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Has the Free Market Changed China?

By Edited Sep 17, 2015 0 0


            Since the death of Chairman Mao Zedong in 1976, major shifts have occurred in the state of affairs in China.  Under the political successor to Mao, Deng Xiaoping, the entire direction that the Chinese Communist Party (CCP) governed the Chinese state radically altered.  The results of this radical shift have been spectacular.  Since its economic liberation in 1978, it has exploded on the international scene to become the world’s second largest economy and the world’s fastest growing.  It now exports more than any other nation and is the world’s largest importer as well as having the world’s largest military in troop size.  China is currently a member of the WTO and the G-20 and has become a powerful and potent force in international relations around the world.  In addition to economic reform, political liberalization has allowed for the entrance of private industries, a growth of a private sector, and the growth of a middle class in what was once seen as one of the bastions of communist rule.  What can be seen as even more remarkable is the relationship between the economic and the political reforms.  In the process of observing the economic effects through the lens of its political consequences, it becomes clear that economic reform has either directly or indirectly led to political reform, increased desire for more reforms, and a decrease in the authority of the central government. 


            With Mao’s death in 1976, China found itself in turmoil.  The Great Leap Forward attempted to forcibly drive China into industrialization but only led to massive food shortages.  These food shortages led to the deaths of anywhere from 13 to 26 million Chinese in what many have seen as the worst human catastrophe in history.[1]  The Cultural Revolution had seen hard line communist forces attempting to purge all bourgeoisie influences from Chinese government.  These policies and many other minor ones left China in a state of economic ruin

            The result of the previously stated problems was a Chinese economy that found itself with four major problems.  These problems included chronic shortages of wanted goods thanks to the failed attempts by the committee planners.  This then led to shortages of consumer goods and many other goods that had a greater demand than predicted.[2]  Another issue arose from massive waste that took the forms of everything from wrong assortment to products ending in the wrong place.  The third issue facing the economy was a stagnation of research and development that left the Chinese economy severely deficient in technology and the fourth issue derived from a scarcity entrepreneurial and worker ability which stemmed from this lack of technology.  As the result of these previously stated problems plaguing China, the political successor to Mao Zedong, Deng Xiaoping, enacted a series of market reforms with the intention of taking the Chinese nation in a radically different direction from the one his predecessor had taken it. 

[1] Prybyla, Jan S. "Why China's Economic Reforms Fail." Asian Survey 29, no. 11 (1989): 1017-1032. Stable URL: http://www.jstor.org/stable/2644726 (15 April 2010) pg 1019.

[2] Prybyla, Jan S. "Why China's Economic Reforms Fail." Pg 1017.


Agricultural/Land Reforms

            From the period 1979 to 1984, the Chinese government issued several major changes to land rights laws that were mainly directed towards rural agricultural workers.  These initial reforms included such things as procurement price increases, structural reforms in property rights, and what government agencies actually decided on how land was given to the community.[1]  The reforms established five types of land tenure that included land doled out for the living of the family (Responsibility Land), land rationed to ensure households have enough to eat (Grain Ration Land), land rented to families for fixed amounts of cash (Contract Land), reclaimed land that was previously uncultivated (Reclaimed Land), and Private Plots.[2]  The Government also began issuing 15 year contracts of tenure where families were guaranteed their allotted plot of land for at least 15 years.  In general, the government forced a shift from a collective based system to more of a family firm system as a result of the granting of some form of extended property rights.

            Although there was initial growth in Chinese agricultural production as a result of these reforms, the success was short lived and the sudden influx of agricultural output eroded real profits of farmers.  This coupled with a 15 percent inflation rate meant that there was an average decrease of 20 percent in the real purchasing power of farmers.[3]  Some attributed this to a lack of permanent land rights and calls from agricultural workers did force the Chinese government to increase its tenure contracts from 15 to 30 years in the early 1990’s.[4]  Private property fo course being one of the hallmarks of free market democracy.  Therefore, as can be seen in this instance, the Chinese government was forced to enact political reforms by increasing land ownership rights directly as a result of changes brought about by economic reforms.  In addition, despite the recent reforms by the Chinese government, many farmers and rural land owners still feel that the government has not gone far enough and still needs to initiate more land ownership reforms.

