Deng Xiaoping and Jimmy Carter sign diplomatic agreements between the United States and China in 1979. All eyes were on the immensely experienced Deng Xiaoping that year. Zeng’s comeback into party leadership was instrumental in prompting and then implementing the economic reforms that in many ways continue today. In 2009 China boasts the world’s third-largest economy and is its second-largest exporter. JIMMY CARTER LIBRARY.

After the death of Mao Zedong in 1976, and a brief power struggle, China commenced an era of economic liberalization and social reform that is still going strong at the beginning of the twenty-first century. During this process, China has opened up to the outside world, become a global economic power, and profoundly linked itself to the world’s economy. But it has also created massive, ongoing political, environmental, and economic challenges.

The most recent period of China’s development dates back to two years after the death of Chinese Communist Party leader Mao Zedong and the change in leadership to Deng Xiaoping, which occurred over the period 1978–1979.

Each attempt by Mao to identify a successor had met with disastrous results. Liu Shaoqi, who for almost the first two decades of the history of the People’s Republic of China (PRC) was the number two man in the party, had been purged from the CCP in 1968, was beaten and tortured, and died without being given adequate medical care in 1969 during the Cultural Revolution (1966–1976). Lin Biao, who had replaced Liu, fared little better. After falling out of favor in 1970 and reportedly being involved in an attempted coup, Lin decided to flee to the USSR in 1971; en route his plane crashed in Mongolia, and he died as a result. The youthful Wang Hongwen, who had been groomed from 1972 onward, had proved a poor and highly inexperienced administrator. Deng Xiaoping, who had been rehabilitated in 1974 as vice premier, was politically unacceptable to the radicals grouped around Mao who were later labeled the “Gang of Four.” This situation led to Deng’s second fall from power in 1976. Mao’s final choice had been the former party secretary of Hunan Province, Hua Guofeng, a man whose only merit, so many claimed, was that he vaguely resembled Mao. Mao’s final words of affirmation for Hua in late 1976 before his death were “With you in charge, I am at rest.”

Although Hua had been able to move quickly with other senior moderate leaders such as Yang Shangkun and Peng Zhen to arrest the Gang of Four members a mere nine weeks after Mao’s death and had secured the main leadership positions in the party, including party chairman, general secretary, and chair of the Central Military Commission, respect for him within the party and the country generally was not high, and he was soon seen as an interim leader. Perhaps his most fateful move was to stick resolutely by the acts of Mao Zedong, with the famous statement that “Whatever Mao Zedong said is right, and whatever Mao Zedong did is correct.” Hua was condemned mockingly as a “whateverist” throughout 1977 and into 1978, and all eyes were on the immensely experienced Deng Xiaoping, who was to make his final comeback, being instrumental in instigating and then implementing the reforms that were to start in 1978 and that in many ways continue today in 2009. These reforms have, in essence, pushed China toward being the world’s third-largest economy, its second-largest exporter, its largest destination for foreign direct investment, the largest user of all energy sources apart from oil, and the holder of the largest foreign currency reserves. This was an economy that was effectively enclosed and isolated in 1971, with hardly any foreign reserves, poor infrastructure, and human capital deeply degraded by the wholesale closure of universities during the early period of the Cultural Revolution.

The reform period, however, did have links to China’s past and was not wholly unprecedented. Mao himself had admitted that he was economically illiterate and for most of the 1950s at least had left economic management to people around Deng, party secretary at the time, and the main economists such as Chen Yun. Although they had never repudiated heavy state control and had effectively returned large parts of the economy to central planning control by 1956, they had seen the value in encouraging enterprise in limited areas. After the Great Leap of Forward of 1958–1961, the worst period in the PRC’s economic history since 1949, ensuing famines in 1963–64 had caused the deaths of up to 30 million people; Deng had reintroduced limited reforms, allowing farmers to sell surpluses on a highly managed free market and sanctioning small landholdings. These reforms continued throughout the Cultural Revolution, although by then the aspiration was to create communes nationally and to effectively set up autarky (national economic self-sufficiency and independence) with central planning in control of all areas of the economy.

