China's Developmental Miracle

Origins, Transformations, and Challenges

Alvin Y. So

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781315498553
• Topic: Business
• Subtopic: Business generale
• Index: Business

In contrast to the failure to economic reforms in Eastern Europe, China's economic reforms have been quite successful. Decollectivization, marketization, state enterprise reforms, and reintegration into the world economy have led to very rapid economic development in China over the past two decades. These economic reforms, in turn, triggered profound social and political changes. This collection examines the origins, nature, and impact, as well as the future prospects of these reforms and changes. The contributors are all active researchers from a variety of disciplines, including economics, sociology, political science, and geography.

1

Introduction

Rethinking the Chinese Developmental Miracle

Alvin Y. So

The Chinese Developmental Miracle

Suppose you could travel through time to Maoist China in the mid-1970s, and you told the Chinese that their country would soon become an economic powerhouse of the capitalist world economy in twenty years. No Chinese would have taken your words seriously, because they knew that China had experienced very serious developmental problems during the revolutionary period (1949–1976).

First, China faced the problem of forced withdrawal from the world economy.¹ Before the Chinese communist state could barely consolidate its power in the early 1950s, the United States quickly had sent warships to patrol the Taiwan Strait and supported the defeated Nationalist Party (the Guomindang) in Taiwan, sent soldiers to fight against the Chinese soldiers in Korea, imposed an economic embargo on mainland Chinese products, prevented mainland China from gaining a seat in the United Nations, and waged ideological attacks on Chinese “communist totalitarianism” in the mass media. Intense hostility from the United States during this Cold War era served to preclude certain developmental options for socialist China. Cut off from contacts with capitalist states, the Chinese communist state could not possibly pursue either export-oriented industrialization (owing to the closure of Western markets) or import-substitution (owing to the economic embargo) in the global economy. Thus, the Chinese state was forced to lean toward the Soviet bloc and miss the golden opportunity of achieving ascent during the post-war economic boom. Furthermore, as Yi-min Lin argues in this volume, the Cold War had created a resource strain on the Chinese economy. From 1952 to 1977, defense spending on average accounted for 5.5 percent of China’s gross domestic product (GDP).

Second, like other communist regimes, China experienced the structural problems of a planned economy. Chinese state enterprises were highly inefficient and paid little heed to productivity, since they had been operating under a “soft budgetary constraint” and could rely on the state for more subsidies if they ran into losses. State enterprises also tended to stock up more resources and manpower than necessary, leading to waste, misuse of resources, and acute shortages of raw materials. Moreover, workers had little incentive to work harder, because revolutionary socialism guaranteed job security and fringe benefits regardless of job performance, and because there were few consumer goods on which they could spend their salaries. As a result, China’s per capita annual income was still very low in the early 1970s, due to the extraordinary growth of its population from around 500 million in 1953 to one billion in 1980. Yi-min Lin reports in this volume that despite the fact that over 70 percent of the total workforce was deployed in agriculture and the adoption of a “grain first” policy, China could not even produce enough food to sustain a barest level of consumption for the population. Thus, China still ranked among the poorest nations in the world, and the standard of living of its people remained very low.

Third, there was the problem of political alienation. The long period of political struggles during the Cultural Revolution had alienated the general population, making them highly cynical about the slogans of class struggle and absolute egalitarianism. It seems ironic that in just a few years, the revolutionary fervor and the intense ideological struggles of the late 1960s were replaced by widespread disillusionment in the mid-1970s. In sum, by the mid-1970s, the Chinese state had suffered from the problems of forced withdrawal from the world economy, the structural problems of a planned economy, and political alienation.

What a complete turnaround in just twenty years! Although Eastern Europe and the Soviet Union (now Russia) were in economic decline during the 1980s and the 1990s, the Chinese developmental miracle had already begun to take shape as early as the mid-1990s.

First, economic growth in China in the same period was nothing but spectacular. The average annual growth rate of real GDP was 9 percent from 1978 through 1994 and 10.7 percent from 1990 through 1999. Even in the aftermath of the Asian financial crisis,² China still recorded an 8 percent GDP growth rate in 2000 and a projected 7.3 percent GDP growth rate in 2001. If such impressive economic growth rates continue, China could be transformed into the world’s second largest economy in a decade or so. The real GDP grew from 681 billion yuan in 1978 to 8,190 billion yuan in 1999; Chinese per capita income rose from 316 yuan in 1978 to 6,456 yuan in 1999.³ China recorded a trade surplus of almost US$44 billion in 1998, a current account surplus (about 1 percent of GDP in 1996 but close to 3 percent in 1997), and held a very large foreign exchange reserve of US$200 billion in 1999.⁴

Second, China has experienced a long period of political stability. The communist state withstood the challenges from below by mercilessly crushing the pro-democracy movement on June 4, 1989. Since then, the Chinese democracy movement has been forced to go underground. Despite an increase of activities among the dissidents in the late 1990s, the democracy movement has yet to regain its strength to challenge the power of the Chinese communist state from below. In addition, there has been a smooth leadership transition from the founding fathers to a younger generation of technocrats in the communist state. The collective leadership led by Jiang Zemin has emerged stronger from the Fifteenth Communist Party Congress in the fall of 1997, after senior leader Deng Xiaoping passed away.

