaving less

than 10% as money income. The number of people living in absolute poverty

conditions in rural China was more than 260 million and even by conservative

standards, some 200 million people still lacked sufficient food and clothing. 64 It is

for this reason that Deng Xiaoping placed a resolution on agricultural and rural .. -·

problems at the top of every work agenda. His analysis generally proceeded from a

number of premises: First, making sure that everyone had enough food to eat. As

he said, "As long as people are well fed, everything else is easy, no matter what

may happen in the world".65 Second, the development of agriculture was the

foundation stone on which the development of heavy industry and of the entire

national economy should proceed. Third, rural development and stability were the

basis of national development and stability.66 Fourth, early reforms in rural areas

on a priority basis also meant more employment opportunities in rural areas, a

reduction in rural-urbat1 disparity and some control on rural to urban migration.

Deng therefore advocated a comprehensive rural development programme.

Respecting the initiative of the farmers, and protecting and mobilizing tQ.eir

enthusiasm for production could do this, he believed. He, therefore, favoured a

three-fold task: First, raise the grain production so as to achieve self-sufficiency by

2000. Second, promote diversification of rural economy. Third, promote the

64

65

66

Wu Xiang, 'Why did China's reforms start in the countryside?', China's Human Resource Development, 1994, No.1. Reprinted as Document 5.1 in Christopher Howe, Y.Y. Kueh and Robert F. Ash, opp.cited ... n. 17, pp. 232-241. Present reference is on pp. 236-238.

Deng Xiaoping, 'China's historical experience in economic construction', 6 May 1982, in Deng Xiaoping, Selected Works of Deng Xiaoping, p. 384.

)

Sun Zhonghua and Li Shaohua, 'Learning from Comrade !)eng Xiaoping's exposition of agricultural problems', China's Rural Economy, 1997, No.3. Reprinted as Document 5.2 in Christopher Howe, Y.Y. Kueh and Robert F. Ash ... opp.cited ... n. 20, pp.241-253. The present reference is basically a summary of Deng Xiaoping's views on agriculture in his Selected Works (Vol.l-3). A much more comprehensive rehearsal on Deng's views on agriculture is given in Chinese Academy of Agricultural Sciences and Ministry of Agriculture (eds.), An Investigation of Deng Xiaoping 's Thinking on Agriculture (Beijing; 1998).

107

development of township and village enterprises (TVEs) so as to transfer farm

labour, and effect rural industrialisation and urbanisation.67

The policy changes, therefore, involved replacement of communes by the

household contact responsibility system that gave the peasants more autonomy,

freedom and material benefits. Most agricultural prices were liberalised and

agricultural commodities became available on the open market. Factors of

production such as technology, labour and capital began to circulate freely,

facilitating improvements in resource allocation. The farmers became independent

commercial producers.68 By the time the 12th National Congress of the CCP took

place in 1982, 98% farmers had opted for the householq:responsill>ility system. The

Congress, in its Work Report resolved to improve further the conditions for

agricultural production artd secure the all-round development of forestry, animal

husbandry, sideline occupations and fishery in order to meet the needs of industrial

expansion and of higher living standards for the people.69 By 1984, China's grain

production crossed 400 million tons and the country had achieved self-

sufficieilcy.70 The stage was now set for further reforms. Document No. 1 issued

by the CCP Central Committee and the State Council on January 1, 1985, put an

end to mandatory state procurement for agricultural produce. Henceforth, the role

of the markets was to expand in most sectors of the agricultural economy.71 By

1993, the authorities had further liberalized the grain market and abolished the

forty-year old grain rationing system. More than 90% of all agricultural produce

67

68

69

70

71

Ibid ... pp. 241-253. Also see, Deng Xiaoping, Fundamental Issues in China, pp. 11-13.

Wu Xiang, opp.cited, n.64, pp. 236-238.

Hu Yaobang, 'Report to the 12th National Congress of the CCP', Beijing Review, Vol. 25, No. 37 (1982), pp. 11-40.

'The grain issue in China', Information Office of the State Council of the People's Republic of China, October 1996,Beijing, Beijing Review, Vol. 39, No. 46, November 11- 17 (1996), pp. 15-24.

Gordon White, op. cit. n. 40, p.l08.

108

was sold at market-determined prices, a graphic indication of the transformation of

Chinese agriculture from a command and control system to a largely free-market

sector.72 China now ranked first in the world in the production of seven agricultural

products- grain, cotton, oil-bearing crops, aquatic products, meat, natural silk and

fruit even if in per capita terms it had still not wholly eradicated poverty and

backwardness.73 However, in 1994 grain production started declining and in 1995

China had to import 20 million metric tons of grain. This threat to agriculture and

food production alarmed the country's top leaders. New policies introduced since

1995 succeeded in reversing declining food production. These included the

"Governor's grain bag responsibility system" in 1995 and the "Four separations

and one perfection" in 1997.74 The document on 'Decision of the CPC Central

Committee on several major issues concerning agriculture and rural work'

(adopted at the Third Plenary Session of the 15th Central Committee on October14

1998) gave a further push to agricultural reforms. It adopted a 1 0-point programme

to achieve the 'trans-century goals for agricultural and rural development'. 75 In the

wake of China's accession to the WTO in January 2002, it has already started with

certain reforms that will make Chinese agriculture less protectionist and more

72

73

74

75

Shenggen Fan and Marc J. Cohen, 'Critical choices for China's agricultural policy', 2020 BriefNo. 60, www.ifpri.org/2020/briefs/number60.htm

Wu Xiang, opp.cited, n.64, pp. 236-238. For some early account of agricultural reforms, see, Robert F. Ash, 'China's agricultural reforms: a twenty year perspective', in Chien-min Chao and Bruce J. Dickson, Remaking the Chinese State: Strategies, Society, and Security (London: Routledge, 2001), pp.76-100; Yiping Huang, Agricultural Reform in China: Getting Institutions Right (Cambridge: Cambridge University Press, 1998); Jean C.Oi, 'Two decades of rural reform in China: an overview', The China Quarterly, No. 159 (September 1999), pp. 616-28; Nicholas R. Lardy, Agriculture in China's Modern Economic Development (New York: Cambridge University Press, 1983); J. Oi, 'Two decades of rural reform in China: an overview and assessment', The China Quarterly, No. 159 (1999), pp. 616-628.

Shenggen Fan and Marc J. Cohen, op ... cit, no. 72. For details on the article, see the text of the article.

Some of these principles were a reformulation of old reforms that the leadership has been emphasizing since 1978. The complete text of the document is available in Beijing Review, Vol. 41, No. 47, November 23-29 (1998), pp. 35-55.

109

market-oriented.76 Measures in compliance with WTO rules are being adopted to

rectify and improve the state system for supporting and protecting agriculture,

directing more investment to agricultural science and technology and rapidly

developing ways to help agricultural producers. 77 Simultaneously, some ambitious

projects are also being run to promote the development and diversification of

agriculture. These include the 'harvest project', the 'vegetable basket project', the ,

'green food project', the 'prairie project', and the 'spark project' .78 The overall

objective is to improve the competitiveness of China's agriculture and farm

produce in the international market in an all-round way.79

Agricultural mod~lJlization, Jhas thus, come a long way and in spite of some

inherent weaknesses,80 the leadership accords top priority to agriculture.81 Mega

76 For a discussion of possible impact of China's WTO accession on its agriculture, see, Jikun Huang and Scott Rozelle, 'The nature of distortions to agricultural incentives in China and implications of WTO accession' (February I, 2002), Agricultural & Resource Economic Department ARE Working Papers, Working Paper, 02-006, http://repositories.cdlib.org/are/ areWp/02-006 For some detailed analyses of China's commitments to the WTO under the accession agreement arid its policy responses, see, Kym Anderson and Anna Strutt, 'China's economic growth, policy reforms and WTO accession: implications for agriculture in China and elsewhere by 2005', http://www.agecon.ucdavis.edu/ facultypages/sumner/iatr.pdf ; Will Martin, 'WTO accession and China's agricultural trade policies', http://www.agecon. ucdavis.edu/facultypages/sumner/martin.pdf ; F AO, 'Asia and the Pacific: regional overview', http://fao.org/DOCREP/004/y6000e/y6000e08.htm#P225 8429 ; Jikun Huang and Scott Rozelle, 'China's accession to WTO and shifts in agricultural policy' (January I, 2002), Agricultural & Resource Economic Department, Are Working Papers, Working Paper 02-002, http://repositories.cdlib.org/are/arewp/02-002 A good work which studies the impact of WTO on Chinese agriculture is Hsin-Hui Hsu and Fred Gale (coordinators), China:

77

78

79

80

Agriculture in Transition (US Department of Agriculture, Agriculture and Trade Report, WRS-01-02). This along with a number of other reports on Chinese Agriculture in post-WTO is available on the website of US Department of Agriculture. See, www.usda.gov

'China to accelerate rural development, increase farmers income', http://english.peopledaily. com.cnl200203/06/eng200203069I5II.html March 6, 2002.