Back from the Brink

By 1978 China was economically on its knees, its infrastructure highly limited, and 80 percent of its population engaged in backbreaking agricultural work. It exported very little and manufactured hardly anything, and its central bank reserves were empty. It also had the even graver problem of a population that had few skills and that had been exhausted by almost three decades of political campaigns. Many of the youngest of the population had received no education because of the disruption caused by the Cultural Revolution. China’s self-enforced isolation had been partially corrected by the opening to the United States in 1972 after the visit of U.S. president Richard Nixon. But there remained real tensions with the USSR and a realization that China was not only economically weak but also militarily backward, its army working with out-of-date equipment. This fact was proved in the embarrassing defeat in the invasion of Vietnam in 1979, when the Chinese People’s Liberation Army was effectively shooting at its own troops when the Vietnamese simply disappeared.

Discussions throughout 1978 culminated in the Third Plenum of the Eleventh Congress in December 1978, a meeting that, with its earnest intentions to bring about political, economic, social and cultural reforms, was genuinely to change the course of Chinese history. (The Fourth Plenum, in September 1979, went hand-in-hand to further those efforts with a formal statement that acknowledged the Cultural Revolution—and, implicitly, Mao Zedong—as the worst setback to the socialist cause since 1949. The meeting was indeed a setback for Hua Guofeng, whose days in a position of influence were numbered.) Chen Yun was one of the key movers in China’s economic reform, arguing forcefully during the 1978 meeting that marketization should be reintroduced into selected areas of the economy. A decision was also made to allow foreign investment, although tightly controlled, and to encourage what were called the “Four Modernizations”—science, industry, agriculture, and defense. Foreign investment was therefore angled at gaining access to intellectual property that China lacked. Chinese were gradually sent abroad to study in initially the United States and then Europe to gain skills to bring back to China (this policy was to have mixed results—from the first wave of students sent abroad in 1980 to the present day, 720,000 have gone, but only 130,000 have returned to China). Deals were signed, mostly with Japanese companies, to supply advanced technology. The Chinese started importing again. But economic problems in the early 1980s meant that many of th
ese deals were either cancelled or only partially honored, creating tensions, particularly with Japan. China simply overstepped itself with ambition in the early period of the reform process.

People had hopes in 1978 and at moments throughout the 1980s that China’s economic reforms would lead to political reform. And yet, although China’s economy has reformed dramatically in the last three decades, democratization—what dissident and political activist Wei Jingsheng argued was the Fifth Modernization—was not likely to happen, or not at least for many years. Deng’s government, in which Deng himself occupied the somewhat nebulous but extremely powerful position that came to be known outside China as “paramount leader” (he was never to occupy any formal position except chair of the Central Military Commission until 1989), made clear from early on that political reform would have to wait.

China faced enormous challenges in the early part of the reform process. It had been an enclosed economy for much of the last two decades—since the withdrawal of Soviet aid and personnel in the late 1950s. In 1971 only Hong Kong had been a substantial trading partner. Ports such as Shanghai and Xiamen were barely active. The greatest problem, however, was that China had had no rule of law under Mao, with decisions basically emanating from him. The “rule of man” rather than “rule of law” tradition was seen as a fundamental problem. China had no contract law, bankruptcy law, or investment law. Beginning in 1978 it had to create, literally from scratch, a legal infrastructure, a task not helped by the lack of qualified lawyers. Much of China’s legal system was to be borrowed from Japan and is still being refined. The first joint venture law, passed in 1979–1980, allowed foreign investment in China as long as it was in partnership with a Chinese organization. In the same year Coca-Cola became one of the first importers into the PRC, allowed to sell its drinks in hotels and stores authorized to accommodate foreigners.

