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SEPTEMBER 24, 1999 VOL. 25 NO. 38
Long March to Sanity
China endured economic folly before Deng's reforms brought prosperity - and challenges
By CESAR BACANI and DAVID HSIEH Beijing
ALSO IN ASIAWEEK
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Today, He can buy all the garments he wants with his pension from Beijing Department Store, which also reimburses his medical bills. His grandchildren can find denim jeans and designer shirts in innumerable market stalls and soon in grandpa's old employer - the emporium will be as sleek and well-stocked as any in Asia after its renovation this year. Not that He is splurging. Like others in China, he worries about lost jobs and cutbacks on retirement benefits as the government restructures state enterprises and the banking system. He isn't sure whether his homeland's impending membership in the World Trade Organization is a good thing. He frets about corruption, the gap between rich and poor - and the social volcano that may erupt if these issues are not addressed.
But one thing is sure. The coupon system is not about to return. China's command economy is dead. For more than half of the past 50 years, politics and ideology determined the country's economics. Mao Zedong pushed the nation into communism's cul-de-sac. Later, Deng Xiaoping charted a capitalistic course toward unprecedented prosperity. In the process, Chinese economics has acquired its own imperatives. Deng's equally pragmatic successors agree with the late patriarch's mantra: "Development is the hard truth. Plans and markets are only economic means. They do not form the fundamental distinction between socialism and capitalism."
It has been a long march - and the road ahead is longer still. After millennia of feudal rule, China in the first half of the 20th century was sapped by warlordism, foreign invasion and civil war. To finance the fight against Mao and the Communists, the Kuomintang printed money and rendered the yuan virtually worthless. By the time the Communists took power in 1949, the economy was so devastated that toting up numbers was impossible. Statistics began to be collected only in 1952, just as postwar reconstruction and the taming of consumer prices were making headway.
That year, China estimated its GDP at 67.9 billion yuan, with per capita income at 80 yuan. At the end of 1998, the government said GDP had topped 7.9 trillion yuan (nearly $1 trillion). It reported nominal per-capita income of some 6,500 yuan ($783, 2.5% of America's). China's economy grew by 7.7% per annum from 1952 to 1998. Under Deng's reforms, the last 20 years saw average annual growth rate surge to 9.8%. (A caveat: While agreeing with the upward trend, many foreign analysts believe GDP growth is probably not as towering as Beijing says, because reporting local units are rarely willing to disappoint the central government.)
There have been periods of famine and upheaval. Two years after Communist rule in 1949, Mao's No. 2, Liu Shaoqi, called on the people to "Struggle for the Consolidation of the New Democracy." He urged capitalists to build factories and not worry about government intervention. In the countryside, following wholesale land reform, he argued for a go-slow program for rural collectivization and a "rich peasant" policy. Liu envisaged a 20-year-plus period of prolonged reconstruction and gradual socialist transformation. Mao, who conceived of the New Democracy policy during the civil war, was enthusiastic.
He changed his mind in 1953. At a Politburo meeting, he declared that the main task was to prepare the country for socialism at once. The first five-year plan, modeled after the Soviet Union's, repudiated capitalism and individual farming. Moscow funded and provided technical expertise for 150 heavy industrial projects, among them Changchun's First Auto Plant and Beijing's First Cotton Textile Plant. "Cooperativization" - Mao-speak then for collective farming - grew steadily in pace and breadth, reaching a peak in 1955-56.
Fearful of widespread peasant discontent as farmholdings were forcibly collectivized, Agriculture Minister Deng Zihui ordered a halt. An enraged Mao reviled the vice-premier as "a woman with bound feet." By the end of 1956, an estimated 96% of the rural population had been collectivized. Mao launched the Great Leap Forward program in 1958, arguably the greatest economic folly of the 20th century. To help China surpass the economies of Britain and the U.S. in 15 years, he decreed that every Chinese should produce smelt iron. Hundreds of millions of citizens neglected farms to make low-grade pig iron. Beijing did not know that grain was rotting in the fields - by then, communes were inflating economic figures to please the Great Helmsman. One collective claimed rice yields of 130,000 catties (65,000 kilograms) per mu (667 square meters) - at a time when 1,200 catties per mu was already a remarkable harvest.
Three years of famine ensued, made worse by natural disasters and Mao's ideological falling-out with Moscow (the Soviet Union stopped all aid and demanded repayment of previous loans). Some 25 million people died. A measure of sanity returned in 1962 when pragmatists like Liu Shaoqi and Zhou Enlai re-emerged, but it was cut short as Mao unleashed anti-rightist purges that culminated in the infamous Cultural Revolution of 1966-76. Li Yining, vice-director of the National People's Congress's finance and economics committee, sums up that period: "Mao wanted to combine politics with enterprise. Had the Cultural Revolution not happened, the [economic] situation would be much better today."
The madness was ebbing when Mao died in 1976. Deng Xiaoping, who was purged during the Cultural Revolution, eventually took over after an epic battle for control with Mao's widow, Jiang Qing. The 11th Party Congress in 1978 formally ushered in a new era. "Cross the river by feeling the rocks," Deng admonished policymakers as he pushed a gradualist approach to the economy. There were some lapses. In 1988, price controls on 26 brands of liquor and tobacco were abruptly lifted - naïve policymakers thought they needed only to free prices to smash the planned economy once and for all. Citizens emptied bank accounts and hoarded consumer items, causing massive inflation. The policy was reversed, although market forces have since been gradually allowed to set the prices of most products.
That misstep, along with corruption in government, fueled pro-democracy protests that culminated in the bloody government crackdown at Tiananmen in 1989. Economic reform took a back seat to politics as unrest and international condemnation put Beijing on the defensive. The aging Deng, although officially retired, had to stoke the economy again in 1990 with a visit to Shanghai. "I want to see changes every year and a major transformation by the end of the third year," he told city officials. In a celebrated tour of southern China in 1992, he urged experimentation with securities markets and shareholding schemes for state enterprises.
The patriarch died in 1997, but President Jiang Zemin and Premier Zhu Rongji are continuing the river crossing. As economic czar, Zhu is credited with taming double-digit inflation (a result of the wanton property and stock-market speculation that erupted after Deng's go-go pronouncements) and bringing the economy to a soft landing in the mid-1990s. Now Zhu faces the problem of weak consumer demand, which has brought on deflation and slowing GDP growth - and a tottering banking system, rotten state enterprises, shrinking foreign investment, yet-to-fully recover exports, fears of a yuan devaluation. But these, at least, are problems of a functioning economy. That alone measures how far China has traveled from the economic insanity of the past.
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