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China
Reform and Opening, Beginning in 1982
The period of readjustment produced promising results, increasing incomes
substantially; raising the availability of food, housing, and other consumer
goods; and generating strong rates of growth in all sectors except heavy
industry, which was intentionally restrained. On the strength of these initial
successes, the reform program was broadened, and the leadership under Deng
Xiaoping frequently remarked that China's basic policy was "reform and opening,"
that is, reform of the economic system and opening to foreign trade.
In agriculture the contract responsibility system was adopted as the
organizational norm for the entire country, and the commune structure was
largely dismantled. By the end of 1984, approximately 98 percent of all farm
households were under the responsibility system, and all but a handful of
communes had been dissolved. The communes' administrative responsibilities were
turned over to township and town governments, and their economic roles were
assigned to townships and villages. The role of free markets for farm produce
was further expanded and, with increased marketing possibilities and rising
productivity, farm incomes rose rapidly (see Post-Mao
Policies , ch. 6).
In industry the complexity and interrelation of production activities
prevented a single, simple policy from bringing about the kind of dramatic
improvement that the responsibility system achieved in agriculture. Nonetheless,
a cluster of policies based on greater flexibility, autonomy, and market
involvement significantly improved the opportunities available to most
enterprises, generated high rates of growth, and increased efficiency.
Enterprise managers gradually gained greater control over their units, including
the right to hire and fire, although the process required endless struggles with
bureaucrats and party cadres. The practice of remitting taxes on profits and
retaining the balance became universal by 1985, increasing the incentive for
enterprises to maximize profits and substantially adding to their autonomy. A
change of potentially equal importance was a shift in the source of investment
funds from government budget allocations, which carried no interest and did not
have to be repaid, to interest-bearing bank loans. As of 1987 the interest rate
charged on such loans was still too low to serve as a check on unproductive
investments, but the mechanism was in place.
The role of foreign trade under the economic reforms increased far beyond its
importance in any previous period. Before the reform period, the combined value
of imports and exports had seldom exceeded 10 percent of national income. In
1980 it was 15 percent, in 1984 it was 21 percent, and in 1986 it reached 35
percent. Unlike earlier periods, when China was committed to trying to achieve
self-sufficiency, under Deng Xiaoping foreign trade was regarded as an important
source of investment funds and modern technology. As a result, restrictions on
trade were loosened further in the mid-1980s, and foreign investment was
legalized. The most common foreign investments were joint ventures between
foreign firms and Chinese units. Sole ownership by foreign investors also became
legal, but the feasibility of such undertakings remained questionable.
The most conspicuous symbols of the new status of foreign trade were the four
coastal special economic
zones (see Glossary), which were created in 1979 as enclaves where foreign
investment could receive special treatment. Three of the four zones--the cities
of Shenzhen, Zhuhai, and Shantou--were located in Guangdong Province, close to
Hong Kong. The fourth, Xiamen, in Fujian Province, was directly across the
strait from Taiwan. More significant for China's economic development was the
designation in April 1984 of economic development zones in the fourteen largest
coastal cities- -including Dalian, Tianjin, Shanghai, and Guangzhou--all of
which were major commercial and industrial centers. These zones were to create
productive exchanges between foreign firms with advanced technology and major
Chinese economic networks.
Domestic commerce also was stimulated by the reform policies, which
explicitly endeavored to enliven the economy by shifting the primary burden of
the allocation of goods and services from the government plan to the market.
Private entrepreneurship and freemarket activities were legalized and encouraged
in the 1980s, although the central authorities continuously had to fight the
efforts of local government agencies to impose excessive taxes on independent
merchants. By 1987 the state-owned system of commercial agencies and retail
outlets coexisted with a rapidly growing private and collectively owned system
that competed with it vigorously, providing a wider range of consumption choices
for Chinese citizens than at any previous time.
Although the reform program achieved impressive successes, it also gave rise
to several serious problems. One problem was the challenge to party authority
presented by the principles of freemarket activity and professional managerial
autonomy. Another difficulty was a wave of crime, corruption, and--in the minds
of many older people--moral deterioration caused by the looser economic and
political climate. The most fundamental tensions were those created by the
widening income disparities between the people who were "getting rich" and those
who were not and by the pervasive threat of inflation. These concerns played a
role in the political struggle that culminated in party general secretary Hu
Yaobang's forced resignation in 1987 (see Resistance
and the Campaign Against Bourgeois Liberalization , ch. 11). Following Hu's
resignation, the leadership engaged in an intense debate over the future course
of the reforms and how to balance the need for efficiency and market incentives
with the need for government guidance and control. The commitment to further
reform was affirmed, but its pace, and the emphasis to be placed on
macroeconomic and microeconomic levers, remained objects of caution.
Data as of July 1987
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