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Causes And Effects of Chinese Economic Reform
China emerged from the 20 years of revolution and isolation to become the second-largest economy in the world today. Its newfound economic standing allowed the country to have a strong influence on global politics. The economic reforms were implemented by Deng in an attempt to establish himself as a leader and to regain the credibility of the Chinese Communist Party (CCP) in the eyes of the masses. As a result of the Chinese economic reforms, China emerged as a superpower that disrupted the global status quo.
Causes of The Economic Reforms
1. The Precedent: Zedong’s China
Prior to the economic reforms, China underwent extreme isolation and control during the Great Leap Forward and the Cultural Revolution in 1958-1962 and 1968-1988 respectively (Shirk, 1993). China suffered great economic losses, which ultimately led to the Great Chinese Famine. The Great Leap Forward was an attempt to turn the country from an agrarian economy into a communist society. Due to the drastic negative impact of the policies during the Great Leap Forward, Mao Zedong found himself in a weak position. In the period between the Great Leap Forward and the Cultural Revolution, moderate leaders took control of China. Zedong started the Cultural Revolution to shift the country to the “correct path.” He wanted to purge the country of bourgeois values and instill a revolutionary spirit in the youth. The Cultural Revolution led to violence and economic stagnancy in the country: “agriculture was stagnant, industrial production was low, and the people’s living standards had not increased in twenty years” (Nathan, 1999). As a result, the CCP’s influence among the masses dwindled.
The years leading to the Chinese economic reforms were characterized by chaos, violence, hunger, and economic instability, causing the Chinese Communist Party to lose its hold on politics (Shirk, 1993). Had they allowed the same issues to continue, they would run the risk of completely losing power in their country. Thus, after Mao Zedong died in 1976, the leaders of the CCP implemented the Chinese Economic Reforms in an attempt to restore the party’s credibility in the eyes of the people.
2. Deng Xiaoping’s Political Will
The Economic Reforms of China were, first and foremost, a response to the effects of Zedong’s Great Leap Forward and Cultural Revolution. However, other political factors, mainly Deng Xiaoping’s goals to regain the trust of the masses, pushed for the reforms and made its impact extensive not just for China but for the entire world.
Hua Guofeng succeeded Mao Zedong and was heavily criticized for his unrealistic 10-year economic plan that sought to recreate s Soviet-style economy and not having his own ideas and simply echoing what Zedong said in his life (Nathan, 1999). Deng Xiaoping, Guofeng’s long-time rival, used the latter’s economic failures to discredit him as a leader and regain the support of the CCP (Shirk, 1993, 35). As the party was aware of its precarious position in China, they agreed on a need for a strong leader who will steer them back to their previously influential position. Furthermore, as Shirk (1993) asserts, since the cause of the Chinese people’s falling out was the previous leaders’ economic failures, the CCP felt that they needed to prove their leadership competence in this aspect. The party needed to demonstrate that it had practical competence and can bring about economic and social stability (Shirk, 1993). Xiaoping and the CCP pushed for the Economic Reforms for the following reasons: (1) for Xiaoping to establish himself as a credible leader compared with his predecessor, (2) to improve the economic state and standards of living in China, and (3) ultimately, to regain the trust of the Chinese masses for the CCP.
The Chinese Economic Reforms
Xiaoping and the CCP knew that they could achieve these goals through economic reform (Shirk, 1993; Kobayashi et al., 1999). The required economic reform encompasses legal, political, and societal reforms because the systems put in place by the previous leaders were not conducive to economic growth. Deng Xiaoping slowly implemented reforms to make it more palatable for the Chinese. He was careful not to upturn the status quo, so every policy was decided based on consensus decision-making (Shirk, 1993). He slowly implemented policies that opened up the country for trade and foreign investment, liberalized prices, diversified ownership, strengthened property rights, and kept inflation under control (Hofman). Without the history of famine, violence, and the gradual approach implemented under Xiaoping’s government, these policies would have been met with staunch resistance.
The Xiaoping government established several areas for foreign investment. He established special economic zones, open coastal cities, economic and technology development zones, delta open zones, peninsula open zones, open border cities, and high-tech industry development zones. These zones offered various incentives to investors, which triggered massive inflows of foreign investment, particularly from Taiwan and Hong Kong (Kobayashi et al., 1999). This move stimulated the local and national economies.
With foreign investments came foreign technology, which the country then utilized to experiment with new forms of agricultural technology. Thus, from agricultural communes, Chinese agricultural households became more productive. The increase in agricultural productivity became the main trigger for the expansion of Chinese markets (Kobayashi et al., 1999). As agricultural output increased, farmers sought markets to sell their products, and an entrepreneurial boom emerged. The Chinese market grew rapidly, producing foreign-owned companies, private enterprises, individual enterprises, and other types of business, apart from the existing state-owned enterprises and township enterprises. These various enterprises and companies enabled the Chinese to take on income-generating jobs that improved the majority’s standard of living.
Xiaoping’s gradual and experimental manner of implementing the economic reforms proved to be a great strategy. He pushed for policies that would guarantee quick success before implementing a new policy (Kobayashi et al., 1999). With each successful policy, more people supported the next one. Thus, he encountered minimal resistance throughout the years. However, that does not mean that the economic reforms were flawless.