Household Responsibility System

The most radical and far-reaching reform, however, was not one dealing with foreign investment but rather the move to create the sort of system that Deng and Liu had attempted first of all in 1963 and 1964: a household responsibility system in which farmers were allowed to sell grain and other crop surpluses back to the government for a small profit. This reform freed up the entrepreneurial energies of the Chinese people and from its real inception in 1984 was to have startling results, not the least of which was to make China self-sufficient in food by the mid-1980s and to dramatically improve efficiency in the agriculture sector, leading to the creation of town and village enterprises (TVEs). Even Deng was to be surprised at the success of the TVEs, which today are the employers of over half of all Chinese people and one of the real engines of China’s economic growth.

Chen Yun had argued famously that partially embracing the market economy did not need to lead to anything like freefall toward a capitalist system. Many people were puzzled because what had been considered anathema only a few years before was now promoted as acceptable, but the formula Chen used was that free enterprise was like “a bird in a cage,” allowed latitude in certain areas but surrounded by the parameters supplied by Marxist-Leninist Mao Zedong Thought. This formula was to evolve into the idea of “market socialism,” something that would have been regarded, in the Maoist period, as wholly unacceptable but that, from the 1980s onward, became the central creed of the reforming PRC. Mao’s position had been effectively dealt with by Deng in the Resolution on Party History issued in 1981, which had recognized Mao as a great revolutionary but had accorded him a correctness ratio of 70 to 30 and had roundly condemned his role in the Cultural Revolution. With Mao now parked out of the way, the party was able to justify its use of a raft of new ideas. Deng soon gained the reputation of being highly pragmatic, using the famous saying that “it doesn’t matter if a cat is white or black as long as it catches mice.” He was to proclaim that “it is glorious to grow rich” and allowed the government to tolerate the appearance of economic inequality in the PRC, with the first generation of entrepreneurs starting to emerge.

Special Economic Zones

This element of control is best illustrated by special economic zones (SEZs), which were established from 1982 onward. China’s memory of foreign companies had not been a happy one. A century before, toward the end of the Qing dynasty (1644–1912), British companies had controlled something like 70 percent of China’s energy sector and many of its key strategic industries. Such economic activity had contributed little, if anything, to Chinese firms, which had remained stuck in the handicraft, low-technology area. The devastation of the Second Sino- Japanese War from 1937 to 1945 (called in China the War of Resistance against Japan, and fought in the context of World War II) had blown much of this away, with the vast majority of foreign companies simply leaving China after 1949. Beginning in 1980 Deng’s government, under Party Secretary Hu Yaobang, who with Zhao Ziyang, had introduced some of these reforms while running Sichuan Province in the late 1970s, decided to allow joint ventures, in which foreigners could have a 50 percent Chinese partner and could be based only in SEZs. The first five of these SEZs were placed in strategic positions where they could take advantage of key trading partners. Zhuhai was just across the border to the then-Portuguese colony of Macao (returned to Chinese sovereignty in 1999). Xiamen faced Taiwan. Guangdong, of course, had been one of the main trading ports a century before. The whole of Hainan Island was proclaimed an SEZ. The most important, however, and the one that was effectively constructed from scratch, was Shenzhen, just across the border from the British colony of Hong Kong. Shenzhen was simply a fishing village with a primitive entry and exit port until 1983. Originally planned to accommodate 300,000 people, it grew quickly to several million and had the most rapid economic growth, chalking up figures of 40 percent or more for much of the 1980s.

Showcase SEZ

Shenzhen existed to encourage Hong Kong businesspeople to look at investing in their home province (many originally hailed from Guangdong Province). Indeed, it proved a masterful stroke. Hong Kong investment, whatever its role and function, was to make up the bulk of the first wave of foreign money and know-how coming into China. Taiwanese investment, although also significant, came in any volume only later. Japanese, U.S., and European investment, although important, was also later in coming. China’s reforms really started with the initial wave of Hong Kong money. In 2007, unsurprisingly, 90 percent of Hong Kong’s external investment still went to mainland China.