For details on these project, see the section on agriculture in http://www.chinagate. com. co/english

'China to upgrade agriculture facing WTO challenges', http://english.peopledaily.com.cnl 200203/07/ eng20020307 91656.html March 7, 2002.

These involve the low rate of modernization, weak infrastructure, poor quality of farm labour etc. See, Research group for fixed capital investment in agriculture, 'A brief overview of China's strategy for fixed capital investment in agriculture', Study materials for economic research, I993, No. 43. Reprinted as Document 5.5 in Christopher Howe, Y.Y. Kueh and Robert F. Ash ... op.cit ... n. 15, pp. 270-277. Probably, the weakest link in the entire reform process is the uncertainty about land ownership that might retard further development of agriculture. See, the 'introductory' chapter in Yongzheng Yang and Weiming Tian (eds.), China's Agriculture at the Crossroads (New York: St. Martin's Press; 2000), pp. 15-18;

110

projects such as the 'Three Gorges Dam' project, the 'Western Development'

project and the 'South to North water transfer' projects are being executed to

eliminate any regional imbalance in agricultural development. Despite doubts

being raised about China's capacity to feed its population,82 the country has been

experiencing grain surpluses and it seems that the long-term production capacity

will not be a major issue in the next decade. 83 With its continuous efforts, China

has not only succeeded in feeding its 1.3 billion people, but has also created

favourable conditions for the nation to exploit the international food market. The

per capita supply of major food supply in China reaches or exceeds the world's

average levels. Grain reserves reached 200 million tons by the end of 2002 and the

number of people suffering from hunger and malnutrition in China has been

reduced from 250 million in 1978 to 30 million at present, setting an example for

developing countries to produce adequate food. 84

81

82

83

84

Hanan G. Jacoby, Guo Li and Scott D.Rozelle, 'Hazards of expropriation: tenure insecurity and investment in China' (January 1, 2002), Agricultural &Resource Economics Department, ARE Working Papers 02-007, http://repositories.cdlib.org/are/arewp/02-007

'Jiang on rural reform', http://english.peopledaily.corn.cn/200203/12/eng20020312 91929.html March 12, 2002. While presenting his report to the 16th National Congress of the CCP, Jiang Zemin urged to strengthen 'agriculture as the foundation of the economy'. See the relevant section in the text of the 16th Party Congress, available on http://www.fmprc.gov.cn/engl37815.html . For similar views, see, Lee Peng, 'Report on the work of the government' (Delivered at the first session of the Ninth National People's Congress on March 5, 1998, Beijing Review, Vol. 41, No. 14, April 6-12 (1998), pp.9-24; Zhu Rongji, 'Outline of the lOth Five-Year Plan for National Economic and Social Development: 2001-2005', Beijing Review, Vol.44, No.41, April5 (2001), pp. 12-17; 'Zhu: farmers a primary concern', China Daily, 16th March, 2002.

See, Lester Brown, Who Will Feed China? Wake -Up Call for a Small Planet (New York and London: W.W. Norton & Co., 1995); Vaclav Smil, 'Who will feed China?' The China Quarterly, No. 143 (195), pp. 801-813. The official response to Lester Brown's pessimism was published through a white paper called, 'The Grain Issue in China', Information Office of the State Council of the People's Republic of China, October 1996, Beijing, http://english.peopledaily.com.cn/whitepaper/15.html The white paper takes an optimistic view of the food situation in China and the country's grain production potential. A rather balanced opinion is found in Yongzheng Yang, 'How should China feed itself?' NCDS Briefing Paper, http://www.ncdcs.net.edu.au/pdf/breifinglbr96-pdf

Funing Zhong and Jing Zhu, 'Impact of market integration on China's food security', ACIAR China Grain Market Policy Project Paper No.ll, http://www.adelaide.edu.au/cies /CERC/gmp ll.pdf

'Agricultural prices guarantee food security', Business Weekly (China) 18th June 2002.

Ill

Agricultural reforms were supplemented by the rapid growth of Township

and Village Enterprises (TVEs), and the creation of a large number of 'rural cities

and towns'. The TVE phenomenon is unique in the sense that the emergence of

rural entrepreneurs and enterprises has not been experienced in any other country

on such a large scale and at such a rapid rate. Its roots can be traced back to the

1950s, but its development was not truly nosic~able until the late 1970s.

Interestingly, the TVE development was not an outcome of any carefully designed

policy or plan. The government policy changed from tolerance to encouragement

during the 1980s, only after recognizing that the TVE was a vehicle to increase

rural income and more importantly, to absorb a large number of rural labour

surpluses without much need for state investment. 85 The initial stimulus came from

agriculture. The agricultural reforms not· only increased rural productivity but also

encouraged a diversified economy in the countryside. Policies that discouraged

rural labour from shifting to non-agricultural activities were basically abolished,

and the movement of farmers into non-agricultural activities was accelerated by

several important factors: capital, land, labour, equipments and materials, and

marketing activities by enterprises. However, after 1984, with agricultural

production nearly stagnating, TVEs had to fend for themselves. Fortunately, by

this time urban reforms had started which brought further microeconomic policy

changes. The rise in rural incomes also created a demand for products by TVEs. 86

But above all, what finally promoted the TVEs was certain competitive advantages

85

86

Enricco C. Perotti, Laixian Sun and Liang Zou, 'State -owned versus Township and Village Enterprises in China', UNU/WIDER Working Paper No. 150. http://www.wider. unu.edu/publications/wp150.pdf For a discussion on TVEs, see, H. Chen, and S. Rozelle, ' Leaders, managers, and the organization of township and village enterprises in China', Journal of Development Economics, Vol. 60, No.2 (1999), pp. 529-557. ·

Du Haiyan, 'Causes of rapid rural industrial development', in William A. Byrd and Lin Qingsong (eds.), China's Rural Industry: Structure, Development and Reform (New York: Oxford University Press, 1990), pp.47-60.

112

which they enjoyed vis-a-vis the State-Owned Enterprises (SOEs).87As a result, the

TVEs continued to flourish and, in fact, by 1999 China had 20.71 million TVEs

employing a huge labour force of more than 120 million rural workers (more than

the state sector) and had a combined industrial added value of over US $ 209

billion or 50% of the country's total.88 Two decades ago, the TVEs' contribution to

the national economy was insignificant but over time they absorbed an increasingly

large number of mainly rural workers. Between 1978 and 1998, TVEs employment

increased at an average rate of 7.4 percent per annum. TVEs, as the most dynamic

component of the Chinese economy, show a 'transition path' different from that of

both the former Soviet Union and the Eastern Europe. Their rapid gr():wth was, ,.,.

neither planned nor expected by the Chinese government, and they proved to be

the states' biggest unexpected achievement.89 Today, despite certain problems such

as poor management and strong competition under the WTO regime,90 the TVEs

provide critical support to agriculture in infrastructure, equipment and capital;

absorb surplus rural labour in non-farm production; generate huge tax revenues for

the government and are a significant source of income for rural residents.91

87

88

89

90

91

Enricco C. Perotti, Laixian Sun and Liang Zou, op. cit, n. 85.

China Daily, May 13, 2000.

J. Wong andY. Mu, 'The making of the TVE miracle- an overview of case studies', China's Rural Entrepreneurs: Ten Case Studies (London: Times Academic Press, 1995), pp. 17-51.

'China's rural enterprises face strong competition', www.englishpeoplesdaily.com.cn 9th November 2000.

