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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 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.

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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. “[W]hen [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 retain[ed] the dominant power in
economic resource allocation and responsible local officials work[ed]
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 seem[ed] 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

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”

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, “‘[t]he 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 an essay 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, one billion Chinese citizens.

“Boeing Planning to Invest $100 Million for China Plant.”
New York Times: 9 August 1994, D4.

Bradsher, Keith. “Bill to Restrict China’s Imports Loses in
House.” New York Times: 10 August 1994, A7.

Cheung, Steven N.S. “Privatization vs. Special Interests:
The Experience of China’s Economic Reforms.”
Economic Reform in China: Problems and Prospects.

Ed. James A. Dorn and Wang Xi. Chicago: University
of Chicago Press, 1990. 21-32.

“China cracks down on dissent after trade threat lifted,
report says.” Hartford Courant: 29 July 1994, A13.

“China Stock Is Most Active.” New York Times: 5 August
1994, D5.

Dorn, James A. “Pricing and Property: The Chinese
Puzzle.” Economic Reform in China: Problems and
Prospects. Ed. James A. Dorn and Wang Xi. Chicago:
University of Chicago Press, 1990. 39-61.

“Du Pont Plans Increase In Chinese Investment.” New York
Times: 10 August 1994, D2.

Gargan, Edward A. “U.S. May Thwart China’s Trade Goal.”
New York Times: 24 July 1994, 14.

Gilder, George. “Let a Billion Flowers Bloom.” Economic Reform
in China: Problems and Prospects. Ed. James
A. Dorn and Wang Xi. Chicago: University of Chicago
Press, 1990. 369-374.

Hansell, Saul. “Chinese Stock Markets Bounce Back, Rising
30%.” New York Times: 2 August 1994, D2.

Nathan, Andrew J. China’s Crisis. New York: Columbia
University Press, 1990.

“Official on Economic Reform.” Beijing Review: 27 June-
3 July 1994, 11-15.

Riboud, Marc. “China Leaps Upward.” New York Times Magazine: 27
December 1992, 12-15.

Shenon, Philip. “A Nail-Biting Ride in Shanghai.” New
York Times: 6 August 1994, 33, 41.

Shenon, Philip. “China Halts Listing of New Stock.” New
York Times: 1 August 1994, D1, D4.

Shirk, Susan L. The Political Logic of Economic Reform in China.

Berkeley: University of California Press, 1993.

Solinger, Dorothy J. China’s Transition from Socialism:
Statist Legacies and Market Reforms, 1980-1990.

Armonk, NY: M. E. Sharpe, 1993.

“Stocks Surge in China As Volume Sets Record.” New York
Times: 9 August 1994, D2.

Tyler, Patrick E. “Economic Focus in Shanghai: Catching
Up.” New York Times: 22 December 1993, A1, A8.

Xu, Zhiming. “The Impact of China’s Reform and
Development on the Outside World.” Economic Reform
in China: Problems and Prospects. Ed. James A. Dorn
and Wang Xi. Chicago: University of Chicago Press,
1990. 247-253.

Zuckerman, Laurence. “A Foreign Offering’s Unsure
Pedigree.” New York Times: 11 August 1994, D6.


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