China Economic Growth
Two years after the death of Mao Zedong in 1976, it became apparent to many
of
China's leaders that economic reform was necessary. During his tenure as
China's
premier, Mao had encouraged social movements such as the Great Leap
Forward and
the Cultural Revolution, which had as their bases ideologies such
as serving the
people and maintaining the class struggle. By 1978 "Chinese
leaders were
searching for a solution to serious economic problems produced
by Hua Guofeng,
the man who had succeeded Mao Zedong as CCP leader after
Mao's death"
(Shirk 35). Hua had demonstrated a desire to continue the
ideologically based
movements of Mao. Unfortunately, these movements had left
China in a state where
"agriculture was stagnant, industrial production was
low, and the people's
living standards had not increased in twenty years"
(Nathan 200). This last
area was particularly troubling. While "the gross
output value of industry
and agriculture increased by 810 percent and
national income grew by 420 percent
[between 1952 and 1980] ... average
individual income increased by only 100
percent" (Ma Hong quoted in Shirk
28). However, attempts at economic reform
in China were introduced not only
due to some kind of generosity on the part of
the Chinese Communist Party to
increase the populace's living standards. It had
become clear to members of
the CCP that economic reform would fulfill a
political purpose as well since
the party felt, properly it would seem, that it
had suffered a loss of
support. As Susan L. Shirk describes the situation in The
Political Logic
of Economic Reform in China, restoring the CCP's prestige
required improving
economic performance and raising living standards. The
traumatic experience
of the Cultural Revolution had eroded popular trust in the
moral and
political virtue of the CCP. The party's leaders decided to shift the
base of
party legitimacy from virtue to competence, and to do that they had
to
demonstrate that they could deliver the goods. (23) This movement
"from
virtue to competence" seemed to mark a serious departure from
orthodox
Chinese political theory. Confucius himself had posited in the
fifth century BCE
that those individuals who best demonstrated what he
referred to as moral force
should lead the nation. Using this principle as a
guide, China had for centuries
attempted to choose at least its bureaucratic
leaders by administering a test to
determine their moral force. After the
Communist takeover of the country, Mao
continued this emphasis on moral force
by demanding that Chinese citizens
demonstrate what he referred to as
"correct consciousness." This
correct consciousness could be exhibited, Mao
believed, by the way people lived.
Needless to say, that which
constituted correct consciousness was often
determined and assessed by Mao.
Nevertheless, the ideal of moral force was still
a potent one in China even
after the Communist takeover. It is noteworthy that
Shirk feels that the
Chinese Communist Party leaders saw economic reform as a
way to regain their
and their party's moral virtue even after Mao's death. Thus,
paradoxically,
by demonstrating their expertise in a more practical area of
competence, the
leaders of the CCP felt they could demonstrate how they were
serving the
people. To be sure, the move toward economic reform came about as a
result of
a "changed domestic and international environment, which altered
the
leadership's perception of the factors that affect China's national
security
and social stability" (Xu 247). But Shirk feels that, in those
pre-Tienenmen
days, such a move came about also as a result of an attempt by
CCP leaders to
demonstrate, in a more practical and thus less obviously
ideological manner than
Mao had done, their moral force. This is not to
say that the idea of economic
reform was embraced enthusiastically by all
members of the leadership of the
Chinese Communist Party in 1978. To a
great extent, the issue of economic reform
became politicized as the issue
was used as a means by Deng Xiaoping to attain
the leadership of the Chinese
Communist Party. Mao's successor, Hua Guofeng, had
"tried to prove himself a
worthy successor to Mao by draping himself in the
mantle of Maoist tradition.
His approach to economic development was orthodox
Maoism with an
up-to-date, international twist" (Shirk 35). This approach
was tied heavily
to the development of China's oil reserves. "When in 1978
estimates of the
oil reserves were revised downward commitments to import plants
and expand
heavy industry could not be sustained" (Shirk 35). Deng took
advantage of
this economic crisis to discredit Hua and aim for leadership of the
party.