The SEZs allowed for preferential tax treatment and supplied support and security for foreigners coming into the market. But initially they were allowed to exist only to manufacture goods for immediate re-export—a rule changed only in 1996 when goods manufactured in Shenzhen were allowed on the domestic market. Although SEZs were a great success, Deng Xiaoping admitted later in his life that perhaps his greatest mistake had been not to include Shanghai in the first wave of SEZs until 1990. The SEZs served their purpose well, however, and China was to post growth rates nationally of up to 10 percent throughout the first decade of the reform process.

In the Market for Change

Market socialism was to change the face of China dramatically, allowing for the appearance of what might be called a private, or nonstate, sector, with many Chinese going into small businesses, and much
more freedom of movement from countryside to the city and from work units into private work. But from 1980 onward social and political side effects of this change became evident, among them the erosion of the secure “iron rice bowl system,” the appearance of increasing inequality, and the first signs of the impact of China’s economic development on its fragile natural environment. Deng had bluntly stated in the early stages of the reform and opening-up period that “flies would get in through the windows” from time to time. Campaigns against “spiritual pollution” were waged, particularly in 1982 and again in 1986. However, the mid-1980s came to be remembered as a particularly liberal period, with Chinese experimenting with ideas and exposed for the first time to an array of Western concepts and techniques. Economic slowdown, corruption, and inflation were to appear toward the end of the decade, contributing to the tragic events in the summer of 1989, which brutally made obvious that although the PRC under Deng was in the market for economic change, political change and the introduction of multiparty elections were a long way off.

China’s reforms since 1978–1979 have delivered the country that exists now—a place fast approaching economic superpower status in perception if not in fact. But the issues that the whole process was meant to address remain surprisingly resistant. Foreign investment was meant to be a means to bring in foreign technology and to address China’s critical human capital problems. Almost three decades after the reforms started, however, China still had massive issues in this area. In fact, 88 percent of China’s high-tech exports in 2006 were produced by foreign companies. In becoming an open economy China has also allowed foreign companies to exploit its supply of cheap labor but to contribute little to the strengthening of indigenous companies. China’s economic model had remained surprisingly stable. Manufacturing remains the basic activity, although it has moved far beyond the confines of the SEZs. Instead, cheap labor lies at the heart of what China does. The aspiration to become a knowledge economy still lies some way off, with over 60 percent of investment in China being in manufacturing, most of it in low-tech goods. This model has also had devastating effects on China’s environment.

On the positive side, however, the Chinese government, in pursuing this path, has certainly lifted more people from poverty into well-being than any other government in the history of civilization. The government has unleashed the entrepreneurial energies of the Chinese people and moved light-years away from Maoist enclosure. The challenge of moving to a new level of development, one that is sustainable and that addresses China’s considerable problems, is something China is still struggling with. Realistically, however, it is hard to see what other choices Chinese leaders could have made in 1978–1979 when they looked at the options for the future. Some people have argued that so momentous has been the impact of their decision that the twenty-first century could be argued to have started on that day in December 1978, when the plenum decided to go in the direction it did.

Further Reading

Cheek, T. (2006). Living with reform: China since 1989. London: Zed Books.

Fenby, J. (2008). The Penguin history of modern China, 1851 to 2008. London: Penguin Harmondsworth.

MacFarquhar, R., & Fairbank, J. K. (Vol. Eds.). (1991). The People’s Republic: Revolution within the Chinese Revolution, 1966 to 1982. In D. Twitchett & J. K. Fairbank (Series Eds.), The Cambridge history of China: Vol 15. Cambridge, U.K.: Cambridge University Press.

Schell, O. & Shambaugh, D. (1998). The China reader: The reform era. New York: Random House.

Source: Brown, Kerry. (2009). Reforms since 1978–1979. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 1868–1872. Great Barrington, MA: Berkshire Publishing.

Reforms since 1978–1979 (1978–1979 nián y?lái de g?igé 1978–1979 ??????)|1978–1979 nián y?lái de g?igé 1978–1979 ?????? (Reforms since 1978–1979)

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