It isn’t much of an exaggeration to say that China’s economic boom has been the greatest economic event of the 20th and 21st century. The world’s oldest surviving civilisation managed to transform itself into the world’s fastest growing economy in only a span of a few decades. China’s economic history is deeply convoluted, particularly when one zooms in on its recent communist past. However, it is also probably the most intriguing and interesting case studies in the power of a market economy that flourishes under the communist name. It has come to the extent that many now argue that China is probably more capitalist under the red banner than anything the freedom loving coke guzzlers across the ocean could muster. Chinese tycoons dominate various industries, Chinese stamps adorn the bottom of a plethora of manufactured goods, Chinese eyeballs are Hollywood’s true aim and Chinese tourists line the pockets of many of the world’s major cities. How China managed to claim such an undeniably lucrative position in the world is a tale as exciting as any.
Like all good stories, this one starts in the midst of a nation left ravaged by war. Despite the 23 years of fighting, the winners that emerged were determined to charter their nation to glory. The Communist Party, the winner of the Chinese civil war that ended in 1949, held a vision that foresaw China as a strapping, bold, socialist nation, living à la mode. This vision was to be realised with robust industrialisation, a narrow income gap, modern defence apparatus and sky-high living standards: all imperative ingredients of the perfect socialist utopia. However, while achieving this vision united all the Communist leaders, deciding upon the correct path to it wasn’t as easy.
There were those that believed in practical approach that was rooted in the economics of this equation, this one would prioritise manufacturing along with modernisation, as they believed that this prosperity must serve as the basis for a true socialist country. In the other camp were those that prided themselves upon ideological purity and argued for an approach that would prioritise equality of income and increased political involvement as the true base upon which a socialist China would build. An easy way to discern which side took the prize of the Communist leadership, it is helpful to know that Mao Zedong was a proud ideological purist, as it is thus determined that in the early history of the party that camp reigned supreme.
This isn’t to imply that the economy wasn’t important to the newly formed government, instead it only clarifies that it would always take the backseat to socialist creed. To say that China’s economy wasn’t in the best shape may come across as an understatement because whilst China was embroiled in a civil war it also fought off Japan, a war that ended in 1945 and with-it Soviet forces pillaged the industrial areas in the northeast for machinery, which drastically reduced the commercial capacity. In addition to this, major systems such as the power and communication systems lay derelict due to years of mismanagement and neglect while food production was around 30 percent below the pre-war peak. Of course, this meant that at this point, the major economic goal of China was to bring the economy back to some semblance of normality. This was no small feat and also heralded the centralisation of the Chinese bank. Soon after this the first five-year plan was put in place, modelled after the Soviet economy, which was the other communist power at the time.
This economic approach focused largely on centralised economic planning and government control. The state would play a major role in all the important economic sectors and it would allocate resources in order to bring about China’s age of industrialisation and socialist glory. It’s important to note that with this plan agriculture was put to the back as industry, in particular heavy industry was prioritised. This experiment wasn’t just inspired by the soviets but rather designed by them, as the planners of the Soviet Union assisted those communist China. It thus came as a shock to no one that just as in the Soviet economy, China triumphed in heavy industries such as coal mining and steel production, while its agriculture sector fell behind along with lighter industries. This plan was thus a partial success, but not one that heralded great change.