Daniel J. Ding, Ge Lan and Malcom Warner, 'A new form of Chinese human resource management? Personal and labour- management relations in Chinese Township and Village Enterprises: a case study approach', Judge Institute of Management, University of Cambridge, Working Paper 33/2000, http://www.jims.cam.ac.uk/researchlworking_papers/abstract_pdf This does not mean that everything is well with TVEs. In particular, they have contributed to some regional imbalance in rural development. See, Junichi Ito, 'Why TVEs have contributed to interregional imbalances in China', Environment and Production Technology Division, International Food Policy Research Institute, EPTD Discussion Paper No. 91, http:www.ifpri.org/divs/eptdldp/papers/eptdp91.pdf For a discussion on the challenges faced by the TVEs as well as their contribution in the rural economy, see, 'Township enterprises in China', http://www.chinagate.com.cn/english/1840.htm

113

Urban- industrial reforms

In order to have a standing in the global economy, it was necessary for

China to have modem industrial base along with self-sufficiency in food

production. As early as 1975, Deng Xiaoping had said:

We should establish the concept that agriculture is the foundation of the national economy and that industry must serve it. A major task for industry is to support agriculture and pror.::;te its modernization. Industrial regions and cities should help the surrounc~ng rural areas to advance, develop small-scale industries and improve agricultural production, and this should be included in their plans.92

Deng was also against the idea of having latge industrial units. China had

plenty of them after the adoption of Soviet model in 1950s. Instead, he supported

the building up of small and medium-sized projects.93 These small industries

would control the demographic shift from rural to urban areas, generate

employment and help in urban reforms and establishment of new cities. However,

these reforms did not begin in earnest until 1984.94 In October of that year, the

CCP Central Committee admitted that the effectiveness of the urban economy was

'very low' because the state had 'exercised excessive and rigid control' over the

industrial sector and had totally neglected the 'regulatory role of the market. As a

consequence, the urban sector suffered from 'irrational' prices, major intersectoral

imbalances, overall declines in factor productivity,' and distorted wages.95 Deng

92

93

94

95

Deng Xiaoping, 'Some comments on industrial development', 18th August 1975, in Deng Xiaoping, Selected Works of Deng Xiaoping, p. 43.

Deng Xiaoping, 'China's historical experience in economic construction', 6th May 1982, in Deng Xiaoping, Selected Works of Deng Xiaoping, p. 384.

This was probably because the leadership wanted to see the response to rural reforms and then go for urban reforms that were supposed to be more complex. However, in July 1981 and March 1982, the State Council ratified the 'urban comprehensive reform' experiment in Shansi city, Hubei Province', and in Changzhou city, Jiangsu Province. By the end of 1984, there were already 58 cities experimenting with urban comprehensive reforms. See, Sheng Hua, Xuejun Zhang, and Xiaopeng Luo, China: From Revolution to Reform (London: The Macmillan Press Ltd., 1993), p.86. Also see, Hongyi Harry Lai, 'The political economy of China's urban reforms', http://www.isop.ucla.edu/eas/eass/transition?harry_lai.htm

'Decisions of the Central Committee of the CCP adopted by the Party's Twelfth Central Committee at its Third Plenary Session on 20 October 1984.' Cited in Maria Hsia Chang, op.cit. n. 31, p.97.

114

Xiaoping himself was pleading for urban reforms.96 The Plenary Session,

therefore, decided to focus on urban reform, including the reform of industry,

commerce and other sectors. The basic goal was to invigorate the domestic

economy and open China wider to the outside world. Although urban reform was

supposed to be more complex than rural reform, the successes in the countryside

gave reformers the confidence that success could be achieved in the urban sector as

A beginning was made by encouragmg rapid urbanisation. In the pre-

reform period, the classification of urban and non-urban areas was based on the

employment classification of agriculturat,. and nonragricultural activities identified

on a citizens' household registration certificate (hukou).98 However, in the 1982

census location, as opposed to household registration, became an important factor

whereby urban status was determined. This helped in providing a fairly accurate

picture of China's urban population.99 The Chinese urban system consists of two

major components: cities (shi or chengshi) and towns (zhen). Cities are of three

types. Large cities have a non-agricultural population of more than 500000;

medium cities have 200000-500000 and small cities have less than 200000. Cities

with more than 1 million non-agricultural-populations are called are called 'extra-

large cities' or mega cities. Towns are of two categories: designated (jianzhizhen)

and undesignated (xiangzhen). In 1988, the number of cities stood at 434 and the

96

97

98

99

Deng Xiaoping, Fundamental Issues in Present-Day China, pp. 67-71.

Derived from the speech of Deng Xiaoping in his speech, 'We regard reform as a revolution', lOth October 1984, Selected Works of Deng Xiaoping, Vol. 3, www. englishpeoplesdaily.com.cn

For a discussion on the hukou system, see, Tiejun Cheng and Mark Selden, 'The origins and social consequences of China's hukou system', The China Quarterly, No. 139 (1994), pp.644-688.

Clifton W. Pannell, 'China's urban geography', Progress in Human Geography, Vol.l4, No. 2 (June 1990), pp. 214-236.

115

number of townships at 8,600. 100 The increasing diversification and

commercialization of the rural economy reduced government control over the rural

and urban economies and relaxed restrictions on rural-urban migration revitalised

the economy of towns and made them attractive places for rural migrants. Unlike

the Maoist pattern of 'urbanisation from above', 101 a new pattern of 'urbanisation

from below' was taking place in the countryside. 102 The government, which

wanted urban places, particularly, small towns to emerge as 'growth poles', was

willing to support this movement. Besides, the establishment of special economic

Zones (SEZs) and a number of coastal port cities was an indication of the

government's desire to push up urbanisation. 103 As a result, China's urbanisation

rate has reached 36%.104 It has presently over 660 cities and 26,000 towns. These

include ninety-five cities with more than 1 million people each. Among these, the

cities of Beijing, Shanghai, Tianjin, Shenyang and Wuhan have over 5 million

people each. Shanghai is the largest city in the world with a population of 14

million. The Chinese government seems to be vigorously pushing the urban life-

style. New details of its plans for large-scale urbanisation indicate that urban

residents will make up 40% of the population by 2010. According to the State

Development Planning Commission that figure could reach 60% in 20 years. The

government sees urbanisation as a way of tackling poverty and reducing the gap

between the wealthier east of the country and its backward western regions. In an

100

101

102

103

104

J. C. Ma Lawrence and Cui Gonghao, 'Administrative changes and urban population in China', Annals ofthe Association of American Geographers, Vol.77, No.3, pp.373-395.

Helen Siu has criticized this as 'cellularization of rural society'. See, Helen Siu, 'Recycling rituals: politics and popular culture in Contemporary China', in Perry Link, Paul Pickowicz and Richard Madsen (eds.), Unofficial China: Essays in Popular Culture and Thought in the People's Republic (Boulder, Colorado: Westview, 1989), pp. 121-13 7.

S. Goldstein, 'Urbanisation in China, 1982-1987: effects of migration and reclassification', Population and Development Review, Vol. 16, No. I (December 1990), pp. 673-702.

Zhong Yan, 'China to quicken the pace of urbanisation', Beijing Review, Vol.l3, No. 12, (March 20, 2000), pp. 13-18.

'China's urbanisation rate reaches 36%', http://www.chinagate.eom.cn/english/2290.htm

116

attempt to stem the flow of migrant workers from the countryside to the bigger

cities, it has already announced plans to construct 10,000 new towns, many in rural

areas that are currently major sources of migration. 105

The urban reforms also brought changes in the land-use policy in the cities.

Land now has an exchange value that results in adjusting the structure and form of

many cities towards that predicted by neoclassical land-use model~.' GJ China has

begun to move away from a structure of low-rise inner-city residential

development, towards more intensive commercial inner-city redevelopment and

residential suburbanization, as is more common in western cities. In effect, land

reform haR, unleash1~d a rent gap in Chinese cities where the value of inner-city land

in its highest and best use is now in many cases significantly higher than its current

use. 107 Even though the primary land market remains under state control, 108 the

secondary land market has become potentially very profitable because there are

few restrictions on the resale of developed or semi-developed land. 109 At the same

time, there has also emerged a private housing market. The perspective on housing

has changed from that of being a public good to something approaching a

commodity. The life-long welfare right to housing has been replaced by one-time

105

106

107

108

109

Duncan Hewitt, 'China pushes city living', BBC News, I3 August 2001. Also see, 'Small towns vital in city planning', China Daily, 25th November 2002.

F.Wu and A. Gar-On Yeh, 'Changing spatial distribution and determinants of land development in Chinese cities in the transition from a centrally planned economy to a socialist market economy: a case study of Guangzhou', Urban Studies, Vol. 34, No. II, pp. I85I-1879.

Darren McKay, 'Land reform and the competitiveness of China's cities', in Charles Harvie (ed.), Contemporary Developments and Issues in China's Economic Transition, (London: Macmillan Press, 2000), p. 269.

However, ambiguities remain whether 'state' refers to the central government or local governments. See, Peter Ho, 'Who owns China's land? Policies, property rights, and deliberate institutional ambiguity', The China Quarterly, No. 166 (200 I), pp.394-42I.

Min Zhou and John R. Logan, 'Market transition and the commodification of housing in urban China', in John R. Logan (ed.), The New Chinese City: Globalization and Market Reform (Malden, Massachusetts: Blackwell Publishers Ltd., 2002), pp. 14I-142.