Industry Reform

            Perhaps some of the most sweeping changes came in the form of Chinese industrial economic reforms.  The reforms began in late 1978 when Deng Xiaoping authorized an autonomy experiment in Sichuan province by allowing for profit retention by firms in Sichuan and by 1982, most enterprises followed suit.[5]  This was seen as a government relinquishment of its state-run –enterprises to ones run by private investors. In 1984, the first economic zones were established in several Chinese cities that allowed for initial private enterprises and multinational firms to be established.  This also shifted Chinese policy from a rural centered economy, to a classic industrialized urban one and has resulted in an intense investment by the Chinese government in urban facilities.[6]

            The direct results of these specific reforms heavily influenced later political actions by the Chinese population.  With the switch of the state run enterprises, the problems encountered by free market economies also began to appear such as major income gaps, rising unemployment, and a severe decrease in the amount of social welfare that was handed out by the state due to decreases in state revenue.[7]  In addition to these issues, inflation spiked to 30% by 1988 and this effectively eroded living standards of urban citizens.[8]  Another consequence of the previously mentioned market reforms was a dramatic increase in government corruption, “particularly of officials at all levels of state and party apparats.”[9]

            To begin with, the political capacity of the Chinese central government was severely dampened by the results of these economic reforms.  A study done by Yi Feng charts the political capacity, or the authority, of the Chinese government based on its tax revenue as well as its ability to implement laws that benefit the central government. His findings show conclusively that there is a drastic decline in government political capacity in 1984 as a result of the negative effects brought about by the introduction of the economic zones.[10]  Not to mention other conclusive findings point to a clear indication that “when economic program privatization is in force, political capacity seems to decline.”[11]  As can be seen by Feng’s work with political capacity, it is clear that as the effects of the economic reform set in, the Chinese government saw a decrease in its authority and thus does not hold the power it once held.  Therefore, we once again see dissatisfaction as a result of economic reform leading to a decrease in the power of the central government.

            Coupled with this, with the general shift to a more market economy and a shift to a more urban centered economy, the Chinese urban classes began to expect higher standards of living.  However, these expected standards are severely lacking by western industrial standards and have caused much unrest among the Chinese urban populace.  Recent study done by Wen H. Kuo on economic reforms and urban development suggest that as the economic reforms have taken hold, aspirations for a better standard of living for the urban class have led to growing anger with the central government.[12]  In addition, his study finds that of all the several factors that were tested in trying to answer what drives urban reform, “economic growth has been found to be the most influential factor.”[13]  The economic growth that he mentioned obviously spurred on as a direct result of the economic reforms passed by the central government.  Thus, once again we see the economic reforms passed by the central government causing a decrease in central government authority.

Decentralization of Authority

            In order for the Chinese command market system to become more market oriented as Deng Xiaoping’s government desired, it was necessary for the CCP to enact legislation to begin decentralizing some of its authority.  This has already been seen in previous sections with the privatization of state-run enterprises as well as significant land ownership reforms.  However, the decentralization has taken other forms as well.  One of these includes the adoption of the tax-for-profit system in 1983 which essentially made a unified tax system and relinquished many taxes that had been used to pay for Chinese social welfare programs to local governments.[14]  In addition, in conjunction with the previously stated agricultural reforms, the Organic Law of the Village Committees granted local governments the legal authority over land rights which had previously been held by the central government.[15]

            All of these decentralizations previously mentioned have led to a severe decrease in the authority that the central government has over the nation.  This has in turn drastically changed the dynamic of the relationship between the central government and its local affiliates from one of absolute authority to one of “bargaining, conflict and mutual manipulation”.[16]  This relinquishment of tax revenue mentioned previously also has severely altered the power of many local governments and city administrators by placing much of state investment on the hands of local and city administrators.  Capital investment by the state government in new capital construction decreased from 83 to 39 percent between 1978 and 1985.  Most of this decrease has been supplemented by local investing from local governments which supplied 61 percent of capital investment in 1985.  This clearly shows that the fiscal power and authority of local Chinese governments has vastly increased.  This vast increase of power has directly led to a decrease in the authority of the central government by decreasing its fiscal revenue.