Mao Zedong in particular was thus convinced by this centrally planned experiment, that the Soviet approach would fail to work in Communist China and that it was high time that the country chartered its own path. This new approach, dubbed the ‘Great Leap Forward’, worked to hand more power to local councils and thus allow more flexibility that was sacrificed in the initial five-year plan. This granted China more efficiency with industrial output increasing by over 50 percent in 1958 and was helpful in pulling agriculture from the true depths of its despair when a good harvest came along. However, this economic prosperity proved fickler than fate as in the 3 years that came a heinous mix of abysmal weather, poorly constructed infrastructure and baneful resource allocation amidst the five-year plan lead to an agricultural crisis. What followed was one of the worse manmade disasters in history and jarring evidence that poor economic policy as very real consequences. Estimates of the lives lost during the Great Famine of China are hard to come by as officials even today shy away from this stained past, the most they will admit to is 20 million. However, many have since put the true figure somewhere around 40 million. The name itself is barely heard in whispers, often referred to in euphemisms as the tree years of natural disasters. Yet make no mistake this famine was evidently a direct result of the communist party’s economic and political ambitions. Many historians today and those that lived through the ordeal point fingers directly at Mao, painting him as a figure drunk on his own power and ambition to the point of lunacy. His great leap forward put local officials into overdrive, seeking recognition from the central powers they fabricated greater farming yields so while many locals starved, food was often shipped to major cities and even abroad. However, it wasn’t just the case of ignorance as many now report that the central leadership was well aware of the ordeal in 1958 itself. Mao himself is recorded as saying “When there is not enough to eat people starve to death.” And he followed this up with the claim that it is, and I quote, “better to let half the people die so that others can eat their fill.”
And the people did die. They died in ways so gruesome that only a scarce few wouldn’t cringe. Those that died of starvation or otherwise buried or reported as dead so that the family could benefit from their food rations, in fact people often ate corpses as they had nothing else to turn to. There have been many reported cases of cannibalism during this time, with people going far as eating their own children. While some chose to sacrifice those closest to them, others turned to outsiders. In a town called Gansu any stranger that wandered in would most surely be killed in order to be eaten, fighting often broke out upon who gets the corpses. This wasn’t just the result of China’s economic aspirations but also Mao’s own delirious ego that wished to beat not only the Soviet Union’s impressive economic growth but also surpass Britain’s manufacturing capabilities in order to prove his own leadership might. These goals blinded him from the suffering of his people and proved to be a case in which mismanagement of resources proved to be disastrous to the extent that it ultimately claimed nearly 500 times more life than the atomic bombs that were dropped in Hiroshima and Nagasaki. The Communist government soon came to its senses about its agricultural failure and the next stage in the economy emphasised the sector, in particular stressing its ability to keep up with China’s ballooning population. But it appears that economic security wasn’t Mao’s main concern as he soon felt his position threatened due to the failures of the great leap forward and came to the conclusion that the best way to cement his position as China’s ultimate ruler would be further stress ideological purity and socialist values. What followed was soon to be dubbed as the ‘Cultural Revolution’, a period of great turmoil within which Mao ordered all schools to be shut as he heralded the young population into taking up arms, quite literally, against old values.
There were four olds in particular that irked him, in part due to the threat they posed to his position, and those were old customs, old ideas, old habits and old culture. Emulating the cult like groups that formed around the magnetic and ruthless Stalin, the youth in China formed paramilitary organisations labelled the red guard that went about harassing the elderly and those that would be considered to be intellectuals: ultimately anyone that appeared to embrace any bourgeois values- as Karl Marx might call them- and that lacked blind fervour for the party. This so-called revolution was a thinly shielded massacre and ended up claiming over 1.5 million lives by the time it died down along with Mao himself in 1976. Those that weren’t killed outright were often humiliated, robbed and/or imprisoned for their troubles, with many of those in specialist professions sent off to remote places for labour, where their skills would eventually be wasted away.
While largely seen as a political concern the cultural revolution was ultimately hazardous to China’s economy at the time, with a range of professionals barred from economic participation and a generation left largely uneducated. And this political instability eventually slowed down the economy with a 14 percent decline in industrial production, and years of potential growth left undiscovered. However, while these may have been the obvious concerns, the ultimate price came more discreetly. This sudden change in policy that left many feeling alienated served to scare the Chinese bureaucracy from any future policy shifts and thus would often leave them frozen in the face of necessary change.