117

purchase subsidies.uo Together, these steps led to a new era of urban

productivity. 111

Urban reforms also entailed enterprise reforms since most of these were in

urban areas. Private enterprises that were almost non-existent in pre-reform days

found governmental support and encouragement. As early as 1982, a law was

passed to protect private entrepreneutship. 112 Since then, the private economy has

been expanding very quickly. Presently there are 1. 7 million private businesses

(employing at least eight persons per unit) in China and another 31 million self-

employed industrial and commercial households across the country. Together, the

private sector, with 130 million employees, contributes 60% of China's gross

domestic product (GDP)m and accounts for $132 billion in investment. 114

Shanghai has emerged as the hub of private economic activities. us China's entry

into the WTO has brought the private sector more opportunities to expand and

thrive. The Chinese government has taken some concrete measures to boost private

sector in terms of legislation, administration, foreign trade and financing

services. 116

110

Ill

112

113

114

115

116

lbid ... pp. 148-149.

F. Frederic Deng, 'China's urban land refonn, urban productivity and local government behaviour', http://www.albany.edu/-fdeng/UrbanLandRefonnlmpact-v23-EGE Also see, Jieming Zhu, The Transition of China's Urban Development: From Plan-Controlled to Market-Led (Westport, Connecticut: Praeger Publishers, 1999).

'Labour Law of the People's Republic of China' (in effect from l 51 July 1982), http://www.chinagate.com.cn/english/2354.htm

'Private economy expands quickly in China', http://www.chinagate.com.cn/ english/2345.htm However, officially, China is still hesitant to accept the increasingly role of the private sector. As per the official version, private sector accounts for 30% of the GOP. The state sector comes ahead with 37%. The rest comes from agriculture, the collective economy and the foreign-invested sector.

'Private sector's importance to China's economy', http://www.chinagate.com. cn/english/2342.htm

'Survey on Shanghai's private economy', http://www.chinagate.eom.cn/english/2346.htm

'Private business rising as impetus to Chinese economy', http://www.chinagate.com.cn/ english/2343.htm

118

However, the performance of State Owned Eriterprises (SOEs) has not been

up to expectations. In pre-reform days, the SOEs constituted the backbone of the

economy, accounting for more than three fourth ofthe gross value of the industrial

output. However, the SOEs had little autonomy. Their production, pricing and

investment decisions were subject to the planning process. All surplus funds were

transferred to the state budget, ancJh~y relied on the budget for subsidies to cover

losses and grants for investment. Few incentives were available to workers or

management. Centrally determined scales set wages, and management's main

responsibility was to fulfil production quotas. Early reforms aimed to increase

enterprise autonomy and accountability. The first tnajor step was taken in 1982,

when China's newest constitution was adopted. The 1982 Constitution provided

for the first time that 'state enterprises have decision-making powers in operation

and management within the limits prescribes by law, on condition that they submit

to unified leadership by the state artd fulfil all their ·obligations under the state

plan'. 117 The 'Provisional <Regulations on the Enlargement of Autonomy of State

Industrial Enterprises' in 1984 permitted some autonomy in terms of price setting,

output sales, and input purchases. In 1986, the Contract Responsibility System

(CRS) was introduced, which was similar in nature to the 'household responsibility

system'. By 1988, 90 per cent of SOEs had signed these contracts. The Enterprise

Law of 1988, as amended in 1992, gave further operational autonomy to the SOEs.

Changes were also made in their governance structure, accounting procedures and

ownership rights. These reforms produced an initial recovery in the output of

117 Natalie G. Lichtenstein, 'Law in China's economic development: an essay from afar', in C. Stephen Hsu (ed.), Understanding China's Legal System: Essays in Honour of Jerome A. Cohen (New York: New York University Press, 2003), p. 276.

119

SOEs. 118 A new phase of reforms was launched in 1993 when the Chinese

Communist Party's 'Decision on Issues Concerning the Establishment of a

Socialist Market Economy' proposed the goal of establishing a 'modem enterprise

system', namely reforming through corporatization. In 1994, the Company Law

was enacted, providing a legal framework for the reform. Since then, the

government has adopted the strategy of 'grasping t~e big ones, and letting go of the

small ones', that is, reforming large SOEs through corporatization without

diversifying the ownership, while allowing de facto or de jure privatization of

small enterprises. In 1997, the government announced, on various occasions, that it

would speed up the process of SOE reform. 119

In spite of this, the SOEs reform is far from being complete and a number

of them have been suffering from losses. By 1997, 46 per cent of SOEs were

operating at a loss and their share in total industrial output fell to 27 per cent. In

1998, the Chinese government said it intended to help SOEs suffering losses tum

around within three years. In 1999, a blueprint was prepared for the reform and

development of the SOEs.120 However, even now, the fundamental problems of

SOEs are eluding solution. 121 In the post-WTO phase, the government is under

pressure to ensure that the SOEs operate according to internationally accepted

standards and sharpen their competitive edge. The State Economic and Trade

118

119

120

121

Charles Harvie and Tony Naughton, 'Corporate Governance, Ownership Change and State­Owned Enterprises Refonn', in Charles Harvie (ed.), Contemporary Developments and Issues in China's Economic Transition, pp. 50-51.

Jun Ma, The Chinese Economy in the 1990s (New York: Palgrave, 2000), pp. 99-100. So far, corporate freedom has been given to over 1200 companies. However, there is still vast scope for further improvement of the corporate governance practic(J of Chinese enterprises. See, Tong Lu, 'Corporate governance in China', http://www.iwep.org.cn/cccg!pdf/ Corporate%20in%20ChinaProf. pdf

'The Decision of the Central Committee of the Communist Party of China on Major Issues Concerning the Refonn and Development of State-Owned Enterprises', (Adopted at the 4th Plenum of the 15th CPC Central Committee on 22nd September 1999, http://www.chinadaily.com.cnlhighlights/docs/200 1-04-30/351 O.html

'SOEs refonn, long way ahead', http://www.chinagate.com.cn/english/2312.htm

120

Commission, is therefore, mulling over measures that will strengthen the SOEs. In

particular, the focus is on creating more large companies and enterprise groups that

would compete in the world market. 122 The government has also established State-

owned Assets Supervision and Administration Commission (SASAC) to ensure

better returns for government investment in some select SOEs. 123 Overall, the

performance of SOEs has not been a happy one in China's deydopment miracle.

They are not counted as success stories like chaebols in South Korea or keiretsus in

Japan.

Opening up of the economy

The great power dreams of China also demanded that it come out of

autarchy and isolation and become less revisionist of the emerging global

economic order. Before 1978, China felt proud as the only Third World country

that gave but never received any bilateral and multilateral aid. The three

institutional pillars of the capitalist world system - the World Bank, the

International Monetary Fund (lMF), and the General Agreement on Tariffs and

Trade (GATT) were assaulted as the last stronghold of resistance to the New

International Economic Order (NIEO). Global interdependence was likened to the

relationship between a "horseman and his mount" and as such an ideological cover

for imperialist penetration. After 1978, China reversed its policy and adopted a

funCtional to neo-functional approach towards these institutions. In an

unprecedented move, Beijing requested aid from the United Nations Development

Programme (UNDP). Having crossed the Rubicon, China continued it$ aid-seeking

diplomacy from various international agencies including the World Bank and the

122 'China sets new goals for SOE restructuring', http://www.chinagate.eom.cn/ english/230 l.htm

123 . 'Rules to reign on SOEs' US$ 1.4 trillion in assets', China daily, I Ith July 2003.

121

IMF. In 1989, China overtook India, becoming the world's largest recipient of

official foreign aid, bilateral and multilatetal. 124 On January 1, 2002, with China

becoming a member of the World Trade Organization (WTO) after a prolonged

wait, China's association with the global economic order seems to be complete.

However, China has been following a policy of mini/maxi principle i.e. investing

minimum resources and attempting maximum benefits. For example, in negotiating

its entry into the WTO, China wanted the status of a developing country so as to

get maximum concessions.

Another important feature of post-Mao reforms was the Party's decision in

December 1978 to introduce an open door policy. Though under Mao, China had

some trade relations with the socialist countries and Japan (which remained its top

trading partner after the Sino-Soviet split), the negligible amount of trade did not

have an overbearing influence over the economy. During this period China

followed a policy of import substitution and self-reliance as in Maoist thought

foreign trade had a minor role to play, while foreign aid and investments were

rejected as symbols of dependence and foreign exploitationY5 China's own

isolation in international relations also contributed to this. Under Deng Xiaoping,

however, the closed-door policy was perceived as one of the key reasons behind

China's backwardness in the preceding thirty years. 126 Based upon an examination

of the success of the 'four little dragons' (Singapore, Taiwan, South Korea and

Hong Kong), it was concluded that involvement in foreign trade and encouraging

foreign firms to invest in Chinese enterprises were vital policies to improve

124

125

126

Samuel S. Kim, 'International organizations in Chinese foreign policy', ANNALS of the American Association of Political and Social Science, No. 519 (January 1992), pp. 140-157.

