China’s 40 years of economic reform that opened the country up and turned it into a superpower – ABC News

Posted December 01, 2018 06:11:23

When Hua Dong first heard punk rock in the early 90s, he was listening to a damaged CD he bought cheaply from a Chinese black market — likely salvaged from a pile of foreign plastic trash.

Key points:

  • Deng Xiaoping introduced the concept of the socialist market economy in 1978
  • Chinese people living in poverty dropped from 88 per cent in 1981 to 6 per cent in 2017
  • The reform opened the country to foreign investment and lowered other trade barriers

China began importing recyclable materials after the start of its economic reforms some 40 years ago, but foreign music had been strictly controlled so cassette tapes and CDs were deliberately sawed or cut at customs to make them unplayable.

The so-called “saw gash” CDs — many of them actually still fairly listenable — would go on to subtly shape the music taste of hundreds of millions of people across the country.

“Those [chipped] CDs formed my youth music kingdom,” said Mr Hua, the lead vocalist of post-punk band, Rebuilding the Rights of Statues.

“Nowadays, it is so much easier to find the music online, I could download dozens of records to my laptop or smart phone in a few minutes.”

Forty years ago, in December 1978, following a decade of the Cultural Revolution led by Mao Zedong that left the communist country in ruins, a series of transformative economic reforms opened China up to the international community and foreign investment.

Increased access to foreign music was just one tiny part of China’s opening up process that transformed the country from one of the world’s poorest nations to the second-biggest economy on earth.

The reforms also paved the way for things like China’s trillion-dollar Belt and Road Initiative (BRI) — an ambitious infrastructural push aimed at expanding China’s political and economic influence internationally — and set the stage for the emergence of e-commerce and technology giants like Alibaba and Huawei.

‘Let some people get rich first’

It’s hard to imagine that almost 40 years ago, more than 88 per cent of China’s population lived on less than $US2 ($2.70) a day.

While the figure has dropped to less than 6 per cent in 2017, Jane Golley, acting director at Australian Centre on China in the World at the Australian National University (ANU), said the difference between the poor and rich is “dire”.

“China’s high-tech industries, artificial intelligence, genetic engineering, robotics, space and aviation … are becoming globally competitive and highly innovative enterprises that you just couldn’t conceived of two decades ago — obviously not four decades ago,” Dr Golley told the ABC.

“China is far from alone on inequality, but it is dire when you’ve got [so many] billionaires and you’re talking robotics, artificial intelligence and world’s largest companies and then you’ve got 84 million people living on under $US2 a day.”

However, experts widely agree that a key decision in 1978, to reform and open up the country, has steered China onto the path to prosperity.

On December 18, 1978, the Communist Party’s top decision-making body, the Central Committee, held its third plenum to lift the country out of the ruins left by Mao Zedong’s Cultural Revolution, where intellectuals and capitalists were publicly humiliated and shunned.

Mao Zedong died in 1976, opening up the opportunity for the Communist Party to reflect on the effects of communism and the Cultural Revolution.

Late paramount leader Deng Xiaoping was the chief engineer of the 1978 reforms and introduced the concept of the socialist market economy.

“Deng Xiaoping explicitly said that some people should be allowed to get rich first — very much not a Maoist line,” Martin Chorzempa, research fellow at the Peterson Institute for International Economics, told the ABC.

“[He was] essentially giving a political cover to say people should not feel it’s bad to become financially successful.”

Deng, who was officially the vice-premier of China, also developed the “one country, two systems” policy to reunify China during the early 1980s.

He said there would only be one China, but distinct Chinese regions, such as Hong Kong and Macau, could retain their own legal and economic systems, including trade relations with foreign countries.

‘Experimentation’ was critical

Mr Chorzempa said the way China’s reforms were carried out was, to a great extent, the source of its current prosperity.

“One of the critical elements of that has been experimentation — so they start with something small, learned from that pilot program, and might have multiple iterations of the same pilot program all throughout the country,” he said.

“They take the stuff that works and scale it up. And the stuff that doesn’t work, they stop doing.