Effects of the Chinese Economic Reforms
Impact of the Economic Reforms Within China
The inflow of foreign investment pushed China toward a market economic system. With the resources they gained from the foreign companies that invested in the country, China gained advantages in manufacturing production, domestic sales, and exports (Kobayashi et al., 1999). Private and individual enterprises further strengthened the country’s competitiveness in the International market as they continued to develop technology and corporate cultures (Nathan, 1999). Although China was criticized for not reforming its legal system, the reforms the government implemented were sufficient to launch China as the top exporter of technological products and the second-largest economy to the world (Shirk, 1993). Consequently, these advancements positioned China as one of the most influential countries in global politics today.
The effects of the Chinese Economic Reforms in the macro level is positive, but it did have some negative effects on the micro-level. While extreme poverty declined from 90% in 1981 to 2% in 2013, the economic reforms widened the gap between the rich and the poor (Kopf & Lahiri, 2018). By opening up certain zones or regions, Xiaoping set up some regions to earn more than others (Kobayashi et al., 1999). Thus, with the income disparity also came disparities in terms of development. An unexpected result of these income disparities is the influx of rural residents migrating to cities and other urban centers in search of higher incomes (Nathan, 1999). Without enough residents in rural areas, the country was threatened with another food shortage.
The income disparity was also present between employees of private-owned or foreign-owned corporations and state-owned or township enterprises (Kobayashi et al., 1999). Since private-owned corporations were more efficient and profitable, they were capable of paying their employees more competitive salaries and producing better products compared with their state-owned counterparts (Shirk, 1993). Profits of state-owned counterparts declined, and despite efforts to revive the business, failed. As a result, large-scale privatizations took place in the 1990s reducing the state’s market share to 15% by 2005 (Rawski, 1999). These changes in the market also sparked a change in people’s attitudes. There is an evident shift from Maoist ideals to egalitarianism as consumerism took hold of private individuals.
Within China, the economic reforms brought positive changes in people’s lives by improving their standard of living. However, the reforms also sparked changes in society, in particular in people’s attitudes toward money. While individuals still idealized Maoist ideology, they became more individualist as they earned more money.
Impact of the Chinese Economic Reforms on Global Politics
China’s economic growth was largely made possible by the shift in its foreign policy. The Open Door Policy did not just open China to foreign investors but also encouraged China to get involved in international politics. Being the second-largest economy in the world, it gained the position to influence global politics. Indeed, China made an effort to connect with the world. The country became part of the World Trade Organization, as well as of the Asia Pacific Economic Cooperation (APEC) (Tan, 2020). With its financial resources, China has funded numerous infrastructural projects throughout Southeast Asia (Tan, 2020). Experts, however, critique that these projects are motivated by the country’s goal of gaining more control of the region (Tan, 2020). The world is yet to confirm the truth of these allegations. Regardless, China’s economic growth provided it with an immense ability to influence international politics.
From Cultural Revolution to Economic Reform
Mao Zedong’s attempts to keep the country a perfect socialist society was rife with errors that caused the Great Chinese Famine and led to further economic losses. These failures naturally led to people losing trust in the Chinese Communist Party. All these events culminated and served Deng Xiaoping’s goal of becoming Chairman of the CCP. These events did not directly cause the Economic Reforms of China but they made it possible. The sufferings experienced by the Chinese in the years leading to the economic reforms made the people amenable to reforms that would have otherwise been viewed as contradictory to Maoist values. The economic reforms were implemented gradually, but as this research paper demonstrated, their impact in China was almost immediately visible; their effect on global politics came later. China’s economy grew rapidly and substantially which brought a change in people’s attitudes toward money and society. Subsequently, China’s economic growth caused a sort of domino effect in the surrounding country’s economies. Indeed, China’s Economic Reforms disrupted the status quo in both local and international politics.
Kobayashi, S., Baobo, J., Sano, J. (1999, September). The "Three Reforms" in China: Progress and Outlook. Japan Research Institute (45). https://www.jri.co.jp/english/periodical/rim/1999/RIMe199904threereforms/
Kopf, D. & Lahiri, Tripti. (2018, December 18). The charts that show how Deng Xiaoping unleashed China’s pent up capitalist energy in 1978. Quartz. Retrieved from: https://qz.com/1498654/the-astonishing-impact-of-chinas-1978-reforms-in-charts/
Nathan, A. J., Hong, Z., & Smith, S.R. (Eds.). (1999). Dilemmas of reform in Jiang Zemin’s China. Lynne Rienner Publishers.
Rawski, T.G., (1999, January). Reforming China’s economy: What have we learned? The China Journal. (41). Pp. 139-156. Retrieved from: https://www.jstor.org/stable/2667590?seq=1
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Tan, C. M. (2020, March 13). Infrastructure Investment And China’s Image Problem In Southeast Asia. The Asia Dialogue. Retrieved from: https://theasiadialogue.com/2020/03/13/infrastructure-investment-and-chinas-image-problem-in-southeast-asia/