At the end of 1976, China was, by and large, an agricultural country with a hefty 82.6% of its population living in the countryside, the majority in absolute poverty. After a decade of the cultural revolution (1966-1976) that concluded in October that year, the Chinese economy had come to the verge of collapse, and its political system was in disarray.
It was in these circumstances that the Chinese people took a hard look at the future of their country, and state leaders began to redesign development strategies, policies, and plans.
After two years of deliberation and planning, and on the basis of best practices at the community level, a package of new economic policies were unveiled at the end of 1978, ushering China onto a new reformist development path.
In the following four decades, the Chinese economy performed exceptionally. It’s manufacturing sector is now the world’s largest in terms of added value. Foreign direct investment (FDI) in actual use has soared from nil to $133.7 billion, the world’s third largest; and overseas direct investment (ODI) surged from zero to $183.1 billion, second only to the US.
Deloitte’s 2016 Global Manufacturing Competitiveness Index declared China the largest producer of 220 of 500 major industrial products, including iron and steel, coal, cement, electrolytic aluminium, and refined copper. What’s more, its hi-tech industry has outperformed that of the US in terms of added value, export value, and value-added exports, indicating that China is approaching the global pole position in hi-tech manufacturing.
With agricultural value added accounting for merely 8.6% of its 2016 GDP, China has completed the transformation from an agricultural to a manufacturing country. And with an urbanisation rate of 57.4%, Chinese society has moved from an agrarian to an urban phase of development.
How did China make these remarkable achievements? And what experience can it share with other developing countries?
In 1979, the year China carried out its new development strategies and policies in a comprehensive way, I was enrolled at a university of finance and economics. After graduation, I worked for the Chinese Academy of Social Sciences before joining the World Bank to do research on Chinese economic policies. Later I studied China’s macro-economy and capital market with a French investment bank. In 2000, I co-founded an IT company in China providing outsourcing services to US software companies.
This experience has allowed me to closely observe and be intimately involved in the tremendous changes China has undergone in the past 40 years. According to my theoretical research, fieldwork, business operations, and international experience, I attribute China’s success to several factors.
The unique path of Chinese characteristics
First of all is China’s unique development path, referred to in the official jargon as socialism with Chinese characteristics. This path is, by nature, socialist, and distinctive for its indigenous traits. Its socialist nature means it is a path to common prosperity.
Although the government encourages some citizens to get rich first, its goal has always been to create a life of affluence for everyone. This is why the Chinese government has put poverty alleviation high on its agenda and rolled out a number of policies and measures in this regard. These efforts have paid off: 700 million Chinese people come out of absolute poverty in the past 40 years, and the remaining 30 million are expected to follow by 2020.
In addition to poverty elimination, China has made great headway in improving people’s livelihoods, in four areas:
- First, an estimated 13 million urban jobs are created annually, keeping the registered unemployment rate at a low level of four percent over recent years.
- Second, access to education has been expanded remarkably, reducing the illiteracy rate from over 30% to below 3% in 40 years. What’s more, the share of the labour force with a higher education has surged from less than 0.5% to 25%.
- Third, social security has been significantly improved, with more than 85% of the population covered by basic pension and over 95% possessing basic medical insurance.
- Fourth, urban-rural income disparity has steadily declined after peaking between 200 and 2010. The Gini coefficient has also fallen since 2008, although it still hovers above 0.45.
Socialism is also defined by the public ownership of land, the development of state-owned enterprises, and the government’s comparatively firm control over economic activities, among other things. China’s path of socialist development shows unmistakably Chinese characteristics.
First of all, its political system, including its electoral system, is different from that of Western countries.
Taking into account its history, China doesn’t adopt the checks and balance model that divides government into legislative, executive, and judiciary branches. Instead, it follows the centralised, unified leadership of the Communist Party of China (CPC), with the National People’s Congress (NPC) exercising the highest level of state power and other political parties actively participating in the deliberation and administration of state affairs.
Second, the government plays a bigger role in all sectors of the country, including boosting economic and social development.
Third, the influence of historical, cultural, and traditional factors is prominent. For example, certain cardinal Confucian ideas still influence the relationship between the rule of law and rule of virtue, the relationship between order and rules, and the relationship between social networks and development. State institutions and moral norms are both at play in Chinese society.