Madelyn C. Ross, 'China's international economic behaviour', in Thomas W. Robinson and David Shambaugh (eds.), Chinese Foreign Policy: Theory and Practice (Oxford: Clarendon Press, 1994 ), p.441.

Deng Xiaoping, 'Building a socialism with a specifically Chinese character', 301h June 1984,

Selected Works of Deng Xiaoping, Vol. 3, op. cit, n. 94.

122

efficiency and stimulate economic growth. It was also clear that Chinese firms

lagged far behind those in the capitalist world in terms of equipment and

technology. By offering the carrot of a foothold in the potentially vast Chinese

market, China's leaders hoped that foreign capitalist firms would be led to invest ,

directly in Chinese firms, by setting up so-called joint venture enterprises. 127 Deng,

therefore, encouraged _all-options to forge close relations between China and the

global economy. The immediate focus was on the coastal regions that had a: more

developed infrastructure and ready access to imported resources and capital

goods. 128 The designation of special policies for Guangdong and Fujian provinces

(enjoying proximity to Hong Kong and Taiwan respectively), and the setting up of

the four special economic zones (SEZs) in 1979 as windows of China's opening

up, marked the first major step. Next, in 1984, fourteen cities north of SEZs were

designated 'open cities',129 and in 1988, the island ofHainan became China's fifth

SEZ. The third step started in 1985 with the creation of Changjiang and Zhujiang

Deltas, and the Minnan Triangle in Fujian province as 'coastal economic open

areas' to act as bridges for the opening up of inland areas in future. The opening of

the Pudong New Development Zone in Shanghai in September 1990 marked the

beginning of 'opening up within an open area'. Henceforth, the focus was on

'quality' and 'long term development' 130 and national market was also opened up

in the 1990s, as were, gradually, most Chinese provinces to FDI.

127

128

129

130

)

David J. Pyle, China's Economy: From Revolution to Reform (New York: St. Martin's Press, 1997), p. 107.

Maria Hsia Chang, op. cit .... n.31. p. 98.

These cities were: Beihai, Dalian, Fuzhou, Guangzhou, Lianyuang, Nantong, Ningbo, Qingdao, Qinhuangdao, Shanghai, Tianjin, Wenzhou, Yantai and Zhenjiang.

Cited in Feng Li and Jing Li, Foreign Investment in China (London: Macmillan Press Ltd., 1999), pp. 8-9.

123

In order to attract foreign firms, the SEZs and open areas offered tariff and

tax incentives and imitated, in varying degrees, the freedoms of market economies.

As a result, it brought enormous benefits in terms of foreign direct investment

(FDI), technology transfer, increased employment and expertise, as well as foreign

exchange earnings. By June 1993, according to official statistics, more than

130,000 foreign enterprises were operating in China, representing 146 countries of

the world. 131 The performance in the field of FDI and international trade has been

even more significant. Ever since its authorisation in 1979, China's FDI policy has

been a great success, China becoming the second host country for FDI after the US

in the nineties. 132 Several factors have contributed:· to this 1.mccess: the gradual

liberalisation of China's domestic economic system has provided a more

favolirable environment for foreign firms' activity; the high rate of economic

growth achieved over twenty years has created a rapidly expanding domestic

market which has attracted foreign investors. Lastly, China's integration into the

world economy has been accelerated by the trends towards globalisation, which

has meant a steady and rapid expansion of global FDI. 133

In the early stages of China's opening up, FDI inflows remained modest.

Cumulated FDI at the end of 1983 stood around$ 3 billion. In the second half of

the eighties, as foreign investors became more confident in the Chinese open door

policy and as the regulatory framework for the FDI improved, inflows

progressively gained momentum. FDis jumped from$ 1.6 billion in 1985 to$ 3.2

131

132

133

Maria Hsia Chang, op. cit ... n.31, p. 99.

However, in 2002, China has overtaken US' place as the world's largest recipient ofFDis.

Cited from OECD Paper, 'Investment pattern in a longer perspective', (1999), in Francoise Lemoine, 'FDI and the opening up of China's economy', http://www.cepii.fr/anglaisgraph/ workpap/pdf/2000/wpOO-ll.pdf

124

billion in 1988. From 1988 to 1990, FDis slowed down but it began to recover in

1991 ($4.4 billion).

FDI soared to $ 11 billion in 1992, to $ 33 billion in 1994 $ 45 billion in

1997. This surge in FDI inflows was driven by institutional and macroeconomic

factors: following Deng Xiaoping's support in favour of further economic

liberalisation in Spring 1992, the Chinese government, resumed a policy of far

reaching economic reforms, and launched a new round of measures to attract FDI.

Foreign invested enterprises were given more opportunities to sell their products in

the domestic market and new sectors were experimentally opened to foreign

jnvestors1 (retail trade, finance etc.). The macroeconomic policy that stimulated

growth in 1992-1994 and the devaluation of Renminbi also played an important

part in attracting FDI. 134 After a brief slump due to the Asian financial crisis, FDI

has risen swiftly in response to a better development climate and later, China's

entry into the WT0. 135 In 2002, China attracted a record $52.7 billion. 136 In 2003

FDI to China has crossed$ 60 billion, and China has overtaken the Unites States as

the largest destination of FDI. The Chinese experts expect that FDI will reach $

1 00 billion in every year of the 11th Five-Year Plan period (2006-1 0). 137 It is not

that all is well in China, especially, the legal system is still imperfect and

134

135

136

137

Francois Lemoine. Ibid.

Nan Feng, 'Foreign investment heats up', Beijing Review, Vol. 35, ·No. 38, September 19 (2002), pp. 13-16. For a brief discussion on FDI sources in China and their sectoral distribution, see, Lai Pingyao, 'Foreign direct investment in China: recent trends and patterns', China & World &onomy, No.2 (2002), pp.25-32.

'FDI in China surges despite weak global economy', http://english.peopledaily.com. cn/200302/l8/eng20030218 111823.shtml

'Annual FDI to China expected to reach US$ I 00 billion', http://english.peopledaily.com.cn/20030 I /02/eng20030 I 02 I 09437 .shtml

125

corruption is so severe that foreign investors incur additional costs. As such,

China's success in attracting FDI is nothing less than a puzzle. 138

The boom in FDI was used to promote China's status as a trading nation.

Not only was there a regional targeting policy (i.e. preferential policies for SEZs

and open coastal cities), but also a sectoral targeting policy that emphasized certain

industrial sectors. Starting from the early 1980s, the government favoured light

industrial products, textiles, and machinery and electronics by raising foreign

exchange retention rights on export earnings. From 1985, the government also

guaranteed firms participating in a government export network electrical power,

raw materials, tax reductions on inputs, and attractive purchase prices. Several

hundred factories nationwide, producing a range of products, were selected to

participate in the network. In addition, the government also earmarked special

investment funds for the technological upgrading of selected enterprises, many of

which were channelled to various exporting enterprises, including more than a

thousand enterprises in the machinery and electronics sector. 139 In 1986, the State

Council issued 'twenty-two regulations' to provide additional incentives to

foreign-invested enterprises (FIEs) engaged in exports. Accordingly, joint ventures

were to receive additional preferential treatment if they were categorized as either

export-oriented or technologically advanced projects. The government also

supported these FIEs through exemption of customs duties, export credits and a

two-tier exchange rate policy (until 1993). 140

138

139

140

Kevin Honglin Zhang, 'Why does China receive so much foreign direct investment?' China & World Economy, No.3 (2002), pp. 49-58.

Cited from 'China's foreign trade reform', World Bank Report, (Washington D.C.: World Bank, 1994), inJun Ma, op.cit, no. 109, pp. 123-124.

Jun Ma, op. cit. no. 114, pp. 124-126.

126

Another factor that helped in export promotion was the decentralization of

the trade management system. Pre-reform China had a highly centralized trade

management system to implement its export-import plan, which covered more than

90 per cent of China's total foreign trade. Before 1979, there were only 12

specialized foreign trade corporations (FTCs) at the national level, each

responsible for carrying ,out. trade in specified, non-overlapping product areas.

