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Deng Xiaoping’s Economic Reform

Throughout time, many countries have needed to implement some sort of economic reform in order to strengthen their economy so that they can be more of a power on the world stage and to stabilize their country. The Chinese reforms were long in the making, an unfolding process that had spanned most of the 20th century and, unlike other countries such as Russia who were trying to do the same thing but whom eventually failed, China prospered, and increased its economy greatly.

China has had the fastest growing economy in the world for the past two decades, with an annual growth rate of approximately 10 percent since the economic reforms in 1979, and now has the second largest GDP in the world, second only to the USA. Starting in 1979 they have implemented numerous economic and political tactics to open the Chinese marketplace to the rest of the world, and Deng Xiaoping’s appointment in 1978 was the catalyst to further economic development within China.

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Just a few areas China’s government has been addressing are agricultural technology, the medical market, and infrastructures, like telecommunications, transportation and the construction industry. China is one of the very few countries that have made a successful transition from a centrally planned economy to a market economy, and done over several important periods since 1978 up until the present time. The following piece will examine these periods and the reforms put in place by Deng Xiaoping.

Firstly it is important to analyze how Deng came about his position in the late 70’s and the immediate impact that he had. Deng gradually emerged as the de-facto leader of China following Mao’s death in 1976. Prior to Mao’s death, the only governmental position he held was that of First Vice Premier of the State Council (Zhiyue, 2007). By carefully mobilizing his supporters within the party, Deng was able to outmaneuver Mao’s appointed successor Hua Guofeng, who had pardoned him, then oust Hua from his leadership positions in 1980.

Deng continued to outmaneuver his political opponents, by encouraging public criticism of the Cultural Revolution, he had weakened the positions of those who owed their positions to that event, while strengthening the positions of those like himself and had been purged during that time (Chang, 1991). Deng’s elevation to China’s new number-one figure meant that the historical and ideological questions around Mao Zedong had to be addressed properly. As Deng wanted to pursue deep reforms, it wasn’t possible for him to continue Mao’s hard-line “class struggle” policies and ass public campaigns, and in 1982 the Central Committee of the Communist Party released a document entitled On the Various Historical Issues since the Founding of the People’s Republic of China. Mao retained his status as a “great Marxist, proletarian revolutionary, militarist, and general”, and the undisputed founder and pioneer of the country and the People’s Liberation Army. “His accomplishments must be considered before his mistakes”, the document declared. Deng personally commented that Mao was “seven parts good, three parts bad. The document also steered the prime responsibility of the Cultural Revolution away from Mao to the “counter-revolutionary cliques” of the Gang of Four and Lin Biao (Chang, 1991). From this moment on Deng was vital to China’s economic reforms and their rise to becoming a major economic power in the world today. The years between 1978 and 1984 were when Deng really started to assert himself on the Chinese economic front. His first reforms began in agriculture, which was long neglected by the Communist Party.

By the late 1970’s, food production and supplies were so deficient that another “disaster of 1959” was being talked about by many people. That was of course the famines which killed tens of millions during the Great Leap Forward (Brandt, 2008). Deng responded to this talk by decollectivizing agriculture and emphasizing the Household-responsibility system, which divided the land of the People’s communes into private plots. In doing so, farmers were now able to keep the land’s output after paying a share to the state.

This moved gradually increased agricultural production, increased the living standards of hundreds of millions of farmers and stimulated the rural industry (Brandt, 2008). Reforms were also put in place in the urban industry to increase the waning productivity. A dual price system was also introduced, wherein state-owned industries were allowed to sell any production above the plan quota, and commodities were sold at both plan and market prices, which then allowed citizens to avoid the shortages of the Maoist era.

Private businesses were also allowed to operate for the first time since the Communist takeover, and they gradually began to make up a greater percentage of industrial output (Brandt, 2008). Price flexibility was also increased, in turn, expanding the service sector (Brandt, 2008). During this time period, China was also opened to foreign investment for the first time since the Kuomintang era. It was during this time that Deng created a series of special economic zones for foreign investment that were relatively free of the bureaucratic regulations and interventions that had hampered economic growth for so long until this time.

These regions became the engines of growth for the national economy (Brandt, 2008). Following this, the period of 1984-1993 Deng’s policies continued beyond his initial reforms. Controls on private businesses and government intervention continued to decrease, and there was small-scale privatization of state enterprises which had become unviable. A notable development was the decentralization of state control, leaving local provincial leaders to experiment with ways to increase economic growth and privatize the state sector (Brandt, 2008).

Township and village enterprises, firms nominally owned by local governments but effectively private, began to gain market share at the expense of the state sector (Rawski, 2008). Conservative elder opposition, led by Chen Yun, prevented many major reforms which would have damaged the interests of special interest groups in the government bureaucracy (Naughton, 2008). Corruption and increased inflation increased discontent, contributing to the Tiananmen Square Protests of 1989 and a conservative backlash after that event which ousted several key reformers and threatened to reverse many of Deng’s reforms (Naughton, 2008).