Eventually however with Mao Zedong dead and the economy in turmoil the communist officials came to accept that a centrally planned economy, even one with more control in local councils, wouldn’t allow China to progress. So, they chose to charter a path different from their Soviet peers and look towards techniques used by countries in the West and some Asian neighbours such as South Korea, Japan and Singapore: all of whom were faring pretty well economically speaking. Deng Xiaoping was the “General Architect” as many called him, and he took it upon himself to reform China. Neither him nor the party even considered completely abandoning government control completely or Communism in general, however, they did wish to pull back the firm fisted domination that came with central planning. This was eventually carried out in two phases, one in the late 1970s and the other in the 1980s and 1990s. The first phase included giving agriculture a freer reign, allowing witty entrepreneurs to set up their own businesses and allowing foreign investors. Whilst all this happened however, the government still held onto many key industries and kept a keen eye on the developments. In the later phase, the state retained monopolies in the banking and petroleum but privatised other industries, it lifted price controls and further encouraged investments from abroad.
All this progress payed off pretty well, with China seeing unprecedented growth and mind-boggling economic figures. It soon became threatened with the onslaught of the Tiananmen Square protests of 89, with many conservatives beginning to doubt these modernist reforms as they worried that the Chinese populace may wish to import more than just a market economy from the west. However, Deng Xiaoping held his ground and further affirmed his commitment when he reopened the Shanghai Stock Exchange, long abandoned by Mao, in 1990. The same year the Shenzhen stock exchange was also opened as a channel into one of China’s first special economic zones, isolated areas that operated under the guise of a fully market economy. The Shenzhen zone specialised in technology, thus adeptly labelled China’s ‘Silicone Valley’. It served as the birthplace for many, now globally renowned, Chinese companies in the 1980s including Huawei, Konka and ZTE.
It was during the 1980s that China started to mould itself into the world’s factory, as it opened up to a world of hopeful multinationals eager to claim higher profit margins. The average wage in China was nearly 50 times less than that in western countries such as the US and it lived right next door to the Asian Tigers that drove the world’s economic engine at the time- countries such Singapore and Hong Kong- thus many readily and easily made the jump into the mainland where manufacturing soon grew wild. Within the blink of an eye, ‘Made In China’ became the most common engraving upon everything from our smartphones to our soft toys. China of course, kept the idea of specialised zones which serves as mini manufacturing hubs specific to various industries with Guangdong focused on electronics, Shanghai on medical equipment and Wuhan famous for automobiles- that is until the Coronvirus came around.
To the great disappointment of many in the west China never did import democratic values and the country today is lead by president for life Xi Jinping, a man who rules with an eloquent iron fist and I’ve been told bears absolutely no resemblance to Winnie the Pooh. Mr. Xi has heralded the free market like his predecessor, pulling back support for mismanaged and sluggish state companies and pushing for market-oriented policies. However, he has also been notable for his seemingly paradoxical push for greater party supremacy, with many private companies across Hong Kong and mainland China altering corporate charters and local laws that allow the communist party more say, by will or necessity.
China’s great economic triumph also comes at the cost of certain social progress and often the environment. China’s vast population along with its industrial might mean pollution is a big problem, serving as a painful externality. With increasing car ownership in major cities, smog became such a big problem that local councils put in place a lottery system for number plates that meant any person looking to purchase a car in Beijing would have to compete with more than 3 million residents for scarce plates. Along with this China has seen its north being left behind as the south lead the torch of progress, leading to regional disparity that leaves resentful residents in its wake and eggs on mass migration. The bad news doesn’t end there as many eye China’s property market verily expecting the overinflated bubble to burst any moment as prices continue to climb in Beijing and other parts of the Southeast. And this is not to mention the undervalued Yuan, which not only makes imports expensive and acts as an inflationary pressure in China, but also, to the grievance of many foreign manufacturers, gives the home producers an unfair advantage. Of course, China’s impressively maintained growth hangs in the balance now that its economy and population is aging and its leaders in the west gang up on its many unscrupulous practices.
Whether we like it or not however, it is blatantly clear that we are now quite dependant on the Chinese economy. Just as the past trade turmoil and the dawn of the pandemic have shown us, China has now been interwoven into the fabric of the world economy aided by globalisation and intricate supply chains. Some may insist that this is far from a reason to cheer, but after all this time, not one person today can dispute China’s seat atop the economic throne.
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