Third, the Chinese state has played a more active role in the inter-state system and even had the capacity to deal with the complicated issue of national reunification.⁵ In the early 1980s, when the British government refused to turn over Hong Kong to China, the Chinese government stood firm on the sovereignty issue, engaged in stormy negotiations with the British over two years, and finally pressured the British to sign the 1984 Joint Declaration to return Hong Kong’s sovereignty to China in 1997. In the 1990s, China hosted the Asian games, tried to bid to be the host of the Olympics, and actively sought to enter the World Trade Organization (WTO). Finally, in 2001, China successfully won both the Olympics and the accession to WTO.

What is the origin of this Chinese developmental miracle? How could China overcome the serious developmental problems in the 1970s to achieve rapid economic development, political stability, and an empowered state in the 1990s? What was the impact of the developmental miracle on Chinese politics, economy, and society? The chapters in this volume will examine the origins and characteristics of the Chinese developmental miracle as well as discuss the challenges China is facing today and the future prospects for China’s development in the twenty-first century.

The contributors to this volume include four sociologists, four institutional economists, two geographers, one political scientist, and one political sociologist. Coming from different disciplines, these contributors have highlighted various prominent issues, such as institutional changes, property rights, regional integration, migration, nationalism, religious evolution, civil society, gender politics, and class relations in their chapters. Although their chapters have different emphases and have presented contrasting findings, they often do not amount to competing theses. The aim of this Introduction is to bring these divergent views together to show that they have as a whole presented a sophisticated explanation of the origins of the Chinese develop mental miracle, the transformations that have been taking place over the past two decades, and the various challenges that China is facing in the twenty-first century.

To start the discussion, the sections below will examine the following questions: What explains the transformation of a revolutionary state under Maoism to a developmental state since 1978? What are China’s developmental strategies and why did they work? And why was the Chinese developmental state able to endure the initial challenges in the late twentieth century?

From a Revolutionary State to a Developmental State

The Legacy of a Strong Party-State

In the field of Chinese studies, it is often pointed out that the communist experiment under Mao was a disaster. The Great Leap Forward commune policy in the late 1950s led to famine and the death of tens of millions of Chinese. The ten years of Cultural Revolution (1966–1976) turned Chinese society upside down and resulted in political anarchy. In this scenario, China’s march to modernization began only in 1978, after the rise of Deng Xiaoping, a pragmatist, who paid little attention to the revolutionary ideology of Mao. Hence, Deng became the hero of Chinese modernization, while Mao was held responsible for the economic backwardness and political turmoil in the first phase of Chinese communist rule.

What is missing in the above account, however, is that the present developmental miracle of China actually owes much to the historical heritage of the Maoist era.⁶ Despite many shortcomings, the Maoist legacy has provided China with a strong Leninist party-state, with a concentration of power in the communist party. Only political organizations (like peasants’ associations and labor unions) formally sponsored by the party were allowed to operate; other organizations were either made ineffective or simply banned from operation. This Leninist party-state was all-powerful in the sense that it extended both vertically and horizontally to every sphere in Chinese society. Vertically, the Leninist party-state was the first Chinese state that was able to exert its political control all the way down to village, family, and individual levels. Horizontally, there was a great expansion of state functions. The Leninist state did not just collect taxes and keep social order; it also oversaw such functions as education, health care, marriage, culture, and economic policy. After 1978, although the Chinese state was no longer interested in promoting revolutionary socialism, it still had inherited a strong state machinery to carry out its developmental policy.

The critical issue, then, is what explains the dramatic transformation of the revolutionary state under Maoism to the developmental state in the reform era? This chapter argues that the fading of the Cold War provided the pre-condition for China to re-enter the world economy, the success of the Asian Newly Industrializing Economies (NIEs) and their industrial relocation provided the incentives for the Chinese leaders to pursue developmental objectives, and the passing of the old generation and natural disasters provided the triggering events to overcome the inertia of the status quo.

The Fading of the Cold War

If the Cold War and the forced withdrawal from the world economy prevented China from pursuing either export-oriented industrialization or import substitution, the fading of the Cold War since the 1970s provided the pre-condition for China to re-enter the world economy to pursue developmental objectives.