Socialism with Chinese characteristics is the choice China makes in light of its own conditions. After decades of practice and improvements, it has developed unique advantages in coordinating the roles of government and market.
The socialist system and institutions prove especially effective in pooling labour, material, and financial resources for massive projects in national and regional development. There is, however, more to be done to coordinate the roles of government and market.
It is known worldwide that China would not be where it is today without the reforms first initiated by Deng Xiaoping. A key reason why they have been so fruitful is because these reforms have been unwaveringly market-oriented.
In its early years, the People’s Republic of China copied the planned economy model of the former Soviet Union, which led to increases in productivity but also concomitant problems. It later came to the understanding that solutions to these problems required the introduction of market-based systems and institutions. China, therefore, initiated reforms to develop the commodity economy by stimulating production and the exchange of goods. These reforms then evolved to establish a robust market economy.
But in the course of these shifts, China did not abolish the systems and institutions of the planned economy entirely and instead allowed the old and new systems and institutions to coexist and complement each other. In this way, government planning and the market were able to reach a relative equilibrium in a dynamic process, in which reforms proceeded without disrupting social stability.
Forty years on, China’s market-oriented reforms have reached a new stage, during which our goal is to deepen the reform so that the market can play a decisive role in resource allocation. According to the Heritage Foundation’s Index of Economic Freedom, China’s economic freedom scored 57.4 on a scale of 100 in 2017. It’s standing was 52 back in 1995. Today, no one in China disputes the market-oriented direction of the reforms. Moving steadfastly in this direction, China’s reforms will yield more fruit in the years to come.
China’s achievements are also attributed to it’s opening-up, which has thus far occurred in three stages. The first was during the 1980s and 1990s, when the goal was to solicit foreign investment in domestic infrastructure and industrial projects. Due to their geographical location and historical and cultural heritage, coastal areas like Guangdong, Fujian, and Shanghai experienced the fastest growth during this period.
Guangdong, for example, has long sustained affinity with neighbouring Hong Kong through close interpersonal bonds. After the initial opening-up, numerous Hong Kong businesspeople opened factories in Guangdong. With industrial zones mushrooming across the province, a large number of hamlets were transformed into global manufacturing bases. One of them is Dongguan, now the world’s largest manufacturing base for electronic products. Foreign direct investment in China peaked in the late 1990s, securing the country’s position as the factory of the world.
The second stage was from China’s accession to the WTO in 2001 to 2012. During this period, it accomplished two goals – bringing its foreign trade and investment into compliance with international rules, primarily those of developed Western countries, and inserting itself within international value chains. The first goal enabled China to be better accepted by the world at large, and the second made it an indispensable part of global industries and value chains.
Increasing integration with the world economy in this decade turned out to boost rather than impair the international competitiveness of Chinese manufacturing. Its value-added element surpassed that of the US to become the world’s number one, and China’s GDP exceeded that of Japan, becoming the world’s second-largest economy.
Opening-up entered a third stage in 2013, marked by China’s proposal of jointly building the Silk Road Economic Belt and the 21st-Century Maritime Silk Road. Through the Belt and Road Initiative China hopes to bring into play its advantages in technologies and human resources in specific professions to advance the interconnectivity of facilities, trade, investment, finance, and people-to-people exchange.
This initiative is expected to boost mutual support and synchronised development among participating countries, and hence safeguard world peace through open, innovative, and inclusive global development.
By increasing dialogue between civilisations, it aims to build a community with a shared future for humanity and create a better future for everyone.
Focusing on economic growth
At the end of 1978, China put forward a package of new ideas on national development. The most consequential innovation was to shift the priority of the nation and the CPC from class struggle to economic development, which has since become the central task of CPC organisations and governments at all levels.
In the following years, economic growth was the primary measurement of regional development and individual performance, and the catchphrase ‘development is of paramount importance’ appeared in placards all over the country. It became a national consensus that development, synonymous with economic growth, offered the solution to China’s problems.
With manufacturing a strong force driving economic growth, it became the main focus for China’s central and local governments. But in the 1970s, 1980s, and early 1990s, the country was short of money to build up this capital-intensive sector, which requires buying equipment and land, building factories, and hiring workers. It therefore looked to foreign investors who were seeking opportunities in the Chinese market.
