Is Deng Xiaoping’s economic reform from 1978-992 responsible for the progress of China today?
Deng Xiaoping was the China’s leader from 1978-1992 who had a Marxism political ideology but adapted and encouraged market economy and capitalist-like enterprises. His 1990’s reforms were credited for uplifting the lives of 170 million peasants in China and removing them from the poverty level (CNN 1999, par.2-3). This paper will analyze if Deng Xiaoping was responsible for China’s economic progress today. Today (2015), China is now dubbed as one of the fastest growing economies and the second largest economy in the world.
Atwill & Atwill noted in his book that Deng Xiaoping recognized the contributions and mistakes of Mao Zedong, the founder of communism in China. In 1980, he aimed to open China in the international market and encouraged foreign trade which became possible through the support of the People’s Congress. The People’s Congress established a number of Special Economic Zones near Hongkong, Macao, and Taiwan specifically in the locations of Shenzhen, Zhuhai, and China’s Southeastern Coastlines (Atwill & Atwill, 324).
Atwill & Atwill also presented a speech delivered by Deng Xiaoping where he stated the importance of realistic fast economic growth, a progress plan for 20 years, the expected hurdles that China may have in the process of attaining development. Xiaoping also emphasized the need to train people with ability and integrity to govern (Atwill & Atwill, 326).
Barry Naughton said that Deng Xiaoping implemented a broad based urban and rural development as early as 1978 and the agriculture was the earliest sector that reaped the reforms (Naughton, 302). Other developments in China during Xiaoping’s time as Naughton noted are subcontracting with urban factories, producing building materials and consumer goods for new affluent rural households as rural development became a core industry, and creating nice market to serve the unmet needs of the urban residents (Naughton, 302).
There was a focused development in the financial sector as well with state banks dominating the industry while the bank credit became the fuel of intermediation according to Naughton. Such reform led to a strong government output accounting to 31 percent of industrial value in 1995. The government retained ownership in the utility sectors including chemicals, steel, and transport machinery. However, there was massive privatization of government-owned factories to promote foreign investment, collective rural enterprises, and growth of private ownership and sector (Naughton, 303).
In 1985, the government implemented a market price legal sanction for the entities that will operate beyond the planned market price of the products and services (Naughton, 308). Xiaoping’s leadership also marked the development of special economic zones that encouraged exports (Naughton, 309). The result of the said reforms is he annual average growth of 12.5 percent from 1992-1995, the highest growth rate in the world. China also received the highest foreign direct investment of USD 38 billion (Naughton, 312). As early as 1995, analysts predicted that China will be the second largest economy replacing Japan (Naughton, 312). Such prediction became true in 2011 (BBC 2011, par. 1).
For every policies and reforms, there will always be critic. Hang-Sheng Cheng said that despite the reforms from 1978-1992, China still faced the challenges of insolvent state-owned enterprises, inadequate social welfare system and legal structure, weak taxation system, foreign exchange irregularities, and depth-ridden financial system (Naughton, 311). Hang-Sheng Cheng also noted that the reforms have limitations such as inadequate market infrastructure, incomplete marketization, limited financial liberalization, and partial decentralization (Naughton, 311).
Although what Hang-Sheng Cheng pointed out is true, we cannot disregard the fact that the economic reforms that Deng Xiaoping implemented during his leadership became an important foundation of the China’s economy and helped shaped the country today. The fact that China had the largest economic growth and foreign investments in the world from 1992-1995 reflects the effectiveness of the almost 15 years economic reform of Deng Xiaoping.
Xiaodong Zhu of the Journal of Economic Perspectives argued that the economic progress of China was due to productivity and not to capital investments (Zhu, 2012, 104). He mentioned that during the leadership of Deng Xiaoping and mid-1990’s, China’s government created an economic environment in which the state provided easy access to bank credit to the former state-owned entities and focused on protecting the energy and telecommunication sectors (Zhu, 2012, 111). The agricultural and non-state sectors registered a rapid annual average growth of 4.1 percent and 3.9 percent at from 1978-2007 (Zhu, 2012, 112). Such reflects the strength of Deng Xiaoping’s economic reforms which laid the foundation to the modern China economy.
China also created political incentives to minimize unemployment and maintain communities’ social responsibility through the strategy of “reform without losers”. However, such strategy became unsustainable and in 1995, the China government reduced its commitment to sustain employment in the state-owned entities (Zhu, 2012, 117). Hence employment declined by 17 percent by 2001. Some of the large scale government enterprises in 2001 were converted to shareholding companies in which majority of the shares are government-owned (Zhu, 2012, 117). The government privatized the bankrupt state owned through buyout management (Zhu, 2012, 117).
China experienced 8-24 increase employment shares in domestic enterprises and foreign-invested enterprises sectors from 1998 to 2006 due to liberalization. In 2007, domestic enterprises generated 51 percent of the urban employment (Zhu, 2012, 118-119). Although most of the developed countries slowed down or had a negative growth in 2008, China remained stable and registered among the fastest growth economies. In 2011, it was dubbed as the second largest economy replacing Japan and analysts predicted that it may replace the United State as the largest economy of the world after a decade (BBC 2011, par. 1-3). Japan, however, defended that its citizens continued to have higher per capita income than China (BBC 2011, par. 27-30).
