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40 years of reform and opening up

Where to now? 40 years after the big economic experiment that changed China

  • Deng Xiaoping’s push for ‘reform and opening up’ launched China’s rise from the wreckage of the Cultural Revolution to the world’s second-biggest economy
  • To mark the 40th anniversary of the start of the process, the South China Morning Post takes an in-depth look at the forces that shaped that transformation
PUBLISHED : Tuesday, 13 November, 2018, 11:52pm
UPDATED : Friday, 23 November, 2018, 12:15pm

When China embarked on sweeping economic change 40 years ago, buttons and elastic bands were at the forefront of the new era.

Vendor Zhang Huamei, who sold the small items from a desk in an alley behind her home in the southeastern city of Wenzhou, became the first entrepreneur in the country to be granted a business licence as a sole proprietor.

Until then, Zhang and other businesspeople like her had to be on the alert for authorities trying to stifle the budding but “bourgeois” private sector emerging in the aftermath of the Cultural Revolution.

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“[Before I got a licence], we had to flee and hide our stock when inspectors came [to clamp down on street vendors],” she said.

“But in 1979, [local officials] came to tell me that I could apply for a business licence, so I did.”

In the four decades since, her button and textile business has risen and fallen and risen again, following many of the twists and turns in the path to “reform and opening up” taken by the country as a whole.

That era began in late 1978 when the ruling Communist Party’s top decision-making body, the Central Committee, met to end ideological turmoil, set aside class struggles and open the door to experiments such as private ownership.

The push was driven by late paramount leader Deng Xiaoping and was the start of a new pragmatic period in which the results of economic policy would determine the value of the approach.

In the intervening years, the party has continued to loosen state control in many economic and social activities, legalising private ownership, allowing market competition and opening up to foreign investment and trade.

The changes have transformed China from one of the world’s poorest countries into the globe’s second-biggest economy. Businesspeople have joined the party and China has promoted free trade on the international stage.

But the bottom line set by Deng in 1979 remains in place: there can be no challenge to the party’s rule.

As China confronts new challenges such as slowing economic growth and a trade war with the United States, observers continue to question just how far the country can go along the road to economic reform without political change.

On his trip to southern Guangdong province last month, Chinese President Xi Jinping signalled that he was willing to press on with the process set in motion 40 years ago. At the same time, he is also unlikely to depart from the course he has taken since coming to office – of centralising power and revigorating ideological campaigns.

The ‘Three Benefits’

When Deng started his push for reform and opening up, his goals were to prevent a recurrence of the Cultural Revolution and to salvage communist rule devastated by the decade of chaos and Mao Zedong’s personality cult.

At 74, Deng was at the centre of Chinese politics for a third time and the country was in ruins from the decade of turmoil.

“Deng was personally purged during the Cultural Revolution. Reform and opening up was his reflection on the Cultural Revolution, it was also a collective reflection by Chinese [about how to get out from the shadow of it],” Guangzhou-based historian Yuan Weishi said.

The new direction was set December 18-22, 1978, when the party’s Central Committee, chaired by Deng, formally abolished the “Two Whatevers”, a principle that upheld whatever Mao said was the truth, and replaced it with the principle of “Practice is the Sole Criterion of Testing Truth”.

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Liu Ji, former deputy director of the Chinese Academy of Social Sciences and a top party theorist who advised former president Jiang Zemin, said the new slogan meant that China did not have to abide by everything Mao had said.

“We needed to experiment to find out what was correct,” Liu said in an exclusive interview with the South China Morning Post.

“Originally the most important feature of socialism was state ownership, but Deng set aside the debate about ownership. Another feature was the planned economy, but Deng dismissed these two features of socialism. All he was talking about was to unleash the productivity [of a country].

“Without Deng, the Communist Party would have been over even before the end of the Soviet Union.”

In the following years, party meetings and state media echoed the call to “liberalise mindsets”, unleashing a wave of experiments, including the setting up of many special economic zones, firstly in the coastal provinces of Guangdong and Fujian, and then in Shanghai and the north.

In the eastern province of Anhui, the residents of Xiaogang village were among the first to cross the line of collective ownership by dividing up the land owned by the commune and allowing farmers to harvest the crops they grew. The move did not give the farmers official ownership of the land but they could take personal ownership of the yields.

