Reform 1.0 (1979-1992)<\/strong><\/p>\nChina\u2019s first stage of reform was launched to rebuild its economy, which was devastated by a decade of upheaval during the Cultural Revolution.<\/p>\n
The reform initially began by giving greater authority to state-owned enterprises, but it had little effect at a time when commodity markets didn\u2019t exist. Then-Chinese leader Deng Xiaoping, therefore, shifted the focus of the reform to rural areas.<\/p>\n
What happened in rural farming villages was use of the household responsibility system \u2014 allowing farmers to produce by themselves and be responsible for their own earnings and losses. It was similar to the system introduced to aid farmers who were worn out under the Great Leap Forward campaign in the 1950s, and resulted in a sharp productivity increase in rural villages.<\/p>\n
The government also promoted the establishment of collectively-owned township and village enterprises (TVEs), leading to numerous TVEs springing up in sectors that matched the needs of the local economy, such as agricultural machinery, food processing and civil engineering and construction.<\/p>\n
Such enterprises are said to have absorbed surplus labor totaling 100 million in a decade, occupying 35.6% of the nation\u2019s total industrial output in 1990, or 45.4% including production by the private enterprises, foreign firms and joint venture companies that were gradually approved.<\/p>\n
Such a trend differs from the situation in the former socialist economies of Eastern Europe.<\/p>\n
Deng also set up special economic zones in coastal regions such as Shenzhen in Guangdong province and Xiamen in Fujian province, where incentives were offered to attract investment by foreign firms and overseas Chinese.<\/p>\n
In the early 1980s, Hitachi Ltd. built a television assembly factory in Fujian and Sanyo Electric Co. established an electrical appliances manufacturing plant in Shenzhen, drawing much attention.<\/p>\n
There was no specific guideline for the reform, but there was a basic strategy, reflected in Deng\u2019s three famous dictums \u2014 \u201cHide your capacities and bide your time,\u201d \u201cCross the river by feeling the stones\u201d and \u201cIt doesn\u2019t matter whether a cat is black or white, as long as it catches mice.\u201d<\/p>\n
It is a practical strategy. In short, it means a nation should not have ambitions that don\u2019t match its abilities because a stable external environment is necessary for economic growth. It also means that it should try everything it can, but with caution.<\/p>\n
Deng\u2019s reform can best be characterized as a \u201cplanned economy with something extra,\u201d with the government starting from areas easier to work on and avoiding conflict by using incentives.<\/p>\n
As a result, China created a dual-track economy in which two systems ran parallel to each other \u2014 the existing socialist planned economy, in which the government controlled production plans, financing and purchasing of manufactured goods, and the market economy under a new market mechanism.<\/p>\n
The Chinese economy grew significantly under the dual-track system, but it also brought about contradictions.<\/p>\n
Economic disparity grew between urban and rural areas and between coastal and inland regions. Widespread \u201crent seeking\u201d \u2014 companies lobbying the government for investment approvals, loans or use of land, and officials profiting by selling access to land and other resources \u2014 and serious corruption involving senior bureaucrats and members of the Chinese Communist Party, as well as their families, were seen.<\/p>\n
In the latter half of the 1980s, the Chinese government lifted price controls, causing hyperinflation that triggered increased public dissatisfaction with the government.<\/p>\n
That was when the June 1989 Tiananmen Square protests occurred, which led to the suspension of those reforms. It is not easy to evaluate the incident in one word, but it is clear that it was caused by differences in the leadership\u2019s views toward political and economic reforms.<\/p>\n
<\/p>\n
Reform 2.0 (1992-2012)<\/strong><\/p>\nEven though Beijing forcibly brought back social stability after the Tiananmen incident, its economic growth remained stagnant.<\/p>\n
All eyes were on whether or not the nation would continue its policy of opening up and reform. Contrary to the expectations of many Western countries, Deng, who was 87 at the time, decided to conduct full-scale reform to shift to a market economy to achieve a breakthrough in the deadlocked situation.<\/p>\n
At the beginning of 1992, Deng delivered a series of speeches during his famous tour to southern China, inspecting the cities of Wuchang, Shenzhen, Zhuhai and Shanghai. The series of talks was known as the South Tour Speeches.<\/p>\n
\u201cDevelopment is the absolute principle,\u201d Deng said.<\/p>\n
\u201cWhoever doesn\u2019t reform will have to step down,\u201d he went on, stressing his determination to quell the influence of conservatives in the Chinese Communist Party and press for further reforms.<\/p>\n
His remarks again boosted nationwide momentum for reform and opening up. In October 1992, at the Chinese Communist Party\u2019s 14th National Congress, the formation of the socialist market economy was designated as a national goal, with the government, companies and society working together to promote reforms in fiscal and taxation systems, financing, foreign exchange control, state-owned enterprises and social welfare.<\/p>\n