During the 1980s, the decentralization affected both the scope of the trade plan and

the number of FTCs. New FTCs were authorized since 1984 at the provincial and

local level. Their number rose to 5000 in 1988 and over 7000 by 1996. In addition,

some SOBs were granted the trading rights for their own products and inputs. By

the end of 1996, such SOBs exceeded 5000. Finally, the planned share of foreign

trade fell significantly. The number of planned export commodities as well as

import commodities fell drastically by the mid-nineties and only select items were

subject to licensing requirement. 141

The cumulative effect of all these refonils led to the rise of China as a

trading nation. Between 1978 and 1997, the annual average growth rate of total

trade (imports+ exports) reached 16 per cent. During the same period, the trade -

to-GDP ratio rose from 9 per cent to 36 per cent, with exports-to-GDP ratio rising

from 4 per cent to 19 per cent. Measured by the share of China's trade in total

world trade, China's rank rose sharply from thirty- second in 1978 to tenth in

1997. 142 The WTO membership has boosted China's confidence and in its first

year (2002), China's foreign trade crossed $ 600 billion, edging the country to the

fifth position in the world trade chart. Apparently, China's WTO membership

enabled it to better handle trade disputes and to gain better access to the world

141

142

Ibid, pp. 119-121.

Ibid, p. 118.

127

market. 143 Except 1993, China has netted huge trade surpluses after 1990 although

in percentage terms, it has come down in 2002 and is likely to shrink further in

2003. 144 Its foreign debt, which was $ 168.54 at the end of 2002, was still

manageable according to international norrns. 145 China also has foreign exchange

reserves of over$ 300 billion, the second highest after Japan.146

Fiscal and monetary reforms

In an effort to make China's economy complementary to world economy,

China also launched fiscal reforms since 1978. China has replaced the traditional

revenue system with a tax system that resembles the western system in many ways:

allowed enterprises to compete on a more equal footing and reduced the scope of

government involvement in the productive sector, allowing the government to

focus mote on the delivery of public goods and services. i47 But the most important

feature was the decentralization c;>f the fiscal management system by granting the

localities greater flexibility in collecting revenues and making expenditure

decisions. In 1978, the revenue collection was highly centralized such that local

governments remitted most of their taxes and profits to the central government and

then received transfers for expenditures from the national budget. The 'fiscal

contracting system' introduced in 1980 provided for 'eating in separate kitchens'

for the central and provincial governments instead of 'eating from one big pot'.

143

144

145

146

147

'China scores "best" performance in foreign trade since joining WTO: Minister', 9 December 2002, http://www.chinese-embassy.org.za/eng/38948.html

'China's trade surplus to shrink sharply this year: report', 24 May 2003, http://english. peopledaily.com.cn/200305/24/eng20030524 117169.shtml

'China foreign debt $ 1.57 bin', 17 April 2002, http://asia.news.yahoo.com/ 030417/3/wl5e.html 1

Chi Hung Kwan, 'China's rising foreign exchange reserves: a symptom of misallocation of funds', http://www.rieti.go.jp/en/china/0306060 l.html

For a brief overview of the evolution of. fiscal reforms, see the chapter on fiscal reforms in Jun Ma, op. cit. no. 114, pp. 15-41. A detailed overview is available in Christine P. W. Wong, Christopher Heady and Wing Thaye Woo, Fiscal Management and Economic Reform in the People's Republic of China (Hong Kong: Oxford University Press, 1995).

128

The ·localities were also granted authority over expenditures and expected to

balance their own budget. Further reforms in 1985 attempted to bolster the

revenues of poorer provinces by allowing them to retain· a higher portion of

receipts. However, the 1988 reforms marked a return to the type of fiscal

bargaining in the original 1980 reform. The 1994. reforms replaced the eating-in-

separate-kitchens with a tax sharing system that was itself simplified and made

transparent. To administer these reforms, a National Tax Services was established

in each province. 148 However, the leadership in China still finds the country's

financial order as chaotic. 149 In the current lOth Five-Year Plan (2001-05), the

government is keen to rectify such disorders and ensure better economic

management. 150

Parallel to fiscal reforms, China's monetary reforms started in the early

1980s, and picked up speed in the 1990s. During this period, China has converted

the People's Bank of China (PBC) into a central bank that forniulates and

implements monetary policies; established a state banking system that consists of

four major specialized banks, three policy banks, and many commercial banks;

created a large number of nonbanking financial institutions that conduct trust and

investment services, securities underwriting and transactions. Nevertheless,

China's monetary reform is far from complete. The central bank's ability to use

indirect policy instruments such as open market operations is still limited; irterest

rate decontrol is still on the agenda; commercial banks are still overburdened by a

148

149

!50

Kellee S. Tsai, 'Off balance: the unintended consequences of "fiscal federalism" in China', http://www.jhu.edu/-polysci/faculty/tsai/offbalance.pdf

Jiang Zemin, 'We should study more about finance and taxation to upgrade our administrative capability over economic work', People's Daily, 20th January 2000.

Feng Jing, 'China's first blueprint for development in the new century', Beijing Review, Vol.44, No. 44, 5th April (2001), pp. 12-17.

129

large volume of non-performing loans made to SOEs; and enforcement of

prudential regulations is yet to be strengthened. 151

Population, labour and social security reforms

China has a huge population of 1.3 billion, accounting for 21 per cent of the

world population. At the same time, despite being a large country, China has

scarcity of arable land and meagre resources. This being the case, a harmonious

balance of population and development has always been an importa..'lt agenda of

the overall plan of China's development strategy. However, in the pre-reform days,

it could not be effectively implemented despite Zhou Enlai's support. It was only

in September 19SO, when the Central Committee published an 'Open Letter'

announcing the One Child Family (ICF) policy that population control was

- implemented religiously. The only general exclusion from the policy at this stage

was to be the areas of mi!lority (mainly Muslim) population that were normally

also quite sparsely populated regions. In the wake of the failure of ICF policy, it

was reworked in 1991 taking_ a more realistic view of growth prospects. 152 As a

result, the population growth has been brought under effective control. The birth

rate and natural growth rate decreased from 33.43 per thousand and 25.83 per

thousand in 1970 to 15.23 per thousand and 8.77 per thousand in 1999

respectively. The total fertility rate of Chinese women went below the replacement

level, making China one of the countries_ with a low fertility level in the world.

When economically still underdeveloped, China has accomplished a transition in

its population reproduction pattern from one featuring high birth rate, low death

151

152

Jun Ma, op. cit. no. 114, p. 42. For a detailed discussion of the problems facing China's banks, see, Charles Pigott and Young-Shook Nam, 'Challenges to China's banking industry', in China in the World Economy: An OECD Economic and Statistical Survey (London: Kogan Page, 2002), pp. 231-268.

Christopher Howe, Y. Y. Kueh and Robert Ash, op. cit. n.20, pp. 293-297.

130

rate and high growth rate to one featuring low birth rate, low death rate and low

growth rate in a relatively short period of time. 153 Thus, the Chinese already seem

· to have reached advanced levels within the 'demographic transition theory.' For

the future, the Chinese intend to keep the natural population growth rate under 0.8

per cent and stabilize their population at 1.6 billion by 2050; promote human-

centered development in a comprehensive way through qualitative education,

health services; and safeguard the special interests of women and children. 154

Rapid economic growth becomes difficult in the absence of a healthy and

effective labour management system. In the pre-reform days, it was the

government's responsibility to find positions for all those eligible for employment.

Over time, an acute conflict developed between the narrow channels of

employment and the growth of the working population. Due to reforms, over 39

million people found employment between 1979 and 1983.155 At the same time, a

sizable surplus of labour still exists in the rural sector and SOEs. The pressure

could be limited by stronger economic growth, especially in the private sector and

more labour-intensive service industries that have generated the most jobs in recent

years. 156 However, given the compulsions of modernization and development, the

153

154

155

156

Information Office of the State Council of the People's Republic of China, 'China's population and development in the 21 51 century', Beijing Review, Vol. 43, No. 52, December 25 (2000), pp. 10-18.

Ibid, pp. I 0-18. The Chinese seriousness on this front is evident by the fact that in the overall grand strategy prepared by the Chinese Academy of Social Sciences (CASS) as referred in op. cit. n.l, human capital comes next to economic resources in the overall priority list. This means that the Chinese have same notions of 'human security' as being developed in the Western literature.

Liu Yongren, 'Some tentative ideas on the refonn of China's labour system', printed as Document No. 6.5 in Christopher Howe, Y. Y. Kueh and Robert Ash, opp. cited, n. 20, pp. 337-338.

There are about 160 million surplus labours in rural China alone apart from 15 million in SOEs. See, Ray Brooks and Tao Ran, 'China's labour market performance and challenges', China & World Economy, Vol. 12, No. I (2004), pp. 21-35.

