Birds in a Cage
Zhao Ziyang was premier under Deng Xiaoping when the student protests broke out in 1989 in Tiananmen Square . Zhao was a reformist leader and the architect of the model for transforming the socialist system via gradual economic reform. He successfully introduced the Special Economic Zones in China’s coastal provinces to attract foreign investment. Because Zhao showed too much understanding and sympathy for the students at Tiananmen Square, he was purged from office in June 1989 and placed under house arrest in Beijing until his death in early 2005. In 2009, Zhao ’s secret diaries were published in English. In Prisoner of the State (2009), he describes how the hardliners in the Chinese politburo envisioned a birdcage economy, in which the centrally planned economy was the cage and the birds were the market economy . The basic idea is that dealing with the economy is like raising birds: you cannot hold the birds too tightly, or else, they will suffocate, nor can you let them free since they will fly away, so the best way is to raise them in a cage.
Reform and Opening Up
In 1978, after the ruinous reign of Mao Zedong and the ousting of the Gang of Four Maoist faction, income per capita in China amounted to just over half of income per capita in India .1 It was less than a tenth of income per capita in Poland , and only a fortieth or 2.5 percent of that in the USA. Not surprisingly, there was widespread support among the elite in China for the economic reforms that would ultimately turn the world’s most populous nation into an economic superpower. As the preeminent leader of China, Deng Xiaoping, whose official titles included Chairman of the Central Advisory Commission of the Communist Party of China, led the push for economic reform. Deng ’s closest collaborators during the initial stage of economic reforms were Zhao Ziyang, who in 1980 became premier, and Hu Yaobang, who in 1981 became party chairman.
Under the leadership of Deng Xiaoping, China opened up to the outside world. Egalitarianism, so viciously propagated under Mao Zedong and the Gang of Four , became all of a sudden obsolete. Mao had advocated an ideal of classless, equal development, in which no individual or segment of society was to advance at the expense of another.2 While Mao had seen himself as the great leveler, the Communist Party now expressly encouraged Chinese citizens to seek personal wealth. “have no fear of becoming prosperous” read one of the many headlines to that effect in a Chinese newspaper in the early 1980s. The Communist Party organized campaigns to celebrate the so-called ten-thousand-yuan households, that is, households earning more than 30 times the national average.
In a historic interview with Mike Wallace on CBS 60 Minutes in September 1986, Deng laid out his view on communism. In the words of Deng , the communist society is based on material abundance, not on pauperism. In the eyes of Deng , to get rich was no sin. After all, only when material abundance is realized, the principle of a communist society—that is, “from each according to his ability, to each according to his needs”—could be applied.3 During the interview, Deng emphasized the need to develop “productive forces” first, which would allow China to keep increasing the material wealth of society, steadily improve the life of the people, and that way, create the material conditions for a communist society. No longer were state-owned enterprises glorified and private businesses excoriated. As Deng famously proclaimed, “it doesn’t matter whether the cat is black or white, as long as it catches mice.”
The Third Plenum of the Central Committee in December 1978 in Beijing laid out the groundwork for the economic transformation of China, known as gaige kaifang or “reform and opening up .” The transformation was carried out in two stages. The first stage, in the late 1970s and early 1980s, involved the freeing up from the collective control of the agriculture sector, the opening up of the country to foreign investment, and giving entrepreneurs the opportunity to start businesses. Under the so-called household responsibility system , rural land was divided into private plots. Until then, all work was done collectively with commonly owned tools. Individual peasants were just pawns in the collective system with no responsibility of their own.4 After the reform and opening up, households were able to keep the revenue after paying a share to the state, effectively restoring the link between effort and reward.5
The Communist Party was very deliberate about how to introduce capitalism to the people. Special Economic Zones for foreign investment were introduced in the southern coastal region near the cities Shanghai and Guangdong, purportedly because the Chinese in the south possessed a more entrepreneurial spirit than the Chinese in the north did. These Special Economic Zones successfully tested the market economy and new institutions and became role models for the rest of the country to follow. The boom in trade and export-related production in the Special Economic Zones shifted the leading edge of Chinese growth southward. A dual price system was introduced, in which state-owned industries were allowed to sell any production above the plan quota, and private businesses were allowed to operate for the first time since the communist takeover in 1949.6
The economic reforms not only transformed the streetscape in big cities like Beijing but in the countryside as well. Orville Schell cites the anthropologist Jack Potter: “When I first visited the Zengbu brigade there [in Guangdong province], in 1979, there was virtually nothing in the market. When I came back in 1981, things had started to pick up. But when I returned in 1983 I couldn’t believe what I saw. There were hundreds of people selling things. There were tanks of live fish, and piles of fruits and vegetables heaped up everywhere. You could buy Coca-Cola, Budweiser beer, and foreign cigarettes at private shops. The prosperity was impressive.” When Schell in 1984 had the chance to visit a rural market town in the southern province Guangdong himself, the private enterprises he saw there made the free markets of Beijing and other northern cities seem like a sideshow.7
The second stage of reform, in the late 1980s and 1990s, involved the privatization and outsourcing of much state-owned enterprises and the removal of price controls, protectionist policies, and regulations. An important element was decentralization , which created room for provincial leaders to experiment with privatization and ways to increase economic growth. The economic reform program initially brought about bouts of inflation, which reputedly contributed to the 1989 student revolts.