In neighbouring Zhejiang province, Zhang was being granted her pioneering business licence.

“It made a huge difference because I could do business openly from then on,” she said.

Deng’s reform drive nearly came off the rails in the aftermath of the 1989 Tiananmen Square crackdown and the collapse of the Soviet Union, which brought conservative voices to the political fore.

The conservatives questioned the value of the new economic direction, prompting Deng to head to Shanghai and Guangdong to spread his message. It was on his 1992 trip to Guangdong that he declared that “development is the hard truth” and all open debates about whether reform policies were capitalist or socialist should stop.

Instead, support should go to whatever reforms benefited productivity, the overall strength of the country and living standard of the people, he said.

“The ‘Three Benefits’ principle broadened the definition of socialism. It was very important,” Liu said.

“I think Deng had no dogma about socialism, the only criteria is the … principle – whether it can make China rich and strong.”

The approach culminated in 2001 with China’s admission to the World Trade Organisation (WTO) and its formal integration into the international market economy.

By then Deng had died but Jiang was at the national helm. Liu said Jiang agreed to make concessions to the WTO and change China’s economic regulations because he was convinced that globalisation was an irreversible trend.

Jiang’s decision, Liu said, was a continuation of what Deng had laid down.

“In terms of reforms, Jiang actually didn’t create anything new. He basically followed Deng’s reform and carried it through,” he said.

In 2002, the party adopted Jiang’s “Theory of the Three Represents” as part of its charter, allowing capitalists to join the organisation.

Today, China has the world’s biggest cache of foreign reserves, it is the second-biggest economy after the United States and its share of the world economy has grown from a mere 1.8 per cent in 1978 to 18.72 per cent this year, according to the International Monetary Fund.

Ezra Vogel, emeritus professor of social sciences at Harvard University, said Deng’s approach unleashed much of that change.

“The success of Deng’s reform and opening policies – which brought a fundamental change in policies from the previous 20 years of excessive leftism and allowed Chinese to learn recent developments in science, technology, and management from the entire world – provided the base for rapid economic growth that enabled China to achieve unprecedented growth for four decades,” Vogel said.

Politics of change

While China has been willing to embrace market reforms, the Communist Party has been reluctant to embark on political change.

In the past four decades, there have been intermittent attempts to better define the functions of the party and the government, and introduce some election procedures and transparency in the selection of party officials.

China has also allowed elections at the village and county levels, but a crackdown on protests in the Guangdong village of Wukan in 2016 over the jailing of a popular former village chief showed that the party would maintain an iron grip at the grass-roots level.

Western-style democracy has never been on the agenda, and the ultimate goal of any kind of institutional reform is to improve the ability of party rule.

But Vogel said one important political reform by Deng was the establishment of a modern civil service.

“Deng undertook political reforms of establishing regular term offices, introducing the exam system which raised the qualifications of office holders and provided them added understanding of the issues faced by the government,” he said.

“After 1978 the training of officials in management and the introduction of information from abroad allowed more room for expression of diverse opinion.”

Deng also tried to ensure collective leadership in the top party echelon, to avoid a repeat of the unchecked power Mao enjoyed. But these efforts were never successfully institutionalised.

Alarmed by protests and posters calling for democracy, Deng ordered a crackdown in 1979 and set a boundary for China’s political and institutional reform: the “Four Cardinal Principles”, which made it clear that the party would not allow anything to challenge its rule.

The principles were a straitjacket for political change. Even in the 1980s when Deng commissioned former premier Zhao Ziyang to research ways to distinguish the role and functions of the party and the government, the party was still to be the dominant player.

Wu Guoguang, who was part of Zhao’s team, said in previous reports that Deng only wanted to improve administrative efficiency, but Zhao wanted to go further.

In his memoir, published in Hong Kong after his death, Zhao said he had no intention to institute Western-style democracy, but he wanted to increase transparency in the party and the government, introduce elections within the party, and have more room for public expression and the participation of other political forces.

“When economic reforms got deeper, the resistance from the conservative forces in the party got bigger. Without political reforms, it is difficult for economic reforms to drill deeper,” Zhao wrote.