The very impressive economic development of China today can be rooted in the bold decision of Deng Xiaoping to correct some ineffective concepts of the Marxism ideology to have a more appropriate political and economic system of China. His idea of mixing the concept of Marxism and free enterprise was adequate to provide a strong economic development foundation to remove a vast number of its citizens from extreme poverty. Deng Xiaoping already predicted before that there will be challenges in achieving economic progress along the way. Hence his reforms are not too perfect but are more than adequate to start a new economic condition and drive the country’s progress to the fullest.
Although full liberalization and privatization were limited during his leadership, his policies became the smooth transition to China’s liberal global trade participation and capital economy. There were still many changes in the political and economic policies after his leadership in 1992 but such changes were just mere improvements of what Deng Xiaoping has started to reverse or further improve the economic indicators of the country. Deng Xiaoping opened the China’s economy to the international market and which helped the country generate more employment in the country before and after his leadership.
Some news articles noted that China registered the slowest growth it had since 1990’s in 2014 registering only 7.4 per cent GDP growth and are expected to have lower growth in 2015. The said lower growth was due to the rising incomes and rising real estate prices which led to less competitive market prices. China’s consumers also started to be quality conscious after some product recalls and quality-oriented manufacturers and factories do not contribute much earning to the country (Conerly 2014, par. 9-11 and Sweeny 2015, par.
A BBC new article dated 16 December 2014 stated the International Monetary Fund already called China as the largest economy reaching the value of USD 17.6 trillion higher than the US’s USD 17.4 Trillion. However, critics say that the per capita income of China remains lower than United States USD 11,858 vs. USD 53,001 (Carter 2014, par. 1-10). The article also noted that the China as the largest economy will not match the 142 years reign of the United States and forecasted that India will take over by 2100 (Carter 2014, par. 22)
Having presented the economic history of China and its performance over several decades, we can conclude that Deng Xiaoping’s economic reforms play an important role to what is China today. His initiative and encouragement to open the country to foreign produced high foreign investments which resulted to high number of job generation and economic output. Partial privatization of the government owned entities except to the utilities and telecommunication sectors encouraged domestic entrepreneurship that resulted to more productivity an employment.
Deng Xiaoping formulated economic policies that ensured broad-based development in which results were initially seen in the agricultural sector. Peasants were allowed to own lands for family cultivation, a policy that led to the removal of about 170 million peasants from poverty. There was a focus on the development of the rural economy by developing collective enterprises, and the government has been supportive to state-owned and private entities in providing loans for any necessary and emergency needs involving the business.
Deng Xiaoping’s policy promoted no loss rule and sustained state employment as much as the policy can. It came to a point, however, that the no loss rule had to be replaced and changed the management by liberalization or selling more non-performing state-owned entities through shareholding system with the government owning the majority share. The government also provided more credit considerations to the new shareholding entities which helped such entities recover from business difficulty.
The development in the rural areas created more domestic employment and demand which contributed to the healthier flow of the economy. China started to reap high GDP growth of 12.5 percent since 1992 and started to make a record of being the fastest growing economy. Having stable economic reforms in addition to the improvement of such reforms over the years whenever it is necessary, China became the second largest economy after 19 years since its record high growth, 2011. Two years after, China beat the US and became the largest economy in the world in 2014.
It is a known fact that China is among the countries with most number of population. Such is a significant factor that led to a lower per capita income of the country than the other developed countries. Nevertheless, at an annual growth rate of 8-12 percent vis-à-vis population control policies, it is highly possible that China can achieve highest per capita income after a decade.
China should also balance out or find ways to source and create cheap but quality materials, products, and services if they will have to continue become competitive in the global marketplace. Additionally, if such strategy is no longer sustainable, they should also find other ways to keep domestic and foreign clients from various sectors. Such is among the improvement plans that the China government should include for long term governance and economic management.
It was a blessing for China to have a leader like Deng Xiaoping who understood and recognized the good concepts of socialism without disregarding the key factors that contribute to economic growth such as private enterprise development, encouragement of foreign investments, and participating in the international trade. The economic gains were used in a socialism way in which growths became inclusive and benefited most of its citizens. Such can be different from other countries with no socialism concept as economic gains can only be benefited by few groups of people or the ruling elites.
Deng Xiaoping’s adherence to advantageous socialism ideologies helped China government to evenly distribute the economic gains which is an important policy to build strong economy as the country produced broad based middle income earners with stable income. With that, Deng Xiaoping is indeed responsible for the success of China and should be credited for what the country is today.
Bibliography
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BBC. China overtakes Japan as world's second-biggest economy. (BBC,14 February 2011) accessed April 19, 2015, http://www.bbc.com/news/business-12427321
Xiadong Zhu. Understanding China’s Growth: Past, Present, and Future. (Journal of Economic Perspectives, 2012) accessed April 19, 2015, http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.26.4.103
Conerly, Bill. China Economic Forecast 2014 - 2015: Rocky Growth. (Forbes. 11 March 2014) accessed April 19, 2015, http://www.forbes.com/sites/billconerly/2014/03/10/china-economic-forecast-2014-2015-rocky-growth/
Sweeny, Peter et.al. China's 2014 economic growth misses target, hits 24-year low. (Reuters, 20 January 2015) accessed April 19, 2015, http://www.reuters.com/article/2015/01/20/us-china-economy-idUSKBN0KT04920150120
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Atwill & Atwill
Barry Naughton
