Reforms after 1978 China in the World Economy, autumn 2021 Questions from last time •How was Maoism distinctive from Marxism and Leninism? Questions from last time •How was Maoism distinctive from Marxism and Leninism? •Which sector of the economy did the Communists try to develop at the expense of which other sector? Questions from last time •How was Maoism distinctive from Marxism and Leninism? •Which sector of the economy did the Communists try to develop at the expense of which other sector? •When did China attempt to copy the Soviet model with Soviet aid? What happened to their relations then? • Questions from last time •How was Maoism distinctive from Marxism and Leninism? •Which sector of the economy did the Communists try to develop at the expense of which other sector? •When did China attempt to copy the Soviet model with Soviet aid? What happened to their relations then? •Was the Great Leap Forward an example of central planning? Questions from last time •How was Maoism distinctive from Marxism and Leninism? •Which sector of the economy did the Communists try to develop at the expense of which other sector? •When did China attempt to copy the Soviet model with Soviet aid? What happened to their relations then? •Was the Great Leap Forward an example of central planning? •How did China‘s economic model in the 1960‘s and 1970‘s differ from the Soviet model? • Today •Reforms in the late 1970‘s and 1980‘s •The Tiananmen interlude •Continuing reforms in the 1990‘s and 2000s •Opening up to foreign trade, export-led growth •Until circa the Financial crisis Literature • Obsah obrázku text, voda, loďka, vodní skútr Popis byl vytvořen automaticky • Obsah obrázku osoba, muž, vázanka, interiér Popis byl vytvořen automaticky Obsah obrázku text, voda, loďka, vodní skútr Popis byl vytvořen automaticky Obsah obrázku osoba, muž, vázanka, interiér Popis byl vytvořen automaticky Obsah obrázku osoba, muž, vázanka, zeď Popis byl vytvořen automaticky The end of Maoism •1976 – Mao dies > power vacuum •Prolonged struggle for power – intrigues, demonstrations! The end of Maoism •1976 – Mao dies > power vacuum •Prolonged struggle for power – intrigues, demonstrations! •The faction around Deng Xiaoping emerges victorious two years later and announces a series of economic reforms •Gang of Four condemned, Mao kept as a symbol • Obsah obrázku osoba, lidé, stojící, oblek Popis byl vytvořen automaticky China‘s situation in 1978 •GDP per capita – similar to India and sub-Saharan Africa •Overpopulation China‘s situation in 1978 •GDP per capita – similar to India and sub-Saharan Africa •Overpopulation •The Party itself was ravaged by years of purges •> bad economic data! •Some excellent centers of learning and science – but small, isolated, decimated by the Cultural Revolution China‘s situation in 1978 •Unhealthy focus on heavy industry and military technologies China‘s situation in 1978 •Unhealthy focus on heavy industry and military technologies •Cities – complete state ownership, zero room for enterprise •= not centers of commerce but bastions of the Party China‘s situation in 1978 •Unhealthy focus on heavy industry and military technologies •Cities – complete state ownership, zero room for enterprise •= not centers of commerce but bastions of the Party •Rural areas – somewhat looser rule, farmers were sometimes allowed to de facto own plots of land •Most of the land was still collective, though • China‘s situation in 1978 •Foreign trade – extreme isolation, focus on autarky China‘s situation in 1978 •Foreign trade – extreme isolation, focus on autarky •Result of the break with the USSR China‘s situation in 1978 •Foreign trade – extreme isolation, focus on autarky •Result of the break with the USSR in the 1960s China‘s situation in 1978 •Foreign trade – extreme isolation, focus on autarky •Result of the break with the USSR in the 1960s •„Double air-lock“ – tight control of both currency and the movement of goods China‘s situation in 1978 •Foreign trade – extreme isolation, focus on autarky •Result of the break with the USSR in the 1960s •„Double air-lock“ – tight control of both currency and the movement of goods •12 monopoly state trading-enterprises – bridges between China‘s regulated prices and the world market China‘s situation in 1978 •Need to import technology •= machines and the know-how embodied in them (= capital goods) China‘s situation in 1978 •Need to import technology •= machines and the know-how embodied in them (= capital goods) •> reverse engineering • China‘s situation in 1978 •Need to import technology •= machines and the know-how embodied in them (= capital goods) •> reverse engineering •It would be ideal to purchase whole assembly lines etc. China‘s situation in 1978 •Need to import technology •= machines and the know-how embodied in them (= capital goods) •> reverse engineering •It would be ideal to purchase whole assembly lines etc. •Problem – need for foreign exchange (dollars, yens, pounds) • China‘s situation in 1978 •How does a country gain foreign exchange? • China‘s situation in 1978 •How does a country gain foreign exchange? •Export! • China‘s situation in 1978 •How does a country gain foreign exchange? •Export! •Developing countries – food, natural resources, textiles • • China‘s situation in 1978 •How does a country gain foreign exchange? •Export! •Developing countries – food, natural resources, textiles •China – barely above subsistence > „What can we export?