Home » 9th Season (2021-2022) » 2021-2022 v.03 (May) » An Analysis of Modern Chinese Economic Policy Progression and Reform

An Analysis of Modern Chinese Economic Policy Progression and Reform

By Thomas Li, VI Form

An Analysis of Modern Chinese Economic Policy Progression and Reform

In the fall of 1944, a boy was born in Guizhou, China, one of the most impoverished parts of the war-torn country. His father had secretly joined the Chinese Communist Party while in college. However, he worked in a Kuomintang (KMT), which was China’s ruling party before the communist takeover in 1949, enterprise in Nanjing before escaping to rural Guizhou due to KMT spies’ suspicions about his communist affiliation. In Guizhou, he became a math teacher and eventually a head of school. In 1958, the Great Leap Forward began. It was a political movement centered around economic collectivization, but it resulted in widespread famine. In the boy’s family of nine, his father strictly rationed food for every meal so that, although nobody was free from hunger, everybody survived. Things were so desperate that the boy and his siblings searched for tree bark and plant roots for the family to eat. 

Relief finally came in 1963 when the boy, who did well in school, went off to study engineering in a Chongqing college. But this relief was short-lived. Upon the onset of the Cultural Revolution (an anti-capitalist political campaign), he received news that the Red Guards, a youth group that enforced the Cultural Revolution, searched his home and labeled his father a “capitalist-roader” due to his past KMT ties, despite seeing that the family was so impoverished that everyone slept on rice straw. The Red Guards paraded his father down the streets so people could publicly humiliate him. With colleges shutting down due to the Cultural Revolution, the boy, hoping to support his father in person, boarded a train back home. Yet, the Red Guards on the train ordered him off and had him walk back home simply because his father was a teacher–who had knowledge as opposed to the working class–thus a man with a “capitalist background.” 

Back home, his father had to sleep in the bullpen to receive public criticism, barely managing to stay alive. Yet he persuaded the boy to go back to college, where he self-studied subjects ranging from computer engineering to philosophy as the majority of teachers had been dismissed by Red Guards. Upon graduation in 1970, the boy fulfilled his required stint in the army as an engineer. He was tasked with setting up a chemical factory to make textile fibers in northeast China, part of the communist government’s plans to ensure every citizen had at least one decent piece of clothing. By 1978, when the factory was up and running, China entered a new phase of economic development—the Reform and Opening (R&O), a series of economic reforms that aimed to transform the Chinese economy from one that was centrally planned into one that was market-oriented. Under the new political environment, the boy, now a full-grown man, quit the army in 1982 to join his wife in Shenzhen, a special economic zone pioneering in market reform. Along with his wife, they worked as executives at the Southern Oil Group, a state-owned real estate development entity. Having lost two million CNY (roughly equivalent to 30 million USD in 2021) of company funds to fraud and unsatisfied with the lackadaisical regimen of the bureaucratic state-owned enterprises, the man quit his job, divorced his wife, and started living in a 200 square foot rental unit. 

Under R&O, as China was rapidly catching up with the Western, developed countries, the man saw an opportunity in assembling and selling telecommunication modules, something he studied in college. With the new support for private enterprises and the development of modern corporate market structures in China, he founded Huawei with his partners in his small rental unit. The company had an initial capitalization of less than 3,000 USD. With continuous economic reform and opening, Huawei grew into a global telecommunication giant competing against Cisco. The boy who once had to eat tree bark in order to survive, Ren Zhengfei,  became one of the wealthiest men in the world.

Extraordinary as his story may sound, Ren was not alone. He represented millions of others who were similarly transformed during the Reform and Opening as a result of economic liberalization. Having increased the Chinese GDP per capita by 458% in real terms from 379 CNY in 1978 to 7078 CNY in 2000 and lifting more than 850 million people out of poverty, the R&O was one of the most remarkable economic transformations in the world. Given the scale of this accomplishment, it is not surprising that many people attribute the success of China’s economic growth to the Chinese government. However, the history of Chinese economic policies since the founding of Communist China in 1949 reveals a more nuanced process. In the decades before R&O, CCP’s policies on economic collectivization and its reluctance to adopt efficient economic measures due to ideological obstacles significantly hindered Chinese economic growth. Fundamentally, R&O is not an innovative reform but a CCP’s attempt to self-correct and remedy its past failures by returning to a market economy. But during the reform, the openness, pragmatism, and unwavering commitment to fostering economic growth that Deng Xiaoping and other liberal politicians held created a historically unmatched momentum for development that gives R&O a special place in history. This momentum inspired government officials and individuals to make bold trials, which was the real driver of change as many effective economic policies during this period originated from the bottom up: economic practices started within legal gray zones, and the official policies followed them. However, even under this liberal atmosphere, conservative pushback within the Party still managed to slow the pace and thoroughness of reform, undermining the strength of the Chinese market economic foundation.

Click HERE to read Thomas’s full Fellowship paper

Thomas Li is a VI Form boarding student.

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