Deng Xiaoping’s Economic Reform

1978-1990s

Session 6

Table of Contents

I. Major Shift in ThinkingII. Economic Reform Step by StepIII. Open-Door PolicyIV. Economic MiracleV. China’s Foreign PolicyVI. Discussion

I. Deng Xiaoping Resumed his Power and Launched China’s Economic Reform in 1978

I-1. Major Shift in ThinkingHua Guofeng became Mao’s successor in 1976.

“Whatever policy originated from Chairman Mao, we must continue to support,” and “Whatever directions were given to us from Chairman Mao, we must continue to follow.” 凡是毛泽东说的都是对的，凡是毛泽东的指示我们必须坚决执行。

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Deng remarked that “a liberation of thoughts” was necessary and the leadership must “seek truth from facts” - Third Plenum of the Eleventh CCP Congress, Dec. 1978

Deng’s Pragmatism: “It doesn’t matter whether its is a white cat or

a black cat, it is a good cat as long as it catches mice”

Cross the river by stepping over stones (learning by doing)

I-2. Centrally-planned Economy Transformed into Market Economy

“ Planning and market forces are not the essential difference between socialism and capitalism. A planned economy is not the definition of socialism, because there is planning under capitalism; the market economy happens under socialism, too. Planning and market forces are both ways of controlling economic activity

We mustn't fear to adopt the advanced management methods applied in capitalist countries (...) The very essence of socialism is the liberation and development of the productive systems (...) Socialism and market economy are not incompatible

II. Economic Reform Step by Step II-1. Agricultural Reform

The household responsibility systemOf the population of 120, 67 peasants diedA harvest larger than previous 5 years combinedPer capita income: 22-400 yuan

Township & village enterprises

II-2. BreakthroughMarket-determined price

Breaking the “iron rice bowl”

70% of China’s GDP is in the private sector (2010)

The economic reform and social transformation led to the Tiananmen Square Confrontation (occupation of the Wall Street)

II-3. Reform in Education

Resumed the College Entrance Examination in 1977, among 5.7 million candidates, only 273,000 passed.

III. The Open-Door Policy

• 15 years effort to enter the WTO• China’s tariffs dropped to 9.8%

from an average of 15.3% in five years

• Welcome international trade & foreign direct Investment

• Study abroad and welcome foreign students to China• Three “ten thousands”

IV. China’s Economic Miracle

1. GDP has grown at an annual average rate of 9.5% from 1978-2010

2. China becomes world’s second largest economy in 2011

3. Largest exporter, second largest importer, second largest trading nation in the world in 2011

4. Foreign reserves: $3 trillion (Mar 2011; ranked 1st).

The Economist Apr 14th 2011

Another favoured sink for the world's riches is property. Perhaps China should buy some exclusive Manhattan addresses. Hell, why not buy all of Manhattan? The island's taxable real estate is worth only $287 billion, according to the New York City government. The properties of Washington, DC, are valued at a piffling $232 billion. China is accustomed to being Washington's banker. Why not become its landlord instead?

China could also allay its fears about energy, food and military security. Three trillion dollars would buy about 88% of this year's global oil supply. It would take only $1.87 trillion (at 2009 prices) to buy all of the farmland (and farm buildings) in the continental United States. And China could theoretically buy America's entire Department of Defence, which has assets worth only $1.9 trillion, according to its 2010 balance-sheet. Much of that figure is land, buildings and investments; the guns, tanks and other military gear are valued at only $413.7 billion.

China’s Progress in Technology

• Canton-Wuhan high-speed train at speed of 165 miles per hour; 4 hours from Beijing to Shanghai (600 miles)

• It now has the second largest R & D budget

• China’s GPS • Walk in the space

In 2007 China contributed more to global growth than the United States, the first time another country had done so since at least the 1930s.

Since 1978 400 million people have been lifted out of poverty in China—about 75 percent of the world's total poverty reduction over the last century.

Lawrence Summers has recently pointed out that during the Industrial Revolution the average European's living standards rose about 50 percent over the course of his lifetime (then about 40 years). In Asia, principally China, he calculates, the average person's living standards are set to rise by 10,000 percent in one lifetime!

In two decades China has experienced the same degree of industrialization, urbanization and social transformation as Europe did in two centuries - Newsweek, Issue 1, 2008

Newsweek, Issue 1, 2008

V. China’s Foreign Policy

Peaceful rise/development

To be a responsible great power

Created a peaceful world environmentNormalization with the US in 1979Normalization with the Soviet Union in

1989Visited Japan in 1978

Comparison between Mao’s War-oriented Mentality

& Deng’s Peace-oriented MentalityMao: China should make preparations “for an early world war, a major war and nuclear war.”

If you are not with us, you are against us.

Deng: China’s foreign policy in the 1980s, and in fact in 1990s, even in the 21st century, can be summarized in two sentences. China makes efforts to maintain world peace and oppose hegemony. China always belongs to the third world.”

If you are not against us, you are with us.

Deng Visited Japan in 1978

"China is striving to build itself into a modernized socialist power. We need a peaceful international environment and we are willing to develop friendly and cooperative ties with all countries. Despite different social systems in China and Japan, the two countries should and can coexist in peace and friendship."

Deng and Carter

Deng Xiaoping in the US

Deng and Mikhail Gorbachev

Discussion

• Is there any way to avoid the tragedy of the Tiananmen Square Incident when China experienced a radical social transition from socialism to capitalism?

Could Deng find an alternative solution?

Conclusion

Deng’s Economic Reform: Transferred the Crisis into an Opportunity

Missions impossible” Accomplished in China

• Mao lost Mandate of Heaven and led China into a critical crisis in 1976.

• Reestablished the Mandate of Heaven through replacement of Communist ideology with pragmatism.

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• Centrally-planned economy transformed into market economy, with growth the fastest ever, made China a second largest economy.

• New rising power has not resulted in a war, territorial expansion, or a challenge to the world order, relations between China & other powers & neighbors better rather than worse.

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Discussion

1. Why did Deng Xiaoping launch the Economic Reform?2. What are achievements of the Economic Reform?3. What kind of difficulties/challenges did Deng have during the Economic Reform?4. What were Deng's means to help him reach his ends?5. Why did Deng's Economic Reform receive positive feedback from China and the world?6. What is difference between Mao and Deng?