Changing China: Economic Reforms
Improving relations with the outside world was the second of two important philosophical shifts outlined in Deng's program of reform termed
Gaige Kaifang (
lit. Reforms and Openness). The domestic social, political, and most notably, economic systems would undergo significant changes during Deng's time as leader. The goals of Deng's reforms were summed up by the
Four Modernizations, those of agriculture, industry, science and technology and the military.
The strategy for achieving these aims of becoming a modern, industrial nation was the
socialist market economy. Deng argued that China was in the primary stage of
socialism and that the duty of the party was to perfect so-called "
socialism with Chinese characteristics." This interpretation of
Chinese Marxism reduced the role of ideology in economic decision-making and deciding policies of proven effectiveness. Downgrading communitarian values but not necessarily the ideology of Marxism-Leninism himself, Deng emphasized that "socialism does not mean shared poverty". His theoretical justification for allowing market forces was given as such:
Planning and market forces are not the essential difference between socialism and capitalism. A planned economy is not the definition of socialism, because there is planning under capitalism; the market economy happens under socialism, too. Planning and market forces are both ways of controlling economic activity."
Unlike
Hua Guofeng, Deng believed that no policy should be rejected outright simply because it was not associated with Mao, and unlike more conservative leaders such as
Chen Yun, Deng did not object to policies on the grounds that they were similar to ones which were found in capitalist nations.
This political flexibility towards the foundations of
socialism is strongly supported by quotes such as:
We mustn't fear to adopt the advanced management methods applied in capitalist countries (...) The very essence of socialism is the liberation and development of the productive systems (...) Socialism and market economy are not incompatible (...) We should be concerned about right-wing deviations, but most of all, we must be concerned about left-wing deviations."
Although Deng provided the theoretical background and the political support to allow economic reform to occur, it is in general consensus amongst historians that few of the economic reforms that Deng introduced were originated by Deng himself. Premier Zhou Enlai, for example, pioneered the Four Modernizations years before Deng. In addition, many reforms would be introduced by local leaders, often not sanctioned by central government directives. If successful and promising, these reforms would be adopted by larger and larger areas and ultimately introduced nationally. Many other reforms were influenced by the experiences of the
East Asian Tigers.
This is in sharp contrast to the pattern in the
perestroika undertaken by
Mikhail Gorbachev in which most of the major reforms were originated by Gorbachev himself. The bottom-up approach of the Deng reforms, in contrast to the top-down approach of
perestroika, was likely a key factor in the success of the former.
Deng's reforms actually included the introduction of planned, centralized management of the macro-economy by technically proficient bureaucrats, abandoning Mao's mass campaign style of economic construction. However, unlike the Soviet model, management was indirect through market mechanisms.
Deng sustained Mao's legacy to the extent that he stressed the primacy of agricultural output and encouraged a significant decentralization of decision making in the rural economy teams and individual peasant households. At the local level, material incentives, rather than political appeals, were to be used to motivate the labor force, including allowing peasants to earn extra income by selling the produce of their private plots at free market.
In the main move toward market allocation, local municipalities and provinces were allowed to invest in industries that they considered most profitable, which encouraged investment in light manufacturing. Thus, Deng's reforms shifted China's development strategy to an emphasis on light industry and export-led growth.
Light industrial output was vital for a developing country coming from a low capital base. With the short gestation period, low capital requirements, and high foreign-exchange export earnings, revenues generated by light manufacturing were able to be reinvested in more technologically-advanced production and further capital expenditures and investments.
However, in sharp contrast to the similar but much less successful reforms in
Yugoslavia and
Hungary, these investments were not government mandated. The capital invested in heavy industry largely came from the banking system, and most of that capital came from consumer deposits. One of the first items of the Deng reforms was to prevent reallocation of profits except through taxation or through the banking system; hence, the reallocation in state-owned industries was somewhat indirect, thus making them more or less independent from government interference. In short, Deng's reforms sparked an industrial revolution in China.
These reforms were a reversal of the Maoist policy of economic self-reliance. China decided to accelerate the modernization process by stepping up the volume of foreign trade, especially the purchase of machinery from
Japan and the West. By participating in such export-led growth, China was able to step up the Four Modernizations by attaining certain foreign funds, market, advanced technologies and management experiences, thus accelerating its economic development.
Deng attracted foreign companies to a series of
Special Economic Zones, where foreign investment and market liberalization were encouraged.
The reforms centered on improving labor productivity as well. New material incentives and bonus systems were introduced. Rural markets selling peasants' homegrown products and the surplus products of communes were revived. Not only did rural markets increase agricultural output, they stimulated industrial development as well. With peasants able to sell surplus agricultural yields on the open market, domestic consumption stimulated industrialization as well and also created political support for more difficult economic reforms.
There are some parallels between Deng's market socialism especially in the early stages, and Lenin's
New Economic Policy as well as those of
Bukharin's economic policies, in that both foresaw a role for private entrepreneurs and markets based on trade and pricing rather than central planning.
An interesting anecdote on this note is the first meeting between Deng and
Armand Hammer. Deng pressed the industrialist and former investor in Lenin's Soviet Union for as much information on the NEP as possible.