The late 1970s was a period of declining American hegemony. Economically, the United States faced the problems of inflation, low productivity, and recession. Its products were under strong competition from Japanese and German manufactures in the world market. Politically, the United States was still plagued by its defeat in Vietnam and its failed attempt to fend off global Soviet expansionism. At this historical conjuncture, the United States welcomed China back to the world economy. China could be a new regional power to counterbalance Soviet military expansion and Japanese economic expansion in East Asia. Moreover, the vast Chinese market, cheap Chinese labor, and abundant Chinese raw materials and minerals could considerably increase the competitive power of American industry in the world market.

East Asian Industrial Relocation

In addition, the Chinese state was impressed with the economic success of its East Asian neighbors. With U.S. support in the 1950s and the 1960s, Japan, South Korea, Taiwan, and Hong Kong had become highly industrialized and their people enjoyed a much higher living standard than that of China. Thus, the Chinese state was motivated to follow the path of its successful East Asian neighbors to engage in export-oriented industrialization.

Furthermore, as Hong Kong, Taiwan, and South Korea were upgraded to the status of NIEs in the late 1970s, they gradually lost their geopolitical privileges with the United States. They, too, had to face the trade restrictions (tariffs, quotas, and rising foreign currency value). Due to their economic success, there were also labor shortages, increasing labor disputes, escalating land prices, and the emergence of environmental protests—all of which served to raise the cost of production in the East Asian NIEs. As a result, the East Asian NIEs felt the need to promote an industrial relocation in order to secure a stable supply of cheap, docile labor, and other resources in the 1980s.

Industrial relocation of the NIEs provided a strong incentive for the Chinese state to promote developmental objectives. From the Chinese perspective, China could be a favorable site for the NIEs’ relocation because it had abundant cheap labor, land, and other resources. China was also quite close to Hong Kong, Taiwan, and South Korea, and these areas all share a common Confucian cultural heritage. Therefore, China set up four special economic zones (SEZs) in 1979, opened fourteen coastal cities and Hainan Island in 1984 and three delta areas in 1985 for foreign investment, and pursued a coastal developmental strategy to enhance export industrialization in 1988.⁷

Triggering Events

Even though the fading of the Cold War and the NIEs’ industrial relocation provided the precondition and an incentive for the Chinese state to transform itself into a developmental state, it still required several triggering events to overcome the inertia of the communist status quo.

In this volume, Yi-min Lin points out that the critical event that set in motion the efforts to reform the economic system was the passing of the old generation of revolutionary leaders. The death of Mao in 1976 was followed by the rise of a new coalition of political leaders who were leaning toward or receptive to some form of economic institutional change. Most of them were victims of the Cultural Revolution. Their return was accompanied by a national rehabilitation of lower-level party-state functionaries. Most of these functionaries had prior experience in formulating and implementing economic policies.

Yi-min Lin further explains that the shift in policy focus from socialist egalitarianism to economic development and the reshuffling of local leaders opened the way for bottom-up institutional innovation. In provinces like Anhui, pro-reform leaders gave tolerance and even encouragement to certain attempts made by grassroots officials. This significantly changed the political risk perceived by the rank-and-file of the local state apparatus. Subsequently, when severe national disasters hit from 1977 through 1979, some local officials resorted to various forms of family production and justified their rule-breaking on the grounds of coping with natural disaster. The good results of family farming in turn provided grounds for the arrangement to be introduced to other provinces, which later led to decollectivization and the institutionalization of the household responsibility system in the countryside. The great success of the economic reforms in the agricultural sector—as shown by the crop output growth from 2.5 percent from 1954 to 1978 to 5.9 percent from 1978 to 1984—further empowered the Chinese state to develop various developmental strategies.⁸

Developmental Strategies and Why They Worked

The Legacy of the Maoist Era

Once the Chinese state decided to pursue developmental objectives, it found itself blessed with many legacies of the Maoist era. To start with, the Maoist legacy of economic backwardness ironically worked to the advantage of the economic reforms in the late 1970s. As Andrew Walder points out, at the outset of the reforms, employment in China was 75 percent in agriculture; in the Soviet Union, 75 percent in industry. Since the Soviet Union was already an urbanized industrial society, Soviet economic reforms necessitated technological and organization innovations to boost industrial productivity in the urban sector. On the other hand, since China was still mostly agricultural, the state could achieve rapid growth...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Tables and Figures
• Acknowledgments
• 1. Introduction: Rethinking the Chinese Developmental Miracle
• Part I. Origins
• Part II. Transformations
• Part III. Challenges
• The Editor and Contributors
• Index