Since 1979, the economic reforms accelerated the capitalist type, while maintaining the Communist-style rhetoric. The commune system was gradually dismantled and the peasants began to have more freedom to manage the land they cultivate and sell their products on the market. At the same time, China's economy opened to foreign trade. On 1 January of that year, the United States went to diplomatically recognize the People's Republic of China, leaving the Taiwan authorities, and business contacts between China and the West began to grow. In late 