"Reform policies became Deng's platform against Hua for post-Mao
leadership"
(Shirk 36). Given this history of economic reform, it is
evident that "under
the present system economic questions are necessarily
political questions"
(Dorn 43). Once Deng and his faction had prevailed, it
was necessary for some
sort of economic reform to evolve. The initial form the
new economy took was
not a radical one. China was "still a state in which
the central government
retained the dominant power in economic resource
allocation and responsible
local officials worked for the interest of the units
under their control"
(Solinger 103). However, as time passed, some basic
aspects of the old system
were altered either by design or via the process of
what might be called
benign neglect. As Shirk points out, in rural areas,
decollectivization was
occurring: "decision making power was being
transferred from collective
production units (communes, brigades, and teams) to
the family" (38);
purchase prices for major farm products were increased
(39). In 1985, further
reforms were introduced. For example, long-term sales
contracts between
farmers and the government were established. In addition, in
an effort to
allow the market to determine prices, "city prices of fruit
and vegetables,
fish, meat, and eggs, were freed from government controls so
they could
respond to market demand" (Shirk 39). Most importantly, "a
surge of private
and collective industry and commerce in the countryside"
(Shirk 39) occurred.
This allowed a great percentage of the populace to become
involved in private
enterprise and investment in family or group ventures. The
conditions also
allowed rural Chinese to leave the villages and become involved
in industry
in urban centers (Shirk 40). The economy grew so quickly that
inflation
occurred and the government had to reinstitute price controls.
China's
economy retains these characteristics of potential for growth-and
inflation-to
this day. Another important aspect of Chinese economic reform
was the decision
of China to join the world economy. Deng Xiaoping and his
allies hoped to effect
this 1979 resolution in two ways: by expanding foreign
trade, and by encouraging
foreign companies to invest in Chinese enterprises.
This policy-denoted the
"Open Policy" (Shirk 47)--was a drastic removal from
the policies of
Mao Zedong and, in fact, from centuries of Chinese
political culture. The Open
Policy, which designated limited areas in
China "as places with
preferential conditions for foreign investment and
bases for the development of
exports" (Nathan 99), was extremely successful
in the areas where it was
implemented (Shirk 47). However, it was looked upon
by many Chinese as nothing
less than an avenue to "economic dependency"
(Nathan 50). Indeed, when
the policy was first implemented, many Chinese
seemed to fear that Deng's
policies were drawing China back toward its former
semi-colonial status as a
"market where the imperialist countries dump their
goods, a raw material
base, a repair and assembly workshop, and an investment
center." (Nathan
51) It is interesting to note the symptoms of a national
character that would
subscribe to the above sentiment. In an article written
in 1981, just two years
after the Open Policy was first proposed, Andrew J.
Nathan noted the almost
pathological resistance to foreign intervention in
the Chinese economy:
"Some Chinese fear that reliance on imported technology
will encourage a
dependent psychology ... Many Chinese perceive joint
ventures as a costly form
of acquisition. 'Some people worry: Won't we be
suffering losses by letting
foreigners make profits in our country?'" (52).
The Chinese were as
vociferous about issues of sovereignty. Nathan maintained
that the Mao-led
revolution, which culminated in victory in 1949, had been
fueled by "an
intense patriotism: ... once China had 'stood up,' no
infringement on its
sovereignty, no matter how small, should be permitted"
(53). These feelings
were manifested in denying foreign businessmen
long-term, multiple entry visas,
resisting "increased foreign economic
contacts" and alteration of
current ways of doing things, and disinclination
to become involved in
government-to-government loans and joint ventures lest
Chinese become exploited
in some way (Nathan 53-55). Given these hesitancies
on the part of the Chinese
society vis-a-vis foreign relations, it is
impressive that Deng and his allies
were able initially to create and
implement the Open Policy since many members
of the society at large were
resistant to becoming involved in a policy so
antithetical to the Chinese
national character. However, once the successes of
the Open Policy were
apparent, resistance to the plan by the populace waned.
Moreover, given
the confluence of politics and economics in China, it seems
apparent that
some members of the CCP would also not be in favor of the
plan.
Nevertheless, the Open Policy was implemented and has become
instrumental in the
success of the burgeoning Chinese economy. The
implementation of the Open Policy
was so successful that by 1988 the leaders
of the CCP were encouraged to create
a new program called the "coastal
development strategy." In this
program, even more of the country was opened
up to foreign investment-an area
which, at the time, included nearly 200
million people. Moreover, by involving
more overseas investors, "importing
both capital and raw materials,"
and "exporting China's cheap excess labor
power," the new policy was
one of "'export-led growth' or 'export-oriented
industrialization.' It was
explicitly modeled on the experiences of Taiwan
and the other Asian 'small
dragons'" (Nathan 99). One analyst has maintained
that "China now
stands at the threshold of the greatest opportunity in human
history: a new
economic era promising greater wealth and achievement than any
previous
epoch" (Gilder 369). Illustrative of this optimistic feeling is
Shanghai,
an area that was designated for preferential conditions for foreign
investment
and as a base for the development of exports in 1988. This city
and environs in
the Yangtze Delta area have a population of approximately 400
million people and
the city has become the nation's financial hub for
international and national
investors. For political reasons, this area was
excluded from the original Open
Policy designation in 1978, but is
currently in the process of catching up with
other areas so designated.