While the party retained socialist development rhetoric, its reforms, in fact, pushed the transition toward a full market system.<\/p>\n
Seeing China making a major turn toward a market-based economy since 1992, countries such as the U.S. resumed negotiations on China joining the World Trade Organization.<\/p>\n
In order to join the WTO, a nation has to agree to a number of obligations, including market liberalization, deregulation on direct investments, strengthening the protection of intellectual property rights and enhancing its legal systems.<\/p>\n
A bilateral agreement between the U.S. and China, in particular, included a number of numerical targets to open up the latter\u2019s market and a roadmap to achieve them, effectively signifying China\u2019s commitment to the international community.<\/p>\n
In that sense, the significance of China joining the WTO is equivalent to Deng\u2019s South Tour Speeches.<\/p>\n
After joining the WTO, China\u2019s economy became more open to the outside world, causing large growth in its GDP, trade and investment, leading it to become known as \u201cthe world\u2019s factory.\u201d<\/p>\n
Although there were obviously obstacles and some opposition, the first half of China\u2019s second phase of reform proceeded more or less smoothly, thanks to: a relatively clear consensus among the leadership on the need to conduct reform to get out of the crisis; a team of talented pro-reform bureaucrats with theory and passion led by Zhu Rongji and the need to work toward an international commitment to join the WTO.<\/p>\n
However, reform efforts dwindled in later years when Hu Jintao was in power, from 2002-2012, especially after the 2008 global financial crisis, even leading to the \u201cstate companies advance and private firms retreat\u201d phenomenon, in which state companies became so big that they hindered the business of private companies.<\/p>\n
One reason was because most of the reforms had been put into practice, bringing about high economic growth. But the biggest reason was because vested interest groups existed everywhere, pinning down government agencies and leaving political reform behind.<\/p>\n
This led to various problems. Chinese authorities had believed that if the economy grew, the gap between the rich and the poor, as well as urban and rural areas, would narrow. Instead, it widened. The problems of an insufficient social welfare system, worsening environmental pollution and massive debt \u2014 more than twice as much as the nation\u2019s GDP \u2014 caused by excessive investments in infrastructure also surfaced.<\/p>\n
The structural issue of a rapidly aging population also became prominent.<\/p>\n
![\"\"](\"\/GaIeyudaTuFo\/wp-content\/uploads\/2020\/12\/November26_2020_fig01.png\")
<\/p>\n
Wu Jinglian, an influential Chinese pro-market economist, pointed to such structural problems in the early stages of the reforms and proposed the so-called \u201ctop-level design for China\u2019s reforms,\u201d taking direct aim at the political system.<\/p>\n
In a 2004 book on Chinese economic reform, Wu said there were two prospects for China\u2019s reform: a market economy under the rule of law, and a new class of people colluding with power and monopolizing wealth.<\/p>\n
His warning reflected the need to return to Deng\u2019s idea of \u201cIt doesn\u2019t matter whether a cat is black or white, as long as it catches mice.\u201d<\/p>\n
<\/p>\n
Reform 3.0 (2012-today)<\/strong><\/p>\nXi Jinping, then vice president, was calmly watching the severe situation, and the world was waiting to see how Xi would cope with it.<\/p>\n
There were only two ways to break the status quo, either by conducting drastic political reform under the rule of law or by exercising authoritarianism. Xi chose the latter.<\/p>\n
Xi, who was elected as the Chinese Communist Party\u2019s new chief at the 18th National Congress held in November 2012, launched a fierce anti-corruption campaign, with the Central Commission for Discipline Inspection led by Wang Qishan working as the driving force, targeting officials in the party including both high-ranking officials (\u201ctigers\u201d) and low-level bureaucrats (\u201cflies\u201d).<\/p>\n
In the five years after the congress, more than 50 senior officials \u2014 including Zhou Yongkang, a former security chief and member of the Politburo Standing Committee \u2014 as well as 57,000 party members of different levels were punished, contributing to the leadership winning public support.<\/p>\n
The campaign was also a political reform in the sense that it came along with drastic restructuring to centralize power within the party. Xi conducted rectification of all of the party\u2019s organizations nationwide, including the party\u2019s Central Military Commission and Leading Groups.<\/p>\n
In May 2015, when China was in the midst of the political reform, I met Wang along with Francis Fukuyama and Masahiko Aoki of Stanford University.<\/p>\n
At that time, Wang described the severity of China\u2019s ongoing political reform as the Communist Party performing a surgery on itself, offering as a likeness the case of a Russian surgeon who cut out his own appendix in Siberia (although in reality, it seems that it has happened in Antarctica). Wang must have been determined to carry out drastic reform.<\/p>\n