“That really sets China apart from other countries which often don’t do this kind of evaluation of policies. China has continued to do this, and it’s been enormously successful.”

The experimentations started with the contracting of collectively owned land to households — a practice known as the household responsibility system — and was seen as the first break in the planned economy.

Another critical reform policy was the establishment of Special Economic Zones in a series of coastal areas such as Shenzhen and Xiamen, where foreign and domestic companies can trade and invest without the same red tape applied to other regions.

However, the reform had already been underway for almost two decades before Shanghai — now a global financial hub — began its dramatic transformation.

Professor Richard Rigby, Australia’s former consul-general in Shanghai, said the city had been “kept under very tight control” until the early 1990s.

“I think Shanghai was never really trusted by the Chinese Communist Party because of its murky past and all its international connections and the association with the development of capitalism in China,” said Professor Rigby, now the executive director of ANU’s China Institute.

“It was after they had the experience of having a number of places being allowed to develop … they got some confidence with the economic zones [and] the opening up.

“Then I think they reached a certain point where they decided the place with probably the greatest potential is going to be Shanghai, and so let her rip, and that’s what happened, and it really began.”

‘A rush to quickly build and quickly get rich’

The Pudong district of Shanghai, which was mainly farmland and industrial waterfront before the 1990s, was transformed by supertall skyscrapers and waves of new infrastructure including bridges, freeways and expanded subway systems.

“The place was utterly transformed,” Professor Rigby said.

“When I arrived at the beginning of 1994, the traffic was almost like Bangkok, you could scarcely move.

“When I left in 1998, although the amount of motorised traffic had increased three- or four-fold, it was actually flowing pretty well.”

However, the rapid development across the country has led to pollution issues, which increased with the development of manufacturing.

“The rush to build factories and construct new cities has led to a degraded environment, both from polluted soil that might mean the crops are no longer edible, to the now well-known pollution issues in cities like Beijing,” Mr Chorzempa said.

“Many of these centre cities with a lot of history have just been bulldozed to make room for faceless apartment towers because there was a rush to quickly build and quickly get rich.”

The state-owned enterprise reform — where inefficient companies were shut down en masse, and the remaining companies were restructured — triggered massive unemployment for millions of workers, devastating entire families.

According to China’s National Bureau of Statistics, about 60 million people lost their jobs across the country from public-owned companies and businesses from 1995 to 2002.

“Some of them went off and became billionaires, a lot of them never found employment again — women suffered disproportionately through that time,” Dr Golley said.

Many of the laid-off employees were also re-trained and re-employed by private domestic and international companies.

The economic reform also opened the country to foreign investment and lowered other trade barriers.

China’s admission to the World Trade Organisation in 2001 signalled its formal integration into the international market economy.

‘An incredible transformation’

Fast forward to 2018, China is now the biggest trading nation in the world.

Citing data from Australian Bureau of Statistics, James Laurenceson, deputy director of the Australia-China Relations Institute at the University of Technology Sydney, said China was now buying more than $120 billion worth of Australian goods and services every year.

That equates to about 6 per cent of Australia’s GDP, he said, adding that the “basket of goods” has expanded from iron to agriculture and services.

There is now also strong Chinese interest in Australian wine, beef, education and tourism.

Professor Laurenceson said it was “an incredible transformation” from 1978 when China was a closed economy.

In response to the trade war with the US, Chinese President Xi Jinping has recently vowed to “step up” moves to further open the economy through its BRI.

Qiang Wu, a former lecturer from Tsinghua University and an independent political commentator, said the country’s reform and opening up process could not continue without the BRI.

“[China] uses globalisation to strengthen the one-party dictatorship and authoritarianism with Chinese characteristics, which also reflects its international movement at the end of reform and opening up,” Dr Wu said.

He added that it was precisely the country’s adherence to the one-party system that helped the country avoid insurgency during the reform period.

Dr Golley added that China’s growth story has “brought the CCP legitimacy, but it won’t be sustainable if the worst off in society are not brought along for the ride”.

Topics: world-politics, government-and-politics, business-economics-and-finance, china, asia

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