Indeed, the increase in foreign investments in the
last two years is
striking. The area received 3.3 billion dollars in foreign
investments during
the 1980s. The area received the same amount from foreign
investments in 1992
alone. In only the first ten months of 1993, the area had
received over six
billion dollars worth of foreign investments (Tyler A8).
Western analysts
have asserted that the Open Policy and the coastal development
strategy have
allowed Deng to entrench his political power (Shirk 47) and will
allow his
power to be sustained even after death. If this is true, Deng should
be very
popular in Shanghai. With its new designation, and with the billions
of
foreign dollars coming into the area, it has become necessary to improve
the
city's facilities. To that end forty billion dollars worth of public
works
projects have been allocated by the central government for Shanghai
within the
last year (Tyler A1). These public works projects include new
sewers, a new
water system, new gas lines, a new bridge, and extensive
roadwork. Future plans
include the construction of a second international
airport, a container port, a
new subway system, and more roads and bridges
(Tyler A8). The financial
district, which will feature a new stock exchange,
is also being rebuilt by
China and foreign investors in a joint venture.
By being designated for
preferential conditions, Shanghai received from the
central government tax
exemptions for enterprises doing business with foreign
companies, tax holidays
for new factories set up with foreign investments,
and a bonded zone-the largest
in China-for duty free imports of raw
materials. Shanghai now has all the
trappings of a modern city: discos,
construction projects, and conspicuous
consumption. In short, where "revered
monuments and golden arches exist
side by side" (Riboud 12), the appearance
of the new Shanghai does nothing
less than signal "the end of the ideological
debate over China's free
market experiments" (Tyler A8). Shanghai has joined
the ranks of the modern
metropolis. However, this is not necessarily a
beneficial development. Inflation
is rampant: prices have doubled in the
industrial zones in the last five years.
Nevertheless, the fact that
Shanghai currently possesses the fifth most
expensive office space in the
world demonstrates that demand is high and that
the prospects for future
growth are promising (Tyler A8). Indeed, Pudong, a free
export manufacturing
zone described as "the future sight of Shanghai's
Manhattan" (Tyler A8),
boasts more than twenty factories built or being
built with names like
Siemens and Hitachi prominent. This area has become
particularly attractive
to foreign investors and companies because of its tax
concessions, duty free
imports of raw materials, and cheap labor. Shanghai
stands to benefit, too,
as it receives ancillary technology and discretionary
spending from the
workers and executives of the companies represented (Tyler
A8). It is
conditions like these that have caused at least one analyst to
predict that
China will be "the richest economy in the world within the
next 25 years"
(Gilder 372). Shanghai is by no means unique to this growth.
Additional
foreign investments have continued to pour into other areas of China.
For
example, the Boeing Company recently announced its intention to "invest
$100
million in a plant in Xian China to make tail sections for 737
jetliners"
("Boeing" D4). In addition, E.I. du Pont recently
predicted "that its
investments and business in China could increase as
much as ten times by the
end of the century" ("Du Pont" D2).
Tellingly, du Pont's chairman
attributed the company's negotiations of "as
many as 28 new projects in
China" to the fact "that the country's
financial changes, improved
infrastructure and rising disposable income has sic
encouraged the company to
expand its business activities" ("Du
Pont" D2). The Chinese government
has made conscientious attempts to
promote the strength of the country's
economy while protecting its citizens.
Just a few weeks ago, the
government instituted "tight-money policies,
intended to control inflation
and slow what has been the world's fastest growing
major economy" (Shenon
"China Halts" D1). However, after doing
so, China's Securities Regulatory
Commission was forced to stop the issuing of
new issues on the Shanghai and
Shenzhen Stock Exchanges because the value of the
markets had decreased so
greatly. This latter move was "meant to calm
millions of first-time Chinese
investors who evidently went into the market
believing that stock prices
could only go up" (Shenon "China
Halts" D1). Might this policy show a
union of economic and moral concern?