“ • China‘s situation in 1978 •How does a country gain foreign exchange? •Export! •Developing countries – food, natural resources, textiles •China – barely above subsistence > „What can we export?“ •Oil (!) • China‘s situation in 1978 •How does a country gain foreign exchange? •Export! •Developing countries – food, natural resources, textiles •China – barely above subsistence > „What can we export?“ •Oil (!) > then we can afford to purchase equipment from Western Europe and Japan • China‘s situation in 1978 •How does a country gain foreign exchange? •Export! •Developing countries – food, natural resources, textiles •China – barely above subsistence > „What can we export?“ •Oil (!) > then we can afford to purchase equipment from Western Europe and Japan •Oil production didn‘t work out > need boost other exports • • China‘s situation in 1978 •„averted oil curse“ – lack of oil production forced China into reforms that led to far more significant growth than oil could ever deliver Reforms - agriculture •Major overhaul of the rural economy •Huang – the most significant and drastic reform Reforms - agriculture •Major overhaul of the rural economy •Most collective land was distributed back among the peasants (= what they hoped for in 1949!) Reforms - agriculture •Major overhaul of the rural economy •Most collective land was distributed back among the peasants (= what they hoped for in 1949!) •Legalization of enterprise > farmers can further process their products – turn cotton into clothes, or milk into yogurt, etc. Reforms - agriculture •Major overhaul of the rural economy •Most collective land was distributed back among the peasants (= what they hoped for in 1949!) •Legalization of enterprise > farmers can further process their products – turn cotton into clothes, or milk into yogurt, etc. •> „township and village enterprises“ (TVEs) – formally public, de facto usually private Reforms - agriculture •Major overhaul of the rural economy •Most collective land was distributed back among the peasants (= what they hoped for in 1949!) •Legalization of enterprise > farmers can further process their products – turn cotton into clothes, or milk into yogurt, etc. •> „township and village enterprises“ (TVEs) – formally public, de facto usually private •Local banks and funds – collection of savings, investment Reforms - agriculture •Rural sector – became far more commercial than the cities during the 1980‘s! •Poverty alleviation, lifting people out of agriculture Reforms - agriculture •Rural sector – became far more commercial than the cities during the 1980‘s! •Poverty alleviation, lifting people out of agriculture •Small-scale industrialization – (what the Great Leap Forward hoped for!) Reforms - agriculture •Rural sector – became far more commercial than the cities during the 1980‘s! •Poverty alleviation, lifting people out of agriculture •Small-scale industrialization – (what the Great Leap Forward hoped for!) •Rural areas were no longer squeezed for cash by the state Reforms - agriculture •Rural sector – became far more commercial than the cities during the 1980‘s! •Poverty alleviation, lifting people out of agriculture •Small-scale industrialization – (what the Great Leap Forward hoped for!) •Rural areas were no longer squeezed for cash by the state •Some successful entrepreneurs moved into the cities Reforms – urban areas •„Dual-prices“ Reforms – urban areas •„Dual-prices“ – state-owned enterprises (SOEs) must fulfill the plan, then they can sell any surplus products and keep the profits Reforms – urban areas •„Dual-prices“ – state-owned enterprises (SOEs) must fulfill the plan, then they can sell any surplus products and keep the profits •> official prices within the plan + market prices Reforms – urban areas •„Dual-prices“ – state-owned enterprises (SOEs) must fulfill the plan, then they can sell any surplus products and keep the profits •> official prices within the plan + market prices •Typical style of reforms – a university or research center can start an enterprises and commercialize some invention made there Reforms – urban areas •„Dual-prices“ – state-owned enterprises (SOEs) must fulfill the plan, then they can sell any surplus products and keep the profits •> official prices within the plan + market prices •Typical style of reforms – a university or research center can start an enterprises and commercialize some invention made there •Far fewer true private enterprises than in the countryside! •Few privatizations – the private sector grew next to the state sector Reforms – urban areas •Increased motivation and production •Significant corruption – typical result of intermingling of private and public resources and interests • • Reforms – foreign trade •Special economic zones (SEZs) Reforms – foreign trade •Special economic zones (SEZs) •– Goungdong and Fujien •= close to Hong Kong and Taiwan Obsah obrázku mapa Popis byl vytvořen automaticky Reforms – foreign trade •Special