Legal System

            Curiously enough, in order for the new Chinese businesses to have protections required for basic market function, the Chinese legal system has had to be completely reformed.  Reforms have included “rebuilding the court system and other legal institutions that were dismantled during the Cultural Revolution, the revival and expansion of legal education and the advocacy system, the adoption of a procedure, and the passage and elaborations of economic legislation.”[17]  In addition, many other reforms have come under consideration such as press laws and copyright laws that are in the process of being enacted.[18]

            This reestablishment of legal thought and legal procedure in China has had perhaps some of the less obvious impacts on the collective thought process of the Chinese people.  First, there has been much controversy if the Chinese government will follow its own laws in the fields of civil and political rights.[19]  General skepticism is likely brought about due to the Chinese handling of massive demonstrations for democratic reform in 1989 which was quite brutal.  Many of these protests were brought about because of increase in political thought and the desire to see the political reforms already established continue further. 

In addition, many analysts have pointed to a general change in the ideology of the Chinese as a result of increased legal and economic rights.  When giving a speech to the Seventh Annual Tufts Institute for Leadership and International Perspective Symposium, James A. Dorn, specialist in China, stated that these reforms have “created new opportunities, new dreams, and to some extent, a new atmosphere and new mindsets…  There is a growing sense of increased space for personal freedom.”[20]  Therefore, it is clear that legal reforms have in fact brought about some major shift in the political mindset of the Chinese people and even led to direct calls for political action as seen in the 1989 demonstrations.

“Open Door” Economic Policy

            From 1979 through mid 1989, the Chinese government slowly enacted more policies to create an “Open Door” in terms of its international economic relations.  Although it seems a rather simplistic idea, this allowed for more contact between Chinese citizens and the international community.  Internet access has begun to spike in China and has only further increased the average Chinese citizen’s ability to access a wealth of information.  With this information, it is not irrational to assume that this has led to an increase in the flow of new ideas into the Chinese collective thinking.  Many of these ideas could very well conflict with the ideas of the Chinese government and lead to increased tension.  Recent public censoring of Google by the Chinese government collaborates this idea.

            In his speech, Dorn also states that “There is no way the United States can bring about a regime change in China other than by supporting open markets.”[21]  By this statement, it would appear that Dorn also supports a correlation between the open market policy and the increase in desire for political liberalization as previously stated.  In addition, a recent study conducted by Wenfang Tang attempts to look at various groups and their satisfaction with the reforms enacted by the Chinese government.  His results showed that the post-Cultural Revolution generation was most likely to respond that “the reforms are going too slow”.[22]  He also hypothesizes in his conclusion that this spike in dissatisfaction with the speed of reform is a result of the younger generations “Pro-West” tendencies.  These tendencies were most likely brought about by increased Western culture brought to China through the “Open Door” policy.  Therefore, it is clear that the Chinese “Open Door” has led to a directly led to a desire for political reform through increased exposure to Western thought and culture.

[1] Prybyla, Jan S. "Why China's Economic Reforms Fail." Pg 1024.

[2] Brandt, Loren, Jikun Huang, Guo Li, and Scott Rozelle. "Land Rights in Rural China: Facts, Fictions and Issues." The China Journal (2002): 67-97. Stable URL: http://www.jstor.org/stable/3182074 (15 April 2010) pp73-74.

[3] Klatt, W. "The Staff of Life: Living Standards in China, 1977-81." The China Quarterly, 1983, 17-50. Stable URL: http://www.jstor.org/stable/653331 (15 April 2010) pg 25.