131

state cannot give employment to all people. 157 To facilitate their employment in the

market, the government has been working on a long-term plan. The 2002 White

Paper on Labour and Social Security in China gives a blueprint of an elaborate

labour and social security system to be developed. The focus is on f!Stablishing a

market-oriented employment mechanism (such as hiring and contracting),

protecting employees' interests, co9rdinating labour relations and raising people's

income. 158 The Chinese government has also pasted as many as 28 national labour

laws on an official website, which show that China is trying to bring more

transparency in labour administration. 159

The social security system is also being reformed. Here, China is moving

away from welfare-state model based on the ideology of social justice and equality

to the neo-liberal welfare model based mainly on economic efficiency. 160 Until

recently, only urban employees of government agencies or SOEs were offered

public pension benefits. In March 1995, the State Council issued 'The Directive on

Further Reform of the Enterprise Pension System', under which pensions are

financed by mandatory contributions and voluntary personal savings. Similar

system is being worked out in rural areas. The strategy that the Chinese

government has adopted in reforming its social security system is to establish a

public pension pillar providing only minimum levels of old age security. The

partially funded nature of this system will enable the government to avoid the old-

age crisis being experienced by many industrialized countries. The Singapore

157

158

159

160

Xin Meng, 'Recent development in China's labour market', http://www.chinaonline.com/ features/chinaonline2/chinapdf/cu98-3a.pdf ,

Information Office of the State Council of the People's Republic of China, 'Labour and Social Security in China', 29th April 2002, http://www.chinadaily.eom.cn/ highlights/docs/2002-04-2 9/678 3 3 .html

They are available on www.laboumet.com.cn

Guan Xinping, 'Social welfare reform in China: the impact of globalisation', in P. W. Preston and Jurgen Haacke (eds.), Contemporary China: The Dynamics of Change at the Start of the New Millennium (London and New York: Routledge Curzon, 2003), p. 113.

132

model of treating old age social security (with mandatory contributions and

market-based operations) is attractive to Chinese policy makers. Apparently, the

Chinese government is making a serious attempt not to overburden itself with a

h bl . . 161 uge pu tc penston system.

Supplementary measures

In order to give a push to the economic reforms, China also needed to

adhere to certain global norms. Five vital areas could be mentioned. First, there

was a visible flexibility in state-science-society relations. Post-1978, science and

technology was placed third in the overall 'four modernization' programme. As

Deng Xiaoping said:

The key to the four modernizations is the modernization of science and technology. Without modem science and technology, it is impossible to build modem agriculture, modem industry or modem national defence. Without the rapid development of science and technology, there can be no rapid development of the economy. 162

"' Under the new policy, there was no more an emphasis on 'politics in

command'. Chinese leaders became aware that scientific and technological

advance was not likely to flourish in tightly controlled economic and political

settings and that progress in science and technology required a major

transformation of the economic and political environment. The new reform

programmes demanded heavy reliance on the expertise professionals and this

necessitated a weakening of the Party's grip over both state and society. As a

result, the CCP divested itself of its techno-economic function and transferred

them to the government and planning agencies. Further, a supra-ministerial body

called the Science and Technology Leading Group was set up under the State

161

162

Jun Ma, op. cit. no. I 09, pp. 28-29.

Deng Xiaoping, 'Speech at the opening ceremony of the national conference on science', 18th March 1978, in Deng Xiaoping, Selected Works of Deng Xiaoping, p. I 02.

133

Council in January 1983. This body identified some new missions and projects,

helped in technology transfer from defence to civilian sectors and helped in the

evolution of market-led growth in scientific research. 163

Second, a series of legal reforms were undertaken. The National People's

Congress of China and its standing committee enacted a series of laws to promote

the development of market economy: the Company Law, Partnershir, Law and the

Sole Proprietorship Law were promulgated to standardize and regulate the creation

and dealing of business entities; the Contract Law, Law on Guarantees, Law on

Negotiable Instruments, and Law on Bids and Tenders were enacted to establish

the ground ;rules for1 market transactions; the Law against Unfair Competitions,

Product Quality Law and Consumer Protection Law were enacted to supervise and

manage the market. China has also drawn up the Commercial Banking Law,

Securities Law and Insurance Law in the fields of finance and insurance, and made

amendments to Patient Law, Trademark Law and Copyright Law to better protect

intellectual property rights. 164 To attract foreign investments and safeguard

economic reforms, China also enacted the Law on Chinese and Foreign Equity

Joint Ventures, Law on Foreign Capital Enterprises, Maritime Law and Law on

Foreign Trade. 165 However, in all these cases, law rather than leading the reform

process responded to changes in economic development. 166 Also, China's judiciary

163

164

165

166

Yeu-Farn Wang, China's Science and Technoiogy Policy, 1949-1989 (Aidershot: Avebury, 1993), pp. 101-114.

To know more about Chinese stand on intellectual property rights, see the White Paper on 'Intellectual property protection in China', Information Office of the State Council of the People's Republic of China, June 1994, Beijing, http://english.peopledaily.'.::om.cn/ whitepaper/9 .html

'Economic development and legal evolution in China', Speech by Hon. Xiao Yang, Chief Justice and President of the Supreme People's Court of PRC, At the Singapore Academy of Law, 9th September 2003, http://www.sal.org.sg/Pdf/ AL2003speech.pdf

Fan Gang and Xin Chunying, 'The role of law and legal institutions in Asian economic development: the case of China', Development Discussion Paper No. 664, November I 998, http://www.hiid.harvard.edu/pubs/pdfs/664.pdf

134

continues to suffer from a host of complex and interrelated problems, including a

shortage of judges, pervasive corruption, and significant limits on judicial

independence. China is still far away from well-established norms of rule of law

and civil society. 167

Third, China continued to make huge investments in human resource

development where it had some unique achievements in the pre-reform period. In

an excellent comparative work, Jean Dreze and Amartya Sen focus on some of

these achievements. For example, by 1982, literacy rates in China were already as

high as 96 per cent for males in the 15-19 age group, and 85 per cent even for

females in the 15-19 age group. Another area was land reforms, which has been

identified as an important factor of economic development in East Asia in general.

The abolition of landlordism in the pre-reform days had ensured fairly equitable

access to land in rural areas. When the Chinese government opted for the

'responsibility system' in the late 1970s, the country had a land-tenure pattern that

could readily support individual farming without the social problems and economic

inefficiencies of highly unequal land ownership and widespread landlessness (in

sharp contrast with India). China also had a notable achievement in health sector

such as a dramatic reduction of infant and child mortality and a remarkable

expansion of longevity. By 1981, the expectation of life at birth was estimated to

be already as high as 68 years (compared with 54 years in India), and infant

mortality as low as 3 7 deaths per 1,000 live berths (compared with 110 in India).

Therefore, when China started the reforms in 1980s, its pre-reform achievements

actually helped to sustain and promote them. 168

167

168

Congressional-Executive Commission on China, 'Annual Report 2003', presented to the One Hundred Eighth Congress, October2, 2003. The report is available on http://www.cecc.gov

Jean Dreze and Amartya Sen, India: Development and Participation (New Delhi: Oxford University Press, 2002), pp. 112-142.

135

Fourth, China prioritised its national objectives. Realizing that China

cannot 'wage a war on all fronts', Deng Xiaoping subjugated military

modernisation to economic modernisation. China gave up its conflictual policy

towards its neighbours, as 'peace' along its borders was required to enable China

focus on its 'development'. After the 1979 war with Vietnam, China has avoided

wars with its neighbours, except fQr some clashes over the Spratley Islands issue.

In international relations, beginning with 1982, China stopped playing one

superpower against another, followed an independent foreign policy approach, and

instead of talking of an 'inevitable world war', started talking of 'peace and

development' as major themes in international relations. All these policies enabled

China to concentrate on developmental efforts.

Finally, China also undertook certain political reforms. The ideological

underpinnings of Marxism were gradually transformed and given new meaning so

as to facilitate the economic reforms. While the contribution of Mao Ze-dong

thought was acknowledged, the focus was now on Deng Xiaoping theory which

defined socialism in a new way: the development of productive forces. To this can

be added Jiang Zemin's 'three represents' theory. Together, they constitute the new

ideology of development in China. Certain reforms were also initiated within the

Party. Several policy decisions were taken: first, avoid over-concentration of

power; second, avoid too many people holding two or more posts concurrently;

third, distinguish between the responsibilities of the Party and those of the

government and to stop substituting the former for the latter; and finally, take

necessary steps to ensure smooth succession of leadership. Deng Xiaoping also

ensured the recruitment and promotion of right kind of leaders within the party. As

he said:

136

If we are to achieve these (modernization) objectives, there is an urgent need to discover, train, employ and promote a large number of younger cadres for socialist modernization, cadres who adhere to the four cardinal principles and have professional knowledge. 169

He patronised cadres with technical education and scientific bent of mind

and gave them important assignments. The conservative elements were sidelined

within the Party and by early nineties, they lost whatever influence they had within

the party. It was then possible to give a new push to the economic reforms. Again

right kind of leaders such as Zhu Rongji pursued an aggressive agenda. It would be

difficult for the new generation of leadership of Hu Jintao and his associates to

deviate from Deng's development strategy. In fact, a major challenge for Hu Jintao

is to ensure that China continues to rise in a peaceful manner. 170 A final note on the

role of Chinese bureaucracy is necessitated which gave up its conservative tone

and lent corllm.itment and support to the CCP. In the eyes of Chinese bureaucratic

elites, the politics of reform and opening up reflected 'the CCP's willingness to

correct its own mistakes'. The reforms have created a positive image of the Party

among the Chinese officials and enhanced their faith in the party leadership. They

are proud of the progress China has made in the post-Mao years, which they

believe have gratified the Chinese people and won praises from the international

community. 171

Features of Chinese development strategy

It is difficult to place China's development strategy within the contours of

any conventional model. At best, it shares some features with economic

169

170

171

Deng Xiaoping, 'On the reform of the system of Party and state leadership', 18th August 1980, in Deng Xiaoping, Selected Works of Deng Xiaoping, pp. 303-305.