However, Deng stood by his reforms and in 1992, he affirmed the need to continue in his southern tour (Naughton, 2008). He also reopened the Shanghai Stock Exchange which closed by Mao 40 years earlier in this period. Although the economy grew quickly during this period, economic troubles in the inefficient state sector increased and heavy losses which had to be made up by state revenues acted as a drain upon the economy. Inflation also became problematic in 1985, 1988 and 1992.

Privatizations began to accelerate after 1992, and the private sector surpassed the state sector in share of GDP for the first time in the mid-1990’s. China’s government slowly expanded recognition of the private economy, first as a ‘complement’ to the state sector in 1988 and then as an ‘important component’ of the socialist market economy in 1999 (Brandt, 2008). The years between 1993 and 2005 saw many further advancements in the economic performance of China, led by Deng and also the death of Deng himself.

In the 90’s Deng forced many of the conservative leaders such as Chen Yun into retirement, which allowed Deng’s radical reforms to be carried out. Although Deng eventually passed away in 1997, reforms continued under his handpicked successors in Jiang Zemin and Zhu Rongji, who were ardent reformers. In 1997 and 1998, large-scale privatization occurred, in which all the state enterprises, except a few large monopolies, were liquidated and their assets were sold to private investors.

Between 2001 and 2004, the number of state-owned enterprises decreased by 48 percent (Rawski, 2008). And during the same period Jiang and Zhu also reduced tariffs, trade barriers and regulation, reformed by the banking system, dismantled much of the Mao-era social welfare system, forced the PLA to divest itself of military run businesses, (Naughton, 2008) reduced inflation, and ultimately joined the WTO which has contributed largely to China’s economic growth very recently.

These moves invoked discontent among some groups, especially laid off workers of state enterprises that had been privatized (Brandt, 2008). The domestic private sector first exceeded 50% of GDP in 2005 and has further expanded since. However, some state monopolies still remained, such as in petroleum and banking (Huanxin, 2006). Recently, from 2005 until now, the conservative Hu-Wen Administration began to reverse some of Deng Xiaopings reforms.

Observers note that the government adopted more egalitarian and populist policies (Naughton, 2008). It increased subsidies and control over the health care sector, halted privatization, adopted a loose monetary policy, which lead to the formation of a U. S. -style property bubble where property prices tripled. The privileged state sector was the primary recipient of government investment, which under the new administration, promoted the rise of large “national champions” which could compete with large foreign corporations (Scizzors, 2009).

Deng Xiaoping’s main areas of reform were ultimately these: The Dual-Track approach which started at the end of 1978 and followed the two tracks which were the planned and the market track. The three other elements of Deng’s reforms were pivotal in leading the Chinese economic reform; these were, the Open Door Policy which economists say to this day is the main force behind their strong growth over the past few decades, Marketisation and the Contract Responsibility System. The successes of these reforms by Deng are basically summed up in the following graph.

The rapid growth increase since reforms in the late 1970’s until 2005 has been estimated by economists at 9. 5% a year. Since Deng’s reforms, China’s GDP has in turn risen tenfold. The increase in total factor productivity was the most important factor, with productivity accounting for 40. 1% of the GDP increase, compared with a decline of 13. 2% for the period 1957-1978 (the height of Maoist policies). For the period 1978-2005, Chinese GDP per capita increased from 2. 7% to 15. 7% of US GDP per capita, and from 53. 7% to 188. 5% of Indian GDP per capita.

Average wages also rose six fold between 1978 and 2005, while absolute poverty declined from 41% of the population to 5%. All of this has culminated in China surpassing Japan to now have the second largest economy in the world by both nominal GDP and Purchasing Power Parity (PPP) in 2011. Some analysts have even forecasted that China will surpass the United States and become the largest economy in the world by as early as 2020. It is clear that Deng Xiaoping’s appointment in the late 70’s after Mao’s death was a turning point for China.

The nature of his ability to put through reforms, although some were not originally thought up by him, was paramount in the ability for China to rise up once again and become a major power in the world economy. The increased openness of the economy to the outside world, relaxed direct planning controls, decentralized economic decision-making, increased reliance on market forces to determine prices and output, and privatization of nearly 300,000 state enterprises paved the way for super strong growth over a period of nearly 30 years.

His open-mindedness for a better China and not thinking in the old ways of his predecessors changed the face of China forever, and was probably the most important man and leader in China since the death of Mao Zedong. Reference List Brandt, Loren et al (2008), “China’s Great Transformation”, China’s Great Transformation, Cambridge: Cambridge University Press Bo, Zhiyue (2007) China’s Elite Politics: Political Transition and Power Balancing World Scientific, Hackensack, New Jersey.

Naughton, Barry et al (2008), “A Political Economy of China’s Economic Transitionin China’s Great Transformation”, China’s Great Transformation, Cambridge: Cambridge university press Rawski, G. Thomas et al (2008), “China’s Industrial Development”, China’s Great Transformation, Cambridge: Cambridge university press Scissors, Derek (2009). Liberalization in Reverse, http://www. heritage. org/Research/Commentary/2009/05/Liberalization-in-Reverse Wen-Wei Chang, David (1991) China under Deng Xiaoping: Political and


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