economic zones (SEZs) •– Goungdong and Fujien •= close to Hong Kong and Taiwan •HK had bigger exports that all of China in 1978 (!) Reforms – foreign trade •Special economic zones (SEZs) •= special legal regime allowing the use cheap Chinese labour force to work for Taiwanese and HK companies Reforms – foreign trade •Special economic zones (SEZs) •= special legal regime allowing the use cheap Chinese labour force to work for Taiwanese and HK companies •Textile industry, later more sophisticated products – electronics Reforms – foreign trade •Special economic zones (SEZs) •= special legal regime allowing the use cheap Chinese labour force to work for Taiwanese and HK companies •Textile industry, later more sophisticated products – electronics •FDI, export Reforms – foreign trade •Not a major source of growth in the 1980s! •The economy was still relatively closed, most trade was domestic Reforms – foreign trade •Not a major source of growth in the 1980s! •The economy was still relatively closed, most trade was domestic •Trade with HK and Taiwan raised revenue necessary to finance imports Reforms – foreign trade •Not a major source of growth in the 1980s! •The economy was still relatively closed, most trade was domestic •Trade with HK and Taiwan raised revenue necessary to finance imports •„Export processing“ – all the stuff Taiwanese companies make in China has to be exported Reforms – foreign trade •Not a major source of growth in the 1980s! •The economy was still relatively closed, most trade was domestic •Trade with HK and Taiwan raised revenue necessary to finance imports •„Export processing“ – all the stuff Taiwanese companies make in China has to be exported – so it does not compete with Chinese companies The Tiananmen interlude •1980s- discussion about political reform •Deng – „party elder“ – informal influence •Desire to separate the Party and the state, introduce term-limits for officials • The Tiananmen interlude •1980s- discussion about political reform •Deng – „party elder“ – informal influence •Desire to separate the Party and the state, introduce term-limits for officials •Feud between reformists and „conservatives“ – unreconstructed Maoists over both economic and political reforms • The Tiananmen interlude •1980s- discussion about political reform •Deng – „party elder“ – informal influence •Desire to separate the Party and the state, introduce term-limits for officials •Feud between reformists and „conservatives“ – unreconstructed Maoists over both economic and political reforms •General Secretary – Hu Yaobang, followed by Zhao Ziyang – both favored some form of political liberalization • • The Tiananmen interlude •Hu – dismissed because of pressure of conservatives in 1987 •Died in early 1989 •Demonstrations in large Chinese cities – calls for more political reforms (also economic demands – lower inequality etc.) • • Obsah obrázku text, obloha, exteriér, lidé Popis byl vytvořen automaticky The Tiananmen interlude •CCP – more behind the scenes infighting The Tiananmen interlude •CCP – more behind the scenes infighting •General Secretary Zhao – supported the protesters •Prime minister Li – favored a harsh crackdown The Tiananmen interlude •CCP – more behind the scenes infighting •General Secretary Zhao – supported the protesters •Prime minister Li – favored a harsh crackdown •Deng (chairman of the military committee!) – undecided, in the end he reluctantly joined the conservatives The Tiananmen interlude •CCP – more behind the scenes infighting •General Secretary Zhao – supported the protesters •Prime minister Li – favored a harsh crackdown •Deng (chairman of the military committee!) – undecided, in the end he reluctantly joined the conservatives •> martial law, army units gathered around Beijing •„June the 4th incident“ – massacre of protesters The Tiananmen interlude •CCP – more behind the scenes infighting •General Secretary Zhao – supported the protesters •Prime minister Li – favored a harsh crackdown •Deng (chairman of the military committee!) – undecided, in the end he reluctantly joined the conservatives •> martial law, army units gathered around Beijing •„June the 4th incident“ – massacre of protesters •Followed by (less violent) crackdowns in other cities The Tiananmen interlude •Party conservatives led by Li Peng seized power, Zhao dismissed – spent the rest of his life under house arrest •Attempt to overturn the economic reforms – central planning briefly reinstated! • Return to reform and opening up •1992 – Deng‘s Southern Tour > push for reviving the reforms Obsah obrázku osoba, skupina, lidé, dav Popis byl vytvořen automaticky Return to reform and opening up •1992 – Deng‘s Southern Tour > push for reviving the reforms •New party leadership – Jiang Zenmin and Zhu Rongji – reliable party loyalists •Jiang and Zhu – from Shanghai – very conservative during the 1980s, almost no liberalization! Obsah obrázku oblek, oblečení, osoba, oblečený Popis byl vytvořen automaticky Return to reform and opening up •1992 – Deng‘s Southern Tour > push for reviving the reforms •New party leadership – Jiang Zenmin and Zhu Rongji – reliable party loyalists •Jiang and Zhu – from Shanghai – very conservative during