The relentless revolution: a history of capitalism (59 page)

Thousands of young people had poured into Beijing. Perhaps a million camped in the square, erecting barricades, while another two or three million workers milled around outside, railing at the government. This prodemocracy agitation is known in China as the June Fourth Incident because that day army tanks moved in to clear the square. The best estimate of the deaths from this sweep is seven hundred, but thousands more were arrested, and many of the student organizers imprisoned. The United States granted at least forty thousand residency permits after the crackdown, most of them given to Chinese students already studying here. Since a harsh wave of government repression never materialized, Tiananmen probably taught a different lesson to its young occupiers: The party could be frightened especially by the prospect of its “best and brightest” connecting with the discontented among the working class.

Yet the greatest shaper of the lives of the young in the 1980s was actually not Tiananmen Square but what had been going on in the economy, where the party had improvised an intricate dance. It released enough control on economic decisions to stimulate enterprise while retaining sufficient oversight to assure that its billion and a third people didn’t starve or rebel. First let the foot up, next down, and then start over again by releasing a bit more pressure. A step to the side would allow for an examination of the progress. Above all, the party has to keep the patterned dance from breaking into a dangerous free style.

“Miracle” is a religious term, part of Christian dogma. A miracle gives evidence of divine power and grace. The Catholic Church does not canonize anyone who is not considered to have performed a miracle. Secular society has appropriated the word. And surprisingly—considering its provenance—miracle is a favorite way to describe economic success. When the French saw the amazing prosperity across the Channel in the early eighteenth century, they called it the English miracle. The strong resurgence of Western European economies after World War II was called a miracle as were the rapid transitions to capitalism of Japan and then the Four Little Tigers. Now it’s China’s turn to have a miracle. And it’s a spectacular one.

The obstacles in the path of China’s rapid economic development covered the gamut. The first cultural one came from getting enough Chinese to accept the prospect that some Chinese would get rich while others stayed pretty much the same. Equality was a bedrock Communist value, a fact of life confirmed in housing arrangements and food allotments. Yet it is stunning how rapidly China has gone from a relatively egalitarian country to one of the world’s most unequal ones, more so than Sweden, Japan, Germany, India, Indonesia, Korea, and the United States, but still less than Mexico and other Latin American countries.
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Another obstacle to economic progress has been the enormous risk ordinary Chinese must run if they move from government posts or running government stores or restaurants to starting enterprises of their own. They forgo a guaranteed wage, however small, described in street parlance as “breaking the iron rice bowl.” That hundreds of thousands have done so to their benefit of course encourages others, mainly the young, to follow suit.

By this point in my narrative the story of how another country vaulted itself into the forefront of the world economy may seem a bit predictable. Yet China succeeded against the odds and the experts. Chinese development almost seems like a mystery story. Only instead of a dead body you have data, which admittedly can be a little deadening. Party leaders yielded parts of the economy to market imperatives as they gradually integrated them into international economic institutions. The market slowly took over from the command economy and performed its usual wizardry. Since 1979 the Chinese economy overall has grown 10 percent annually. There are other ways to express this unparalleled economic growth. The GDP of China expanded sevenfold in twenty-five years, and its world purchasing power rose, in the fifteen years between 1989 and 2004, from 5.4 percent to more than 12 percent. It moved from a low-income to a middle-income country like Turkey or Brazil within twenty years, and it did it while keeping tabs on more than a billion men and women.
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The party’s first move toward the market was to sell off its small and medium-sized state-owned enterprises. It kept the large ones but changed operating principles. Maintaining the benefits of owners’ equity, the party turned the running of these large enterprises over to managers who in time were rewarded for their performance. The state-owned outfits in heavy industry largely served military needs. In 1984 the government allowed even some of the quasi-state-owned enterprises to sell excess output at negotiated prices. As these state firms became more autonomous, returns actually went down because they used what we would call profits to raise wages and enhance benefits. These firms were at a distinct disadvantage, for they were saddled with redundant workers and retirement pensions.
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Nor did they serve the country’s much greater need for light industry and service enterprises. Automaking remained a state enterprise or became a joint venture with foreign firms, an arrangement that became popular for hotels as well.

China’s Economic Zones

Deng established four special economic zones on the south coast that could trade freely and accept foreign investments. These proved so successful that fourteen other coastal cities soon got the same privileges. Values changed with practices. Before the creation of these zones, the party had considered the prosperous southern province of Guangzhou tainted by Western barbarian businessmen because of its proximity to booming Hong Kong. After the British returned Hong Kong to China in 1997, it became a model of modernization for China.

Opening up on many fronts, the party sent a group of young leaders on tours of Western Europe, the United States, Japan, South Korea, and Singapore. They came back convinced that China should emulate the crash program of Japan’s Meiji Restoration a century earlier. The collapse of the Soviet Union enabled Deng to overrule party leaders who still favored central planning. He also possessed the necessary managerial skills for the chairman of a party that ruled such a vast area, for he knew how to delegate authority and mediate differences.
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He continued Mao’s policy of decentralizing decision making, which was aided by the deeply entrenched party officials in rural areas whom Mao had entrusted with much responsibility. Overcoming the opposition of conservatives, reformers performed a bit of lexical sleight of hand, calling their move one toward a “socialist market economy,” treating their former central planning as a method needing retooling.