If so, it demonstrates the desire on
the part of the government to show some
kind of responsibility, some moral
force, to its citizenry. At the very least,
the strategy appears to show a
practical desire on the part of the government to
take control over what
could have been a bad economic situation. Indeed, after
these measures were
instituted, China's trade deficit decreased (Hansell D2) and
the stock
markets' volume attained record highs ("Stocks Surge" D2).
To be sure,
Chinese investors remain somewhat wary about the stock market and,
ironically
enough, more control of the stock markets appears to be necessary (Shenon
"A
Nail-Biting" D1). But, in discussing Chinese attempts to control
inflation,
Philip J. Suttle, head of emerging markets research at the investment
firm of
J.P. Morgan, has predicted that "[i]t looks as though the Chinese
are going
to have the soft landing they are aiming for" (quoted in Hansell
D2).
China's interest in stock markets is no longer restricted to within its
own
boundaries. This month, Shandong Huaneng Power Development Company,
"the
first mainland Chinese company to have its primary listing on the New
York Stock
Exchange" ("China Stock" D5), began trading shares. The
stock
should be an attractive one to investors: Chinese electrical "demand
... is
expected to grow by a whopping 17 million kilowatts a year until the
turn of the
century" (Zuckerman D6). Moreover, China stands to gain from the
issue's
sales. "The company plans to use the $311 million dollars it received
from
the offering to retire $83 million in loans from ... Chinese state
entities. It
also plans to expand its overall generating capacity" (Zuckerman
D6). Nor
does this signify the only Chinese attempt of raising capital from
foreign
sources on foreign soil. "Three more power companies are expected to
be
listed in New York and Hong Kong in the coming months" (Zuckerman
D6).
Given the apparent strength of the Chinese economy as shown by huge
public works
projects, extensive foreign investments, participation in the
world economy, and
a generally higher standard of living by the populace, it
would appear that
China is now ready to join the world as a modern
capitalistic and democratic
society. However, this is not quite the case. The
CCP retains vestiges of those
characteristics of insularity and intransigence
as discussed by Nathan. Because
of its human rights record, the country's
economic growth is being impeded. That
is, the politics of China, which have
always been allied with its economics, are
now restricting international
growth. The United States, especially, has been
concerned with China's
treatment of political dissidents. In May, President
Clinton decided to
end linking China's trade status with the United States with
its record on
human rights. The president has been criticized for this because
of
situations like the following: trials for "'counterrevolutionary
activities'
[including] ... plans to use a remote-controlled airplane to
drop
pro-democracy leaflets over ... Tienenmen Square" ("China
cracks"
A13) have recently begun for fifteen dissidents and labor
organizers who were
involved in the Tienenmen Square protests. These trials
have "been delayed
twice, first to avoid negative international reaction just
before the decision
last September on China's failed bid to host the 2000
Olympics and then this
spring to avoid influencing Clinton's trade decision"
("China
cracks" A13). In addition, China has instituted "new laws effective
in
June [which] give sweeping powers to China's State Security Bureau to
clamp down
on dissidents" ("China cracks" A13). China is fully aware
of
United States' concerns about its human rights record. Given the fact
that the
United States has made it clear to China that that record will
be allied with
trade status, China's timing of such restrictive activities
has caused United
States legislators and administrators to question
China's sincerity in its
desire to have a favored trade status with the
United States. Indeed, just in
the past few days, it took a last-minute
lobbying campaign by President Clinton
and his Cabinet [to head off a]
potentially embarrassing vote by the House of
Representatives to restrict
trade with China as a way to punish Beijing for
reported human rights
violations. (Bradsher A7) But China's problems in joining
the community of
the world market have more to do than with its political ethos
and practices.
China appears not to understand or to be able to follow through
on
fundamental modern economic practices. For example, the United States
has
recently complained that "China has not complied with international
rules
on access to its markets and protection of copyrights and patents"
(Gargan
14). Such non-compliance could make it difficult for China to
become a founding
member of the World Trade Organization, the successor to
the General Agreement
on Tariffs and Trade and the body that is intended to
promote global free trade
by lowering tariffs and other barriers, [which]
will be formally constituted on
January 1, 1994. (Gargan 14) The specific
nature of the United States' complaint
has to do with China's pirating of
musical compact disks, video laser disks and
computer software. In fact, it
is estimated that such pirating costs American
companies a billion dollars a
year. This phenomenon seems to have to do with the
Chinese psychology as
described by Nathan. In his 1981 essay he noted that China
did not wish to
become a "technological client of the west. The preferred
solution is to buy
one item and copy it" (Nathan 52). Clearly, this is not
the way trade works
today. It is the United States' position that China must
adhere to the rules
of trade before it can be included in a trade organization.