the 1980s, almost no liberalization! •Return to a pro-market policy, but with more cautious approach than in the 1980s – fear of another Tiananmen • Return to reform and opening up •Focus on gradually reforming the urban economy – again at the expense of the countryside! • • Return to reform and opening up •Focus on gradually reforming the urban economy – again at the expense of the countryside! •Higher taxes in for rural farmers and entrepreneurs > more inequality between cities and villages •Increased rural illiteracy! • Return to reform and opening up •Focus on gradually reforming the urban economy – again at the expense of the countryside! •Higher taxes in for rural farmers and entrepreneurs > more inequality between cities and villages •Increased rural illiteracy! •Resources invested in urban areas • • Return to reform and opening up •Focus on advanced technologies and large projects Return to reform and opening up •Focus on advanced technologies and large projects •Sophisticated infrastructure – high speed trains connecting major cities Return to reform and opening up •Focus on advanced technologies and large projects •Sophisticated infrastructure – high speed trains connecting major cities •SOEs transformed into joint-stock companies, but the Party usually retains the controlling voting block Return to reform and opening up •Focus on advanced technologies and large projects •Sophisticated infrastructure – high speed trains connecting major cities •SOEs transformed into joint-stock companies, but the Party usually retains the controlling voting block •Industrial policy –– „national champions“ – support of highly advanced companies such as Huawei – attempts to push them to the global cutting edge Return to reform and opening up •„Letting go of the small“ – small companies can be privatized and left to their own devices •If they go bankrupt, who cares? Return to reform and opening up •The state must nurture the big ones > economies of scale, export, prestige…. Return to reform and opening up •The state must nurture the big ones > economies of scale, export, prestige…. •Largest firms – monopolistic construction companies (housing, infrastructure, electrical grid) - remained as SOEs Return to reform and opening up •The state must nurture the big ones > economies of scale, export, prestige…. •Largest firms – monopolistic construction companies (housing, infrastructure, electrical grid) - remained as SOEs •Financial sector (banks) – continues to be overwhelmingly state owned Return to reform and opening up •The state must nurture the big ones > economies of scale, export, prestige…. •Largest firms – monopolistic construction companies (housing, infrastructure, electrical grid) - remained as SOEs •Financial sector (banks) – continues to be overwhelmingly state owned •> Chinese foreign investment is based on state-owned capital! Return to reform and opening up •Stunning growth of major cities •– shiny skyscrapers in downtown Shanghai etc •> overawed foreign visitors • Return to reform and opening up •Problems – large rate of investment, relatively small growth of consumption Return to reform and opening up •Problems – large rate of investment, relatively small growth of consumption •= huge growth, but you can‘t enjoy its fruit, new wealth is immediately reinvested • Return to reform and opening up •Focus on foreign direct investment (FDI) and export – integrating China into the world economy Return to reform and opening up •Focus on foreign direct investment (FDI) and export – integrating China into the world economy •x 1980s – mostly homegrown growth Return to reform and opening up •Focus on foreign direct investment (FDI) and export – integrating China into the world economy •x 1980s – mostly homegrown growth •FDI = source of foreign technologies •Push to attract investors – financial incentives, offer of access to China‘s already huge market Return to reform and opening up •Focus on foreign direct investment (FDI) and export – integrating China into the world economy •x 1980s – mostly homegrown growth •FDI = source of foreign technologies •Push to attract investors – financial incentives, offer of access to China‘s already huge market •Subcontractors, joint-ventures – investors need to commit themselves to transfer their know-how to Chinese counterparts Return to reform and opening up •Focus on foreign direct investment (FDI) and export – integrating China into the world economy •x 1980s – mostly homegrown growth •FDI = source of foreign technologies •Push to attract investors – financial incentives, offer of access to China‘s already huge market •Subcontractors, joint-ventures – investors need to commit themselves to transfer their know-how to Chinese counterparts •Sometimes outright IP theft Return to reform and opening up •> support for large, semi-state companies + foreign capital; indifference to small businesses • Return to reform and opening up •> support for large, semi-state companies + foreign capital; indifference to small businesses • •> best strategy for Chinese companies – get incorporated in Hong Kong, then do business in China as a foreign company Next time •Xi Jinping, China‘s technological ambitions