Xi\u2019s way to lead the country in \u201cthe new era\u201d is based on nationalism and digital Leninism. He is aiming at realizing a highly controlled society that matches his \u201cThought on Socialism with Chinese Characteristics,\u201d using AI and digital technology under the Communist Party\u2019s top-down leadership to achieve the \u201cgreat rejuvenation of the Chinese nation.\u201d<\/p>\n
While the targeted structure of the society is similar to China\u2019s centralization of power and bureaucracy that lasted for 2,000 years after the Qin dynasty, it differs from past regimes in that it is backed by cutting-edge technology and economic power.<\/p>\n
It is not easy, however, to implement such reform in today\u2019s China, as people are now allowed to own assets and their way of thinking has largely changed.<\/p>\n
As for its foreign policies, China is advocating common values, such as the Belt and Road initiative and Xi\u2019s vision of building a \u201ccommunity with a shared future for humankind,\u201d as well as multilateralism.<\/p>\n
At the same time, China has increasingly been taking geoeconomic actions, offering aid to friendly nations while exerting economic pressure on countries it is dissatisfied with.<\/p>\n
But such moves have not been working so well.<\/p>\n
Following the COVID-19 outbreak, Western nations came to be strongly aware of their differences with China in terms of values and systems, and are rethinking their relationship with the country.<\/p>\n
Geopolitical and geoeconomic threats posed by U.S.-China relations are leading to prolonged instability, and focus in international politics is shifting from international cooperation or value-oriented diplomacy to the balance of power.<\/p>\n
![\"\"](\"\/GaIeyudaTuFo\/wp-content\/uploads\/2020\/12\/November26_2020_fig02.png\")
<\/p>\n
It is not easy to precisely forecast the future of China. But it does not mean reforms under the rule of law, advocated by reformists, have died down.<\/p>\n
Reforms in the past were made possible when the nation needed change and there was a leader who acted with a strong determination to change. Such cases occurred many times in the past and will definitely happen in the future.<\/p>\n
Pillsbury says China will do anything for its clear ambition of realizing the \u201cChina dream.\u201d His view is that although there are both hawks and doves in the country, they are just changing their stance externally and are essentially the same.<\/p>\n
People in China have different dreams and different views on ways and principles to achieve them.<\/p>\n
All the past reforms \u2014 reform 1.0 that emerged from the devastating Cultural Revolution, reform 2.0 built on the bloody legacy of Tiananmen Square and reform 3.0 of the new era, born from a country that has become gigantic \u2014 have experienced many twists and turns, and none of them went smoothly on a straight path.<\/p>\n
Chinese writer Lu Xun said, \u201cThere was never a road, but when many people walk on it, the road comes into existence.\u201d Usually, conditions and factors that make up an era have existed before the era started, but they were chosen by the people.<\/p>\n
The path, or the direction, of an era was created as the 1.4 billion people and the leadership made choices through conflicts in beliefs, stances and interests, and as they continued to walk on that path.<\/p>\n
We have to keep in mind that we are facing such a superpower. If we start from assumptions, our actions will definitely backfire. In such cases, we should be the ones to blame, not China.<\/p>\n
<\/p>\n
Disclaimer: <\/strong>
\nThe views expressed in this API Geoeconomic Briefing do not necessarily reflect those of the API, the API Institute of Geoeconomic Studies or any other organizations to which the author belongs.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cAPI Geoeconomic Briefing\u201d is a weekly analysis of significant geopolitical and geoeconomic developments in the post-pandemic world. The briefing is written by experts at Asia Pacific Initiative (API) and includes an assessment of burgeoning trends in international politics and economics and the possible impact on Japan\u2019s national interests and strategic response. (Editor-in-chief: Dr. HOSOYA Yuichi, …<\/p>\n
Why the West continues to get China\u2019s future wrong by TOKUCHI Tatsuhito<\/span> Read More »<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35],"tags":[],"class_list":["post-23262","post","type-post","status-publish","format-standard","hentry","category-api-geoeconomic-briefing"],"_links":{"self":[{"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/posts\/23262","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/comments?post=23262"}],"version-history":[{"count":3,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/posts\/23262\/revisions"}],"predecessor-version":[{"id":24858,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/posts\/23262\/revisions\/24858"}],"wp:attachment":[{"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/media?parent=23262"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/categories?post=23262"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/apinitiative.org\/en\/wp-json\/wp\/v2\/tags?post=23262"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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