Reforms after 1978 China in the World Economy, autumn 2022 Questions from last time • How was Maoism distinctive from Marxism and Leninism? Questions from last time • How was Maoism distinctive from Marxism and Leninism? • What is the doctrine of „democratic centralism?“ Name the most important institutions of the Chinese Communist Party. Questions from last time • How was Maoism distinctive from Marxism and Leninism? • What is the doctrine of „democratic centralism?“ Name the most important institutions of the Chinese Communist Party. • What are the supposed advantages of central planning? Questions from last time • How was Maoism distinctive from Marxism and Leninism? • What is the doctrine of „democratic centralism?“ Name the most important institutions of the Chinese Communist Party. • What are the supposed advantages of central planning? • Which sector of the economy did Communist governments typically tried to develop at the expense of which other sector? Questions from last time • How was Maoism distinctive from Marxism and Leninism? • What is the doctrine of „democratic centralism?“ Name the most important institutions of the Chinese Communist Party. • What are the supposed advantages of central planning? • Which sector of the economy did Communist governments typically tried to develop at the expense of which other sector? • Why did Chinese Communists undertake the Long March? Questions from last time • How was Maoism distinctive from Marxism and Leninism? • What is the doctrine of „democratic centralism?“ Name the most important institutions of the Chinese Communist Party. • What are the supposed advantages of central planning? • Which sector of the economy did Communist governments typically tried to develop at the expense of which other sector? • Why did Chinese Communists undertake the Long March? • When did China attempt to copy the Soviet model with Soviet aid? What happened to their relations then? Questions from last time • When did Japan launch a full-scale invasion of China? Questions from last time • When did Japan launch a full-scale invasion of China? • Name some reasons why the Communists won the civil war against the Nationalists Questions from last time • When did Japan launch a full-scale invasion of China? • Name some reasons why the Communists won the civil war against the Nationalists • When did China attempt to establish Soviet-style central planning with Soviet aid? Questions from last time • When did Japan launch a full-scale invasion of China? • Name some reasons why the Communists won the civil war against the Nationalists • When did China attempt to establish Soviet-style central planning with Soviet aid? • What was the CCP policy towards peasants until 1958? Today • Maoist social experiments • Reforms in the late 1970‘s and 1980‘s – transition towards a market economy • The Tiananmen interlude Literature „Great Leap Forward“ (1958-1962) • 1957: • Hundred Flowers Campaign – „you can criticize us without fear“ • 1957: • Hundred Flowers Campaign – „you can criticize us without fear“ • Anti-Rightist Campaign – another purge; full one-party state; led by Deng Xiaoping! „Great Leap Forward“ (1958-1962) • Basic idea – simultaneous progress in cities and the countryside „Great Leap Forward“ (1958-1962) • Basic idea – simultaneous progress in cities and the countryside • Local patriotic and ideological enthusiasm will replace Soviet-style centralized technocracy „Great Leap Forward“ (1958-1962) • Basic idea – simultaneous progress in cities and the countryside • Local patriotic and ideological enthusiasm will replace Soviet-style centralized technocracy • Local party leaders should heroically struggle to achieve great results „Great Leap Forward“ (1958-1962) • Basic idea – simultaneous progress in cities and the countryside • Local patriotic and ideological enthusiasm will replace Soviet-style centralized technocracy • Local party leaders should heroically struggle to achieve great results • Abolition of private land ownership, farms to be fused into large scale „village communes“ „Great Leap Forward“ (1958-1962) • Basic idea – simultaneous progress in cities and the countryside • Local patriotic and ideological enthusiasm will replace Soviet-style centralized technocracy • Local party leaders should heroically struggle to achieve great results • Abolition of private land ownership, farms to be fused into large scale „village communes“ • Small industrialization carried out by these village communes „Great Leap Forward“ (1958-1962) • Communes were supposed to produce their own steel „Great Leap Forward“ (1958-1962) • Communes were supposed to produce their own steel • „They probably have a lot of spare workers who aren‘t doing anything valuable, let‘s force them to work in manufacturing“ „Great Leap Forward“ (1958-1962) • Communes were supposed to produce their own steel • „They probably have a lot of spare workers who aren‘t doing anything valuable, let‘s force them to work in manufacturing“ • People fulfilled their quotas by melting down tools and reforging them into useless, low-quality iron „Great Leap Forward“ (1958-1962) • Unrealistic production quotas > all the food was forcibly confiscated „Great Leap Forward“ (1958-1962) • Unrealistic production quotas > all the food was forcibly confiscated • Biggest famine in China‘s history – 30 million deaths „Great Leap Forward“ (1958-1962) • The program had to be called off in 1962 „Agriculture first“ (1962-1966) • Intermezzo - more pragmatic policies aimed at repairing the damage „Agriculture first“ (1962-1966) • Intermezzo - more pragmatic policies aimed at repairing the damage • Less ideology, more management • Material rewards „Agriculture first“ (1962-1966) • > alleviate the hunger and poverty of rural villages > higher prices for agricultural products „Agriculture first“ (1962-1966) • > alleviate the hunger and poverty of rural villages > higher prices for agricultural products • Industrial firms – mostly remained under local control, but run in a more professional manner „Agriculture first“ (1962-1966) • > alleviate the hunger and poverty of rural villages > higher prices for agricultural products • Industrial firms – mostly remained under local control, but run in a more professional manner • Basic economic model until 1978 „Agriculture first“ (1962-1966) • Except for the first Five Year plan, China never had true Soviet-style central planning „Agriculture first“ (1962-1966) • Except for the first Five Year plan, China never had true Soviet-style central planning • Decision making was divided between different levers of