After examining the Essential History of China all the way up until the death of Mao Zedong, this week, we take a look at the system of “Chinese capitalism” that has transformed it into one of the most powerful nation states in the world.
When Mao Zedong died in 1976, he left behind a remarkably poor nation, with World Bank figures in 1981 showing that 88.3% of the People’s Republic of China (PRC) lived in extreme poverty at the time. Not only that, but Chairman Mao’s Great Leap Forward and his Cultural Revolution took millions of lives. Yet, 34 years later, in 2015, China, still under CCP leadership, had just 0.7% of its population living in extreme poverty. It is taken as a given that the number of poor people in China fell from 878 million to less than ten million as a result of reforms that are frequently referred to as a “third way” or “Chinese capitalism.” And this story begins with a man who didn’t market himself as well as Mao, but probably had a more profound effect on the trajectory of China’s history than anyone else – Deng Xiaoping.
The rise of Deng Xiaoping
The man who was expected to succeed Chairman Mao as the de facto leader of the PRC was actually Hua Guofeng, who served as First Vice Chairman of the CCP for the last six months of Mao’s life. And he did, in fact, serve as Chairman of the CCP from 1976 until 1981. He had even taken office as Premier of the PRC that February, shortly after the death of Zhou Enlai, who had held the office since 1954.
However, Hua Guofeng insisted upon following the Maoist policies that had been disastrous for China and refused to commit to reforms. As a result, he came up short in a struggle for power after being outmanoeuvred by Deng Xiaoping, who succeeded Zhou as Chairman of the Chinese People’s Political Consultative Conference. Deng became “paramount leader” in 1978, while Hua remained Premier until 1980. Deng would go on to be regarded as the “Architect of Modern China”, despite never holding office as head of state or the CCP. He was the dominant figure of the second generation of CCP leaders.
Mao envisioned a society in which all would equally share in prosperity. To that end, he began to bring farms, factories and other businesses under government ownership. Deng was eager to adopt capitalist methods and reforms in order to stimulate economic growth and restore confidence in the party. This was done by following some radical political reforms, such as imposing term limits for state officials, including the President, and proposing a systematic revision of China’s third Constitution.
The most important economic reform at the time was to allow for the privatisation of farms in 1982, which restored food security to a starving nation. However, it was the wave of Chinese delegations that made more than 20 trips to 50 countries, including Japan, Thailand, Malaysia, Singapore, the United States, Canada, France, Germany and Switzerland in 1978 that provided Deng with the knowledge required to set out a long-term vision to relieve China of its state controls and embrace free market principles.
Even though it’s rarely acknowledged, Deng’s trip to Singapore impressed him due to its dynamism and the ways in which it was very similar to China (with much of Singapore’s population comprised descendants of illiterate Southern Chinese immigrants.
“This newfound enthusiasm for other countries’ economic models did not lead to an instant conversion to capitalism, nor did China immediately ditch its planned economy in favour of a free-market economy,” writes Forbes‘ Rainer Zitelmann. “Instead, there was a slow process of transition, starting with tentative efforts to grant public enterprises greater autonomy, that took years, even decades, to mature and relied on bottom-up initiatives as much as on top-down, party-led reforms.”
Another key initiative was the creation of Special Economic Zones along the coast where state restrictions on private ownership, free trade and so on were suspended and attracted foreign investments.
Deng and U.S. President Jimmy Carter signed an historic accord in 1979, reversing decades of China-U.S. tension and kick starting the process of China’s entry into the global economy, eventually granting them access to the WTO and allowing them to become an economic powerhouse, importing over half of the world’s annual consumption of aluminium, and nearly half of its nickel, copper, zinc, tin and steel.
Due to the reforms Deng put in place, China has gone from being a country that opposed capitalism to one that embraces property rights, profits and free market competition. Furthermore, China has entered into a number of regional and bilateral trade agreements, or is in the process of doing so. It currently has free trade agreements with the Association of Southeast Asian Nations (ASEAN), Chile, Costa Rica, Hong Kong, Iceland, Macau, New Zealand, Pakistan, Peru, Singapore, Switzerland and many African states.
China has also slowly begun a transition from simply being a global centre of low-tech manufacturing, to becoming a major hub of innovation and consumption. In many respects, “Chinese Capitalism” is an oxymoron in two ways. Firstly, intellectual property rights are somewhere between non-existent and very poorly enforced, which stifles innovation and leads to diplomatic tension between trade partners (primarily the United States). Secondly, even the privately owned businesses in China are actually owned or largely influenced by members of the CCP, meaning it’s still stuck in a system of “state capitalism” where the economy serves party interests above private interests.
Nonetheless, China’s focus on the tech sector and the “belt and road initiative”, an establishment of trade networks and key infrastructure projects that will further enhance China’s position in global markets, have already taken it to an unprecedented position. Chines Capitalism has not only able to whether the financial crises caused by the 2000s dotcom bubble, the Great Recession of 2008 and the 2020 Covid-19 pandemic, but it has seen them become the second most productive economy on earth and will likely overtake the United States very shortly as a consequence of the vision first enacted by Deng, as well as the initiatives under current President of the PRC and General Secretary/”Paramount Leader” of the CCP, Xi Jinping.
President Xi is the central figure of China’s fifth generation of CCP leaders and the first leader to have been born after the establishment of the PRC (in 1953). He has introduced far-ranging measures to enforce party discipline and to impose internal unity and abolished term limits, meaning that he will be holding the President’s office indefinitely. He has been steering committees on economic and social reforms, military restructuring and modernization, and the internet. And he’s seen as an authoritarian due to his use of increased censorship and mass surveillance, a deterioration in human rights, the cult of personality developing around him.
Nonetheless, reducing poverty from 878 million to less than ten million and teetering on the precipice of becoming the most productive economy on earth would surely make China’s story an example of increased economic prosperity that has been second to none over the last 50 years.
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