Recognising the multiple benefits of foreign investment, including tax contributions, job creation, rises in local incomes and, consequently, spending, local governments raced to solicit foreign capital. To outmanoeuvre their peers, some regions offered additionally favourable policies like tax cuts or breaks, discounted land prices, or even free land. Some even went to the extent of lowering or scrapping environmental protection requirements.
While going after foreign investors, regional governments also jostled to woo domestic banks for loans to local enterprises. Meanwhile, they set up their own financing platforms to raise funds for local manufacturing and infrastructure to stimulate economic growth.
These efforts paid off. The economy grew all over the country, with few regions reporting GDP growth rates below 10%. New infrastructure was completed, and manufacturing surged in both rural and urban areas.
But the side effects soon emerged. The supply of low-priced or even free land to foreign investors led to a spike in land development for industrial projects and a steep reduction in the amount of farmland; bribery was involved in many deals between local officials, foreign investors, and banks. Recognising these problems, China began to correct its neglect of other sectors amid the frenzied pursuit of economic growth.
Political and social stability
A key factor behind the roaring pace of Chinese development in the past 40 years has been political and social stability. It is acknowledged by both its own citizens and people of other countries that China is a safe and stable place. How is this possible for a country with the largest population on the planet; one which consists of dozens of ethnic groups? There are four reasons as I see it.
First, the CPC’s centralised, unified leadership is pivotal to political stability in China. The CPC is the sole governing party in China, and it is under CPC leadership that other political parties participate in state affairs. This structure underpins China’s political stability. Meanwhile, through organisations nationwide which follow the same priorities and rules, the CPC executes effective management of society.
After a history of almost 100 years, the party has garnered rich experience in effectively governing the country on the basis of national conditions. It is well worth noticing that despite the mistakes it made in previous periods such as the cultural revolution, the CPC has been able to correct itself, winning it broad support among the Chinese population.
Second, CPC organisations and governments at all levels prioritise social stability. A catchphrase in China is ‘putting stability above everything else’. It is a firm conviction in China that we can accomplish nothing without a stable society.
In order to ensure social stability, China has enhanced organisational work, extending social governance organisations all the way down to neighbourhood levels in both urban and rural areas. It also maintains strong police and armed forces to combat subversion and defend social stability and order.
Third, China has sufficient economic resources to maintain stability. Financial support is always important.
Fourth, some elements of traditional Chinese culture also contribute to social stability. For example, Chinese culture values harmony, advocates a golden middle way of contentment, and discourages confrontation and extremism.
In all of the aforementioned areas, China devises and executes feasible plans on the basis of extensive field studies. There are plans for the party’s work, for the government’s work, and for work in all areas of society. There are long-term strategies for up to 30 years, medium-term schemes for five years, as well as yearly and quarterly action plans. They are all seamlessly connected, and more importantly, implemented to the letter, turning ideas on paper into reality through concrete effort.
Since 1949, China has made 13 five-year plans. Each of them has identified major problems facing the country during that specific period of time, set goals for the next five years, and charted central policies and means of measurement for their fulfilment.
The merit of these plans is that they keep the whole country in the know about the clearly defined goals of future development, how to achieve them, and which obstacles to anticipate along the way. All Chinese people, therefore, pool their strength to accomplish these goals. Over the 60-odd years since the founding of the PRC, we have surmounted many problems and marched from victory to victory in the course of executing these plans, bringing China to where it stands now.
Last but not least, I want to make two points. First, when we re-examine China’s development of the past 40 years, we should never overlook the hard work of the Chinese people. Any talk of China’s successful experience is pointless without recognising the toils of its people.
Second, the CPC is ever-keen to learn. It takes on best practice ideas from all over the world, and incorporates innovations accordingly.
Xi Jinping’s Thought on Socialism with Chinese Characteristics for a New Era is the latest theoretical innovation from the Party and it promises to guide the Chinese people in realising national goals.
Professor of Economics and Dean of the Emerging Markets Institute at Beijing Normal University
The views and opinions expressed in this publication are those of the original author(s) and do not necessarily represent or reflect the views and opinions of the Dialogue of Civilizations Research Institute, its co-founders, or its staff members.
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This paper was originally published by China Today.