party and government „Agriculture first“ (1962-1966) • Except for the first Five Year plan, China never had true Soviet-style central planning • Decision making was divided between different levers of party and government • Typically, many enterprises were controlled on the provincial level etc. „Agriculture first“ (1962-1966) • Except for the first Five Year plan, China never had true Soviet-style central planning • Decision making was divided between different levers of party and government • Typically, many enterprises were controlled on the provincial level etc. • > opaque system, it is difficult to say who is in charge of what Cultural Revolution (1966-1976) • Mao was partially discredited by the Great Leap Forward and faced opposition inside the party (Deng Xiaoping) Cultural Revolution (1966-1976) • Mao was partially discredited by the Great Leap Forward and faced opposition inside the party (Deng Xiaoping) • Attempt to turn Mao into a mere figurehead and create a more technocratic and collective leadership Cultural Revolution (1966-1976) • Mao was partially discredited by the Great Leap Forward and faced opposition inside the party (Deng Xiaoping) • Attempt to turn Mao into a mere figurehead and create a more technocratic and collective leadership • Abroad – deconstruction of Stalin‘s cult of personality, more „boring“ and less bloody rule in the USSR Cultural Revolution (1966-1976) • Cultural Revolution – attack on intellectuals and party bureaucrats – Mao‘s opponents Cultural Revolution (1966-1976) • Cultural Revolution – attack on intellectuals and party bureaucrats – Mao‘s opponents • Officially: attempt to prevent the Communist party from becoming a new elite – permanent revolution Cultural Revolution (1966-1976) • Red Brigades – groups of fanatical young comrades Cultural Revolution (1966-1976) • Red Brigades – groups of fanatical young comrades > attacks on „bourgeois elements“ etc., taking over of factories Cultural Revolution (1966-1976) • Red Brigades – groups of fanatical young comrades > attacks on „bourgeois elements“ etc., taking over of factories • Destruction of Chinese cultural heritage („old thinking“) Cultural Revolution (1966-1976) • Red Brigades – groups of fanatical young comrades > attacks on „bourgeois elements“ etc., taking over of factories • Destruction of Chinese cultural heritage („old thinking“) • „Sending down“ – young intellectuals sent to work in villages > waste of talent and potential Cultural Revolution (1966-1976) • Red Brigades – groups of fanatical young comrades > attacks on „bourgeois elements“ etc., taking over of factories • Destruction of Chinese cultural heritage („old thinking“) • „Sending down“ – young intellectuals sent to work in villages > waste of talent and potential • „Self-criticism“ – public humiliation and torture Cultural Revolution (1966-1976) • 1968 – the army had to move in to rein in the Red Brigades Cultural Revolution (1966-1976) • Officially no major change to the economic model – but omnipresent chaos and radicalism Cultural Revolution (1966-1976) • Officially no major change to the economic model – but omnipresent chaos and radicalism • Mao‘s final years (1970-76) – the situation slowly calmed down • “Had Mao died in 1956, his achievements would have been immortal. Had he died in 1966, he would still have been a great man but flawed. But he died in 1976. Alas, what can one say?” Mao‘s final years • Power struggle between pragmatists (Deng and Zhou Enlai) and hardcore Maoists (Gang of Four – Mao‘s wife) Mao‘s final years • Power struggle between pragmatists (Deng and Zhou Enlai) and hardcore Maoists (Gang of Four – Mao‘s wife) • Material incentives and focus on economic performance vs. ideological purity and revolutionary zeal Mao‘s final years • Power struggle between pragmatists (Deng and Zhou Enlai) and hardcore Maoists (Gang of Four – Mao‘s wife) • Material incentives and focus on economic performance vs. ideological purity and revolutionary zeal • Both Mao and Zhou died in 1976 Interregnum • Deng‘s faction emerged victorious in 1978 Interregnum • Deng‘s faction emerged victorious in 1978 • „Gang of Four“ – blamed for the excesses of the Cultural Revolution so that Mao himself could be absolved of all responsibility Interregnum • Deng‘s faction emerged victorious in 1978 • „Gang of Four“ – blamed for the excesses of the Cultural Revolution so that Mao himself could be absolved of all responsibility • Public celebrations and manifestations - a start of a trend that continued into the 1980s Results of Maoism • Success in decreasing extreme poverty, illiteracy, child mortality Results of Maoism • Success in decreasing extreme poverty, illiteracy, child mortality • Growth from a very low starting point + ability to mobilize and direct resources > some basic industrialization Results of Maoism • Success in decreasing extreme poverty, illiteracy, child mortality • Growth from a very low starting point + ability to mobilize and direct resources > some basic industrialization • Great power status abroad 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 • Cities – complete state ownership, zero room for enterprise • = not centers of commerce but bastions of the Party China‘s situation in 1978 • 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 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 China‘s situation in 1978 • How does a country gain foreign exchange? • Export! • Loans > dangerous debt denominated in a foreign currency China‘s situation in 1978 • How does a country gain foreign exchange? • Export! • Loans > dangerous debt denominated in a foreign currency • Currency markets – weakens the currency 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 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 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“ 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.) 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! The Tiananmen interlude • The ability of the CCP to brutally crush the protest movement and get away with it without a wider uprising / civil war is a testament to the robustness of its power The Tiananmen interlude • The ability of the CCP to brutally crush the protest movement and get away with it without a wider uprising / civil war is a testament to the robustness of its power • Meanwhile – demoralized Communist regimes in Eastern Europe collapsed with barely a whimper… Next time • Continuing reforms in the 1990s • The early 2000s – China‘s most capitalist moment • The fallout from the 2008 Financial Crisis • Xi Jinping, China‘s technological ambitions