Party chairman Hu Yaobang died in April 1989. The day before his funeral, some 100,000 students marched on to Tiananmen Square . What began as a spontaneous public mourning for Hu evolved into nationwide protests supporting political reform and demanding an end to corruption, ultimately leading to the Tiananmen Square protests of 1989. Following the government’s bloody suppression of the 1989 protests, Zhao Ziyang, who had succeeded Hu in 1987 as the party’s top leader, was placed under house arrest. He was not seen in public anymore until his death in 2005. In the eyes of the Communist Party ’s elders, Zhao had shown too much sympathy for the students in Tiananmen Square.
Despite the political upheavals, Deng remained firmly committed to economic liberalization . During his Southern Tour in 1992, Deng Xiaoping famously proclaimed: “Let some people get rich first .” Deng , who had officially retired just a few months before, embarked on his Southern Tour to crush the resistance of the left wing of the Communist Party against further economic reforms.8 The Southern Tour is seen as the source of Deng ’s exhortation “Let some people get rich first,” but Deng had said the same before in his interview with Mike Wallace for CBS’s 60 Minutes in September 1986, and before that, it had already been published in Deng Xiaoping’s Selected Works in 1983.
Private businesses grew, and with them, the incentive for a lot of money to change hands. Progressive advocates such as the dissident Bao Tong argued that Deng Xiaoping with those words knowingly ushered in an era of rampant corruption in China.9 According to Bao, Deng must have understood very well that certain groups, that is, the party elite, would be best positioned to take advantage of the new opportunities. Other Chinese intellectuals, however, have argued that Deng ’s exhortation was necessary because China’s entrepreneurial class, with memories of the Cultural Revolution still fresh, loathed getting rich. Back then, anyone who attempted to make money was at risk of being labeled a counterrevolutionary and sentenced to a labor camp.
A more likely explanation is that Deng Xiaoping realized early on that it would be impossible to elevate the more than 1 billion Chinese simultaneously from poverty— as Mao Zedong had set out to do but had miserably failed at. Therefore, it was imperative to let some people get rich first so the others could follow.
After Deng ’s resignation in 1992 and his death in 1997, a new generation of pro-reform political leaders took the helm of the Communist Party .Jiang Zemin and Zhu Rongji continued the path of economic liberalization laid out by Deng . Between 1995 and 2005, close to 100,000 firms with ¥11.4 trillion ($1.8 trillion) worth of assets were privatized, comprising two-thirds of China’s state-owned enterprises and state assets, making China’s privatization the largest in the world.10 The state-owned enterprises’ share of industrial output and total industrial employment declined from 50 percent and 60 percent, respectively, in 1998 to 27 percent and 20 percent, respectively, in 2010.11
Two cities were the breeding ground for the policy of privatization, Zhucheng, near Beijing, and Shunde, in Guangdong province. In 1993, they started to privatize many of their companies.12 These were the first attempts to change the state’s relationship with its enterprises. At first, Shunde and Zhucheng turned their firms over to employees. In 1997, again before a broader shift in national policy, the two began selling companies directly to existing managements. Early signs of success led to new rules on the ownership of companies in 1995. In 1997, the State Council approved a big shift of ownership from the central government to municipalities with the explicit goal of expediting privatizations.
These changes laid the groundwork for the dramatic privatization efforts in the late 1990s of Zhu Rongji, the then prime minister,...