Realizado por Aiman Mahboub. Estudiante de Master en Global Affairs
ABSTRACT
China’s economic transformation over the past four decades is rooted in gradualism, a strategic blend of state control and market liberalization initiated by Deng Xiaoping after Mao Zedong’s death in 1976. Reforms began in agriculture, introducing market incentives, followed by industrial restructuring, which granted enterprises autonomy and fostered a private sector. Trade liberalization, marked by the Open-Door Policy and Special Economic Zones (SEZs), positioned China as a global manufacturing hub. WTO membership further integrated China into the global economy, while initiatives like the Belt and Road Initiative cemented its economic dominance. This state-led model challenges the Washington Consensus, advocating for stronger government involvement in economic development.
RESUMEN
La transformación económica espectacular de China en las últimas cuatro décadas se basa en el gradualismo, una combinación estratégica de control estatal y liberalización del mercado, iniciada por Deng Xiaoping tras la muerte de Mao Zedong en 1976. Las reformas comenzaron en la agricultura, introduciendo incentivos de mercado, seguidas por la reestructuración industrial, que otorgó autonomía a las empresas y fomentó un sector privado. La liberalización del comercio, marcada por la Política de la Puerta Abierta y las Zonas Económicas Especiales (ZEE), posicionó a China como un centro manufacturero global. La adhesión a la OMC integró aún más a China en la economía mundial, mientras que iniciativas como la Iniciativa de la Franja y la Ruta consolidaron su dominio económico. Este modelo de desarrollo liderado por el Estado desafía el Consenso de Washington, abogando por una mayor intervención gubernamental en la economía.
To the question of how China managed to grow exponentially throughout the last four decades, the answer lies in only one word: gradualism. This means that the Middle Empire, as the Chinese prefer to call themselves, went through a progressive, gradual approach in all aspects of economic development.
The story could be traced back to the late 1970’s, the waning years of the Maoist era. As soon as Mao Zedong, founder and leader of communism in China, passed away in 1976, the transition operated smoothly into a new generation of leaders led by his successor Deng Xiaoping who opted for a project of keeping the planning, a distinguishing characteristic of communist and socialist economies, while abetting market-based activities. Hence the label of a country with a “communist regime and a capitalist economy”.
The paradox of political communism coupled with economic capitalism
When asked about the premisses to this radical but gradual transformation, Professor G.C. Chow lists, in addition to the political ripening embodied by the waning days of Maoism, three reasons: (i) an unpopular and infamous cultural revolution which imposed on the Chinese Communist Party (CCP) to reinvent trust among the population, (ii) an awareness of the lacunas of the planned economy, particularly when compared to the fulgurant rise of the five tigers who rather opted for the free market and (iii) the preparedness of the Chinese society to bear economic reforms, with their obvious consequences on the whole modus operandi and vivendi of the country.
The reform concerned principally and gradually three domains of the economy which represented, on the same occasion, the three gates to achieving development and well-being. A vast country, endowed with large arable lands, China began first by bringing market incentives to agricultural production. Though communism implied ipso facto collective ownership, the Chinese government adopted (Sept. 1979) what has come to be known as the Household Responsibility System. The HRS allowed farmers to sell their harvests in the private market at market-based prices, a breakthrough in the communist regime. The government also acted on the marketing and distribution side by setting up agricultural commodity markets and allowing exports since the 1980s. This was made possible thanks to introducing capitalist practices into the field such as zero-interest loans which sprung out of a groundbreaking reform of the banking systems and off-farm remittances, accompanied by a notable evolution in the state-run programmes of research and development (R&D) in agriculture.
Therefore, the agricultural sector saw an increase in per capita income, an increase which occurred also thanks to the reopening of rural markets and the resuming of activities of pigs, ducks and chickens’ elevation, hitherto prohibited by the CCP. Noteworthy, the agricultural reform caused rural-to-urban areas migration of around 10 million Chinese each year.
The second volume of reform concerned the industrial sector which, like agriculture, knew the introduction of market incentives. Drawing on the same gradualist approach, the CCP began first by adopting as of 1980 the “Economic Responsibility System” and an “Entreprises Responsibility System” which guaranteed a partial and progressive withdrawal of state capital from companies, thus imbuing private sector methods to these enterprises, while it kept a few forms of oversight on the management of these companies. Consequently, companies were allowed autonomy in retaining profits and production planning. This scope of manoeuvre was then expanded, in 1984, to include prices, marketing and supply before it realised its major leap forward, in 1987, with the adoption of “the Contract Responsibility System” which paved the way for larger scopes for enterprises decided on a case-by-case basis. These measures had an encouraging effect on the workers conditions. Beyond that, it helped the emergence of a Chinese private sector.
But for that reform to succeed, it needed a true implication of a reliable banking system, hence the liberalisation of the sector, which saw the creation of a few banks rather than the previous People’s Bank of China, such as the Agricultural Bank and the Reconstruction and Development Bank…etc.
However, something lacked for a real take-off of such an economy endowed with an enormous skilled cheap labour and the above-mentioned abilities: international exposure. To be able to trade with the outside world, after it had achieved food autarky, China undertook a major price reform which resulted in the country settling on a two-tier price system, in lieu of a fixed system, thus ensuring one category of prices preserving their erstwhile state with the market, through Adam Smith’s invisible hand, fixing a second category of prices.
These ground-breaking shifts prepared China to advantageously compete with its overseas trade partners as it kicked off an Open-Door Policy consisting of setting up Special Economic Zones along the coast, thus bordering Taiwan and then-British-ruled Hong Kong. Serving as “reform laboratories”, these SEZs also permitted the authorisation of 35000 firms to conduct foreign trade. The very cheap but skilled labour and market-determined prices allowed China to recover the outflows of money, thus rendering Beijing nowadays first holder of dollars in the world which also reinforced its currency in the foreign exchange market.
China’s WTO membership: the art of having your cake and eating it
By the turn of the century, China had furthermore accentuated its international stature, in addition to acquiring permanent membership in the U.N. Security Council in the 20th century, when it applied to join the World Trade Organisation, an international body created to look after the respect of free trade on the international stage. China’s integration of the WTO had as a corollary the diversification of its internal market, reinforcement of its specialisation with a notable modernisation of its legal system to absorb imports brought about by free trade, China needing raw materials to secure its national production. An illustration of this is China occupying 17% of world commerce.
This assertive stature will put on a new skin by 2012, the year of Xi Jinping’s designation as chairman of the CCP and president of the People’s Republic of China. In an address at Nazarbayev University, Astana, Chairman Xi revealed the Belt and Road Initiative, a project which would link China through a set of corridors and routes, both terrestrial and maritime, to Europe to facilitate its exports to the old continent. Since then, Beijing’s balance of payments vis-à-vis the EU have become more than advantageous, with nowadays some European countries depending heavily on China’s exports.
As a concluding remark, China’s spectacular rise made economists suggest a potential transition from the “Washington consensus”, based non-interventionist state policies, to “Beijing consensus”, arguing for a return to a state-led development.
BIBLIOGRAPHY
Thomas Oatley, International Political Economy (Routledge, 6th edition, 2019).
Otaviano Canuto, Climbing a High Ladder: Development in the Global Economy (PCNS, 2021).
Chow, C.G , China’s Economic Transformation, National Univeristy of Australia (2019).
Xi proposes a ‘new Silk Road’ with Central Asia, China Daily, (Consulted on January 27, 2025 : https://www.chinadaily.com.cn/china/2013xivisitcenterasia/2013-09/08/content_16952228.htm )
Red capitalism: The story behind China’s growth by Aiman Mahboub is licensed under CC BY-NC-SA 4.0