Those efforts were aborted after the Tiananmen crackdown and political reforms were never again open for discussion.

“The 1989 Tiananmen [crackdown] was a watershed … After Tiananmen, there was no political reform at all,” said Wu, now a political-science professor in the University of Victoria in Canada.

But a pro-government scholar disagreed, citing elections at the village and county levels, changes to the household responsibility system that occurred in places like Xiaogang, and even market reforms that allowed private enterprises as evidence of political change.

“Many people said China only conducted economic reforms and there was no political reform, it was wrong. The Chinese economy and politics are inter-related and interact. Political and economic reforms cannot be separated,” said Li Junru, former deputy head of the Central Party School and a party theorist during Xi’s administration and that of his predecessor Hu Jintao.

“Without ironing out the relationship between the government and the enterprises, how can you build a market economy?”

40 years on

Forty years on and China is six years into Xi’s administration. Just like Deng, Xi has had to confront a party at the crossroads, with the upper ranks riddled with corruption and membership seen as a vehicle for advancement rather than a reflection of belief.

Xi has responded to these challenges by adopting a strongman approach – sending thousands of corrupt officials to jail, reshuffling party and government officials to root out factions, purging businesspeople who helped political elites channel money overseas, and tightening control over the media, arts, and education.

In March, Xi also made sweeping changes by merging and restructuring party and government bodies, such as putting the State Administration for Religious Affairs and the Overseas Chinese Affairs Office under the party’s United Front Work Department. Instead of separating the government from the party, Xi has pushed for the party to oversee every aspect of the country.

“[Xi’s top aide] Wang Huning believes in new authoritarianism. What China needs is [to establish] systems, but authoritarianism is always music to the ears of politicians,” a former senior government official said.

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Xi’s strongman style has helped him to crush opposition voices, but the approach raises the risk of mistakes that China can ill afford.

“The most important tool to make cadres work now is using self-criticism sessions, but who would be sincere in such sessions?” a researcher specialising in party organisation said, referring to meetings where cadres must admit their failings.

Xi has repeatedly pledged to deepen reforms but just how far he will and can go remains unclear, particularly as China grapples with slowing growth, a trade war with the United States, and pessimism in the private sector.

Observers were looking for signs late last month when Xi made his own high-profile trip to Guangdong amid rising concerns in the business world that the party was favouring state industry at the expense of the private sector. By visiting private companies in the area, Xi signalled that the party would continue its support for the private sector and that economic reforms and opening up would continue.

The party has also held a number of high-level meetings to indicate its support for entrepreneurs. On November 1, the president underlined the message to a group of businesspeople, including Robin Li of Baidu and Pony Ma of Tencent.

“Some have argued that the private economy has completed its mission and will fade out … Some have wrongly argued that setting up party cells and labour unions in private businesses is intended to control private enterprises … All these statements are completely wrong and do not conform to the party’s policies,” Xi said.

Vogel said the reform and opening up drive started by Deng would continue under Xi, although the current president might adopt a different methodology.

“Many of the reforms introduced by Deng still continue, but Xi has tightened the controls over the government and society and extended the micro-management while Deng concentrated only on the major issues and left more room to specialists below him,” he said.

But George Washington University political science professor David Shambaugh said Xi was very different from his predecessors.

“Xi has been systematically rolling back many of the core elements of Deng Xiaoping’s reforms that have guided China’s leaders for the past four decades: no personality cult around the leader, collective leadership and consensual decision-making, bottom-up ‘inner-party democracy’ rather than top-down dictat, active feedback mechanisms from society to the party-state, relative tolerance of intellectual and other freedoms, limited dissent, some de facto checks and balances on unconstrained party power, fixed term limits and enforced retirement rules for leaders and cadres, a society and economy open to the world, and a cautious foreign policy,” Shambaugh said.

Vogel said it was impossible for the party to maintain a tight political control forever.

“With over a million students studying overseas and tens of millions of tourist visits abroad each year, it is impossible to have tight political control over the thinking of Chinese citizens,” he said.

“Just as tight controls were loosened after 1976, so it is possible that controls over expression of different views will again be loosened at some point. Chinese citizens are too thoroughly intertwined with events around the world for Chinese leaders to be able to enforce long-lasting tight control over thinking.”

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