Needless to
say, exclusion from WTO would be disastrous for any country, but
particularly
for an emerging market such as China. Even on a day to day basis,
China's
economic leaders seem unable to understand how some aspects of a
market
economy work. In discussing the status of the Shanghai Stock Market,
for
example, one stock dealer referred to it as "crazy"
("Stocks
Surge" D2). Moreover, American analysts have been amazed to
discover in the
Shanghai market "the lack of regulation and the poor
disclosure
requirements. Some companies have been listed for two or three
years and have
not issued an annual report" (Hansell D2). It is no wonder
that Chinese
investors become anxious about their investments. The issuance
of shares in the
Shandong Huaneng Power Development Company also
demonstrates the lack of
expertise on the part of the Chinese in the modern
world market. In fact,
according to one Hong Kong investment analyst, "'the
company wasn't really
a company. It was just a bunch of discrete plants that
they tied a bow around
and wrote a prospectus on'" (Zuckerman D6). The
prospectus guaranteed a
fifteen percent annual return on investments. In
fact, the return will no doubt
be less than that because of prevailing
currency exchange rates and debt that
the company will have to assume. To be
sure, the problems of the Shandong
Huaneng Power Development Company and
the Shanghai Stock Exchange may
demonstrate only the problems of an immature
economy. Nevertheless, if China
wishes to become a viable member of the world
economic community, such
shortcomings will have to be eliminated quickly.
These apparent problems may
also be the result of an economic system that is
run by the state. Certainly,
one thing that the CCP has attempted to do is
create a market economy while
retaining a state controlled system. This
structure may be possible but it does
have its critics. Steven N.S. Cheung,
in anessay written in 1989, argued for the
"creation of private property by
mandate" (31), feeling that
privatization in China would lead to necessary
additional investment in the
society's infrastructure and the establishment
of a "judicial system that
is based firmly on the principle of equality
before the law" (Cheung 32).
Echoing Cheung's sentiments, James Dorn saw
problems in the areas of Chinese
banking and finance. In this arrangement,
Dorn argued, "the state controls
the bulk of investment resources. The lack
of a private capital market has
handicapped economic development in China and
hampered rational investment
decisionmaking" (43). In order to become a
modern economic state Dorn
argued for the necessity of circumventing "China's
ruling elite who oppose
the dismantling of state monopolies and who benefit
from price fixing and
nonprice rationing" (51). Xu Zhiming also saw the
necessity for a revamping
of the Chinese system: "We must throw off the
traditional system
completely" (249) in order for economic reform to thrive.
Communist Party
members, of course, articulate a different position. In a
recent interview that
appeared in the Beijing Review, Feng Bing, Deputy
Secretary General of the State
Commission for Restructuring the Economic
System, spoke to the issue of economic
reform in China. It is striking that
Feng spoke of the benefits that the
populace has received as a result of the
economic reform now occurring in China.
That is, his comments appeared to
demonstrate the beneficence, or the moral
force, of the Chinese Communist
Party vis-a-vis economic reform. He noted that
such reform involves the
essence of socialism: "to liberate and develop
productive forces; to
eradicate exploitation; to remove polarization; and ... to
attain the goal of
common prosperity" ("Official" 12). Thus, CCP
leaders still appear to see
their roles as representatives of a moral force. CCP
members and leaders wish
economic reform not to be judged on just its practical
merits, but also as an
effect of the moral force of the leadership. Economic
reform, then, becomes
nothing less than a moral crusade and it is thus easy to
see why, for
example, China "has staked its national prestige on becoming a
founding
member of the World Trade Organization" (Gargan 14). Will China
succeed in
taking its place among the nations of the world market? Will the CCP
succeed
in retaining its political power given the drastic changes in the
societal
makeup of China that are occurring due to the changing economic
realities? I
would suggest that the chances are better for the former than for
the latter.
Once the Chinese attain more sophistication relative to
international and
national markets, institute a more manageable banking system,
and make a good
faith effort to insure acceptable human rights, the country may
well become
"the richest economy in the world within the next 25
years" (Gilder 372).
However, whether or not these conditions can occur
without a weakening of the
state controlled system is problematic. The most
impressive and far-reaching
display of moral force by the CCP may well have to
be a voluntary reduction
of its power over the people. Paradoxically, by
weakening itself politically,
the party may demonstrate its true moral force by
liberating, politically and
economically.