[4] Brandt, Loren, Jikun Huang, Guo Li, and Scott Rozelle. "Land Rights in Rural China: Facts, Fictions and Issues." Pg 68.

[5] Yang, Dali L. "Review: Governing China's Transition to the Market: Institutional Incentives, Politicians' Choices, and Unintended Outcomes." Pg 433.

[6] Kuo, Wen H. "Economic Reforms and Urban Development in China." Pacific Affairs 62, no. 2 (1989): 188-203. Stable URL: http://www.jstor.org/stable/2760578 (15 April 2010) pg 189.

[7] Tang, Wenfang. "Political and Social Trends in the Post-Deng Urban China: Crisis or Stability?." The China Quarterly (2001): 890-909. Stable URL: http://www.jstor.org/stable/3657363 (15 April 2010) pg 890.

[8] Prybyla, Jan S. "Why China's Economic Reforms Fail." Pg 1025.

[9] Prybyla, Jan S. "Why China's Economic Reforms Fail." Pg 1025.

[10] Feng, Yi. "Sources of Political Capacity: A Case Study of China." International Studies Review 8, no. 4 (2006): 597-606. Stable URL: http://www.jstor.org/stable/4621758 (15 April 2010) pg 601.

[11] Feng, Yi. "Sources of Political Capacity: A Case Study of China." Pg 605.

[12] , Wen H. "Economic Reforms and Urban Development in China." Pg 188.

[13] Wen H. "Economic Reforms and Urban Development in China." Pg 203.

[14] Yang, Dali L. "Review: Governing China's Transition to the Market: Institutional Incentives, Politicians' Choices, and Unintended Outcomes." Pg 435.

[15] Brandt, Loren, Jikun Huang, Guo Li, and Scott Rozelle. "Land Rights in Rural China: Facts, Fictions and Issues." Pg 82.

[16] White, Gordon. "Democratization and Economic Reform in China." The Australian Journal of Chinese Affairs 31 (1994): 73-92. Stable URL: http://www.jstor.org/stable/2949901 (15 April 2010) pg 27.

[17] Polumbaum, Judy. "In the Name of Stability: Restrictions on the Right of Assembly in the People's Republic of China." The Australian Journal of Chinese Affairs 26 (1991): 43-64. Stable URL: http://www.jstor.org/stable/2949868 (15 April 2010) pg 46.

[18] Polumbaum, Judy. "In the Name of Stability: Restrictions on the Right of Assembly in the People's Republic of China." Pg 50.

[19] Polumbaum, Judy. "In the Name of Stability: Restrictions on the Right of Assembly in the People's Republic of China." Pg 46.

[20] Dorn, James A. "Open markets, open minds? Implications of economic liberalization in China." Executive Speeches, April 2005, 11-13 pg 12.

[21] Dorn, James A. "Open markets, open minds? Implications of economic liberalization in China." Executive Speeches, April 2005, 11-13 pg 11.

[22] Tang, Wenfang. "Political and Social Trends in the Post-Deng Urban China: Crisis or Stability?." Pg 897.



            Overall what seems to be clear is that the economic reforms from a general perspective have radically altered the political climate in China.  The very nature of the relationship between the Chinese people themselves and the government seems to be in question at this time.  Zhang Shuguang, economist at the Unirule Institute in Beijing, stated that, “In a market system, which is the result of continuous development of equal exchange and division of labor, the fundamental logic of free choice and equal status of individuals,” this after noting that individuals in a command system are simply pawns of the state."[1]  Perhaps it is this new idea that causes the inherent conflict between the socialist and market systems.  Whatever the reasons behind it, the ability of the Chinese government to simultaneously allow for free market reform while still retaining the policies of a socialist dictatorship will be critical to China in the coming years.  How the current Chinese government will achieve this end is at best difficult to predict.  What is known is that the actions of the Chinese government and the Chinese people, whatever those actions may be, will have lasting consequences on both global politics and economics.

[1] Dorn, James A. "Open markets, open minds? Implications of economic liberalization in China." Executive Speeches, April 2005, 11-13 pg 12.



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