The decades that transformed China

Forty years ago, Deng Xiaoping began ‘reform and opening up’. Now China may be at another crossroads

December 25, 2018 12:15 am | Updated December 04, 2021 11:04 pm IST

The December 1978 Third Plenary Session of the Eleventh Central Committee of the Communist Party of China (CPC) might sound obscure, but its global repercussions were of seismic proportions. Deng Xiaoping’s series of economic policies , termed “reform and opening up”, went on to catapult China from an agricultural backwater into a manufacturing powerhouse that shapes the world’s economic architecture.

As China celebrates the 40th anniversary of “reform and opening up”, it holds the world’s largest foreign reserves ($3.05 trillion in October), and boasts the second-largest economy (with a GDP of $12.2 trillion in 2017). Its share of the world’s economy has ballooned from 1.8% in 1978 to 18.2% in 2017. In doing so, it has defied decades of predictions that its uncomfortable blend of authoritarian politics and economic liberalisation was unsustainable.

A country of contradictions

Contemporary China is rife with contradictions. Its ruling party espouses a communist, egalitarian ideology while presiding over the emergence of a hugely unequal, capitalism-driven society. The divergent interests of the urban middle class clash with those of peasants and migrant workers. It has the world’s largest number of Internet users (more than 772 million) and accounts for more than 40% of global e-commerce transactions despite being one of the world’s most censored digital environments.


And yet, the CPC has proved adept at squaring seeming circles and proved doomsday scenarios of its imminent collapse wrong, time and again. A crucial tool in achieving this feat has been the pilot project, poetically rendered as the Deng Xiaoping maxim, “crossing the river by feeling the stones.” This approach was characterised by experimentation and local policy tinkering, in order to establish what worked best in practice, before adoption at the national level.

The special economic zones (SEZs) promoted along China’s coast in the 1980s, for example, were not brought into existence based on a priori assumptions about their theoretical utility. The idea was for them to be laboratories that provided a controlled environment within which experiments could be conducted boldly. Eventually SEZs became the locomotive for economic growth, attracting unprecedented flows of foreign investment and transforming fishing villages like Shenzhen into global manufacturing hubs. This approach was used repeatedly over the years to test new policies, from cooperative medical care schemes to abolishing controls on the movement of workers from the countryside to the cities. Consequently, the CPC swapped the kind of abrupt, ideologically based upheavals that characterised Mao Zedong’s mass movements from the 1950s to the 1970s, for pragmatic solutions that worked.

What ‘worked’ was defined by certain parameters, most fundamentally the preservation of the CPC’s power. To this end, Beijing deployed a range of strategies including censorship and purges, but also the co-option of key constituencies like the urban middle class. By tying the prosperity of this group to the continuance of the party at the helm of policy-making, the CPC effectively neutralised what could have been its most formidable foe.

Critically, what was found to work best for preserving power was delivering on promises of economic growth. This self-interested focus on performance continued as over time, the middle classes began to demand improvements in their quality of life beyond opportunities for material prosperity. The party responded by stepping up environmental protection. Beijing’s air pollution is a case in point. From being a poster boy for foul air, the Chinese capital has transformed into a model to be emulated by cities like Delhi.

Far from sclerotic, post-reform-and-opening-up China has developed a problem-solving approach that makes its leaders more responsive to socio-economic challenges than is generally believed of autocratic governments. Reforms have extended beyond the economic realm into governance and administration. An example is the introduction of term limits and mandatory retirement ages for officials. Internal report cards issued to evaluate the performance of local bureaucrats are used to promote good governance, by linking promotions and bonuses to the meeting of economic and, increasingly, environmental targets.

This emphasis on outcome rather than ideology has its corollary in performance over process, which helps explain why a country like India continues to lag behind China on most parameters of development. The legitimacy of democracy absolves Indian governments from the necessity of performing. The CPC can afford no such luxury. Hence the counter-intuitive state of affairs where, despite political representation for the poor in India and the lack of political participation in China, Beijing trumps New Delhi on the delivery of basic public goods like roads, drains and schools.

The Xi Jinping era

The legacy of “reform and opening up” is crucial in explaining how China got to where it is today. However, its continued relevance in the new era under President Xi Jinping’s leadership has become the million yuan question. Despite Beijing’s formal commitment to further economic liberalisation, the ongoing trade war with the U.S. marks a path divergent to the one trod over the last four decades. Moreover, the CPC has still not resolved the contradiction between state control of the economy and the embrace of free markets, what in China is called “socialism with Chinese characteristics”.

There are other signs of a break from Deng-inspired policies — most notably, the recent scrapping of the presidential term limit that enables Mr. Xi to potentially continue in office indefinitely. Besides, while Deng preached economic openness and encouraged China to recruit overseas expertise, Mr. Xi emphasises self-reliance and warns of the threats posed by “hostile foreign forces”. The focus on peaceful economic integration is being supplanted by a trade war that some fear could degenerate into a new cold war. Nationalism has trumped the Dengist strategy of “hiding strength and biding time”. Even the pilot project approach of experimentation appears to be out of favour. An article in The Economist points out that while in 2010 some 500 policy-related pilot projects were in place at the provincial level, this number had plummeted to about 70 by 2016.

Is “reform and opening up” past its sell-by date? If so, what will replace it? And how will Beijing meet future challenges with the U.S. as an adversary, rather than the trade and investment partner it has been so far? The answers, while critical, are unclear. What is clear is that the CPC will need to walk several tightropes going forward, a balancing act that could prove tough for acrobats even as skilled as the Chinese.

Pallavi Aiyar has reported from China, Europe, Indonesia and Japan. She is a Young Global Leader with the World Economic Forum

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