To accommodate its mix of private and state-owned firms, the party introduced a dual-track system of prices and exchange rates that applied at both retail and wholesale levels. Since they diverged quite a bit, people scrambled to buy things at the state rate unless there was a marked difference in quality. The dual track encouraged graft as well. People used their party connections to buy things at the lower state price or to resell industrial material to private enterprises at much higher prices. This form of corruption exposed the party to criticism and hastened the move toward private production. By 1993 a floating system of exchange rates had replaced the special rate for the Bank of China, and the dual track was eliminated. Bribery and graft constituted an intractable obstacle to China’s otherwise straightforward progress. Bribery is by no means confined to the East. The great Germany company Siemens paid the largest fine in corporate history, $1.6 billion, in 2008 for illegal payments made around the world over the course of sixty years.
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China had begun its reform program in 1978 with a peasant agrarian economy. Rural population was 71 percent, down from 89 percent when the Communist Party came to power, but still disproportionately large. Two very old problems dogged the Chinese economy: not growing enough food yet having more people in the rural areas than jobs for them.
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Just before Deng’s reforms in late 1978, one collective farm secretly leased out its land to individual households and divvied up the obligatory procurement quotas. The success of this clandestine reform demonstrated the gains to be had from privatizing farming, for despite a drought, this collective in Anhui Province increased its output by 30 percent. So the party caved in and gave up on collective farming, at least for the poor and mountainous areas. Then when the government became aware that local officials might strip the assets of the old collectives, it sped up the privatization of farming so that local officials could not sell collective property to their cronies at bargain basement prices. The new system became known as that of household responsibility.

In 1984 China’s Township and Village Enterprise brought industry to the rural areas that partially solved the old problem of providing jobs for the surplus population there. Rural industrialization generated more than two-thirds of the thirty million new jobs originating in the countryside. Keeping the people in place saved on infrastructural costs and absorbed cheap off-season farm labor. The program began with the stipulation that after fifteen years the private enterprises would be returned to collective ownership, but this provision was extended to thirty years and probably will be dropped altogether. The number of people living in rural areas didn’t begin to decline until 1998. Deng’s reforms raised the economic growth rate to 7.4 percent even in the remote western hinterlands, compared with a startling 12.8 percent growth rate along the coast.
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Rural households, wishing to avoid discrimination against private enterprise, often registered as having collective ownership. Villagers called this dodge wearing the red cap. The original household registration system tied peasants to the land, but discrimination against private ownership tapered off after 1992. An article in the
China Daily
in 1994 noted that private firms no longer bothered to feign having a red cap.
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These local enterprises became more competitive with an expanded market within the country. Their contribution to China’s export sector can be gauged by the fact that one municipality turns out some 35 percent of the socks sold throughout the world! China’s abundant labor still plays an enormous role in its economic development.
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The lagging wages in the countryside have prompted fourteen million Chinese women and men to head off for richer parts, with the number rising as the effects of the 2009 recession spread. This continuing trend presents a serious challenge to social stability, despite there being benefits for both receiving and sending areas. Migrants can double their incomes, even though they make less than regular city dwellers. Like America’s undocumented workers, migratory Chinese workers get marginal jobs with long hours, bad conditions, and low pay. While China has managed to avoid the creation of slums around its big cities, migrants must live in dormitories, in shelters, or on work sites. In Shanghai, for instance, the living space for a family in 1999 averaged 17.27 square yards (roughly 15 by 10 feet); migrants, leaving their families behind, have only half that space.
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On the thirtieth anniversary of Deng’s Open and Reform policy in late 2008, party leaders moved even further away from collective farming with a provision that allowed farmers to sell their thirty-year land use rights to other farmers or to companies. As Chinese annual growth drops from 10 to 8 percent, reviving the rural economy has become paramount. With this reform, the families of some eight hundred million peasants would be able to borrow money on their farm collateral or sell their stake in land and join in the surge of consumption that China’s urban population has enjoyed. This would lift domestic sales as exports slackened in the world recession. While some sold farmland might be taken out of cultivation for other uses, plots could also be consolidated for efficiencies of size. With fewer farmers and more investment in agricultural improvements, leaders hope productivity will rise.
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Chinese peasants are also savers, so the government is hoping that with greater earnings they might start consuming and make up for the deficit in exports.

China is close to the physical size of the United States, but much more mountainous. Its hilly interior remains far poorer than the plains of the coastline. Compared with the American population of two hundred million at the end of the 1970s, the Chinese was almost one billion. Drastic measures had been taken to slow further population growth. In the 1970s came the “later, longer, fewer” campaign, which urged couples to marry later, wait longer between conceptions, and have fewer babies in all. In 1979, Deng introduced the one-child policy. The government plans to continue the one-child limit until 2010 at least. It applies only to the Han Chinese living in the populous coastal area. Still, even with its many exceptions, the Chinese reproduction rate has dropped to 1.7, higher than Western Europe’s 1.4 rate, but lower than that 2.1 replacement rate in the United States. The success of the policy can be gauged by the fact that in the 1950s China had 30 percent of the world’s population, and it now has 20 percent.
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One unintended consequence has been a skewed male to female ratio caused by many couples’ aborting female fetuses to guarantee that their one child is a boy.

Before the effects of the one-child policy were felt, infant mortality dropped in the 1960s, producing a bulge of work-ready young people. With productive jobs awaiting them, this generation coming of age in the 1980s added to China’s prosperity. The longer-range improvement in health and life expectancy has also had a positive impact on economic development. In recent decades, China’s dependency rate (the number of children and elderly depending upon workers to pay for their care) has increased. By now two generations have grown up without sisters, brothers, aunts, uncles, and cousins. The number of job seekers entering the labor force is declining as the number of people retiring skyrockets. By 2010, 332 million Chinese men and women will be over fifty. A sobering thought for Americans: The government may have to cash in some of its $1.4 trillion in U.S. Treasury notes that China holds to pay for the retirement of its aging population.
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