Bhartendu Kumar Singh, 'Hu's challenges', The Hindu, l81h December 2002.

Xiaoqin Guo, State and Society in China's Democratic Transition: Confucianism, Leninism, and Economic Development (New York & London: Routledge, 2003), pp. 33-37.

137

nationalism, one of the three models of development described by Robert Gilpin

(the other being liberalism and Marxism). 172 The argument that the Chinese

development model is nothing but a replication of the broader East Asian, state

assisted development model (all of which seem to follow the economic nationalism

approach) is not true though it shares more features with it than any with other ... •

models of development. Having had the bitter experience of copying imported

models of development; the Chinese were more interested in developing an

indigenous model, which would cater to Chinese conditions and realities. In the

process, the Chinese development model, better known as 'socialism with Chinese

characteristics' 0id borrow certain good features from other development models.

For e.g., the East Asian tradition of strong government role was found beneficial

along with its emphasis on 'export oriented growth' (popularly known as the flying

geese model) and light weight industries and consumer goods. The Western-liberal

emphasis on individual autonomy as well as market mechanism was provided

space along with the Confucian emphasis on the maintenance of social order and

harmony. And yet, criticisms notwithstanding, 173 the Chinese development model

has been built on certain pillars that make it a unique model.

First, the Chinese development model has been shaped by pragmatism and

ideological flexibility. Unlike the pre-reform days when politics dominated

economic strategies and the latter were subject to swings of the political pendulum,

the leaders in the reform days have been pragmatic and not subject to ideological

172

173

See, Robert Gilpin, The Political Economy of International Relations (Princeton, New Jersey: Princeton University Press, 1987).

A Japanese perspective sees China's developmental policy sitltilar to what the Japanese practised 40 years ago. See a Japanese report cited in http://fpeng.peopledaily.com. cn/20020l/l6/eng20020116_88747.shtml

138

restraints. 174 Deng was himself a force behind this pragmatism and his 'Black Cat

Doctrine' best reflects his pragmatic orientation. His commitment to the

development of China led him to reorient the meaning of socialism and add a new

variant in Marxist ideology. He defined socialism as 'development of productive

forces' thereby giving full space to market forces. To provide ideological space to

the new forces of production, socialism was being defined as one 'with Chinese

characteristics'.

Second, there was no existing blueprint that could be a model for economic

institutions and policies were adopted through experimentation. In the process of

learning by doing, ot as Deng put it, of "crossing the river while feeling the rocks"

for example, the responsibility system was adopted because it had worked well, the

SOEs reform was started by introducing partial autonomy to a small number of

them, and even urban reforms had an experimental beginning. Experiments carne

with certain advantages. First, they were used to find out what works. Second, if

successful, Party members indoctrinated with old ideology could be convinced of

the new ways and encouraged to support the reform programme. Deng's own

emphasis was 'to seek truth from facts'. He understood these two points well. In

this statement he asked the Party members not to let ideology prevent them from

accepting new policies that were shown to be good experimentally. Because of the

lack of a predetermined blueprint and the use of experimentation, reforms took

place gradually and step by step. This process has been characterised as

'gradualism' in contrast to shock therapy'. 175 In many ways, this gradualism helped

174

175

Gregory Chow, 'The Chinese economy, 1901-2000', Perspectives (on line edition), Vo. 2, No. 6, http://www.oycf.org/Perspectives/12 _ 06 300 I /chinese_ econ.htrn

Ibid. Shock therapy or the big bang approach was adopted in some former communist countries of East Europe and former states of the Soviet Union.

139

m avoiding social unrest and political conflicts that could derail the whole

process. 176

Third, a balance of a strong central government role as well as the urge for

decentralization has characterized the reforms. The central government has

entrusted itself with macroeconomic decisions through a series of short-term,

medium-term and long-term plans, const~!lt vigil and redistributive network; on the

other hand, it has ushered in a new wave of decentralization. Unlike the other East

Asian developmental states, it has allowed considerable autonomy to lower units

right up to the village level to take their own decisions in economic planning and

management. The autonomy granted to the village farmers, the TVEs, the SOEs,

the municipal governments and the provinces has led to a phenomenon of

'development from below' not found in other developing economies.

Fourth; the socialist character of the economy is still being preserved. The

authorities have not pursued a strategy of mass privatization as in some of the

transitional economies of Eastern Europe and the former Soviet Union. This has

been limited to maintaining the dominance of public ownership and control of

strategic sectors in the economy, supplemented by non-state and private

ownership. This modified definition has allowed the authorities considerable

leeway in implementing policies that promote the development of the market

syst~m, such as the use of material incentives. The household responsibility system

in agriculture is one example. The emphasis on ownership allowed the authorities

to implement changes to the operating mechanism of SOEs to sever the close links

between them and the state, particularly with respect to their finances and

management, with the aim of transforming them into autonomous units responsible

176 Charles Harvie, 'Economic reforms and recent macroeconomic performance', in Charles Harvie (ed.), op. cit. n. 118, p. 7.

140

for their own profits and losses. The new framework also enabled the development

of the non-state sector. Indeed the rapid development of the non-state sector has

strengthened the economy, facilitating the transformation of the traditional state

sector. 177

These were the pillars, the umque features on which China has been

building a success story. Certain positive features thioughout the reform process

supplemented these. First, the reform had the support of the Chinese people and of

the government officials who had discovered and experienced the failure of

economic planning. They desired to change the course from central planning. They

also desired a new system after the excesses of the CulturaL.Revoluti1Jn. Second,

there was political stability while the reform took place. The Communist Party

remained in power and was able to exercise leadership during the reform process.

Above all, credit had to be given to the Chinese leaders themselves. Deng, in

particular, should take most of the credit in overseeing the overall direction of the

reform. Some top leaders were not willing to let China deviate from its traditional

course. There was a difficult political balancing act at the top level of the

Communist Party. It is difficult to imagine another leader who could have done as

well in leading China through the reforms. Without Deng, the reform would not

have been so successful even if it had taken a market-oriented direction in the first

place. 178

Conclusion

The Chinese search for power and status in the international community

through a new development strategy after 1978 has been a successful effort. The

177 Ibid, p. 8. 178 Gregory Chow, opp. cited, n. 174.

141

success of the Chinese development model makes it a serious candidate to speak

on development issues. However, the Chinese perspective on development is often

characterized by ambiguity and contradictions. The Chinese speak of development

as a key issue in international agenda. In fact, the Chinese support for new

international economic order (NIEO) was primarily because it was development-... ·

centric ag'(nda. And yet, China has not done enough to promote this issue in

international politics. It has played a very peripheral role on developmental

platforms. Despite its diplomatic identification of China as a 'Third World'

country, it has done little to empathize with the Third World causes and in fact

operated most of the time out of the Third World box. It has not associated itself

with formal Third World platforms such as G-77, G-20 and the non-aligned

movement (NAM). In essence, China has used the tool of development as a

mechanism for its own growth and empowerment. To that extent, China has used

'development' as a double-edged sword to serve diplomatic compulsions as well as

its own purposes. Despite never participating in the Third World forums, China

insisted on getting Third World status or a special status for itself while it was

negotiating its entry with the WTO. Thus, China is able to resist the restraints of

development but at the same time uses it as an opportunity for its own sake.

Rhetoric apart, in Chinese perspectives, development is closely linked to

security. Together, they constitute what the Chinese perceive as Comprehensive

National Power (CNP). Over two decades of successful development strategies

have taken China out of its erstwhile vulnerable position in international relations.

This would not have been possible if China had not taken concurrent steps in 1978

to ensure a peaceful surrounding and international environment for itself. China

gave preference to economic security over military security. In the four

142

modemisations programme, military modernisation was the last priority while

agricultural and industrial modernisation got the first and second prize. The next

chapter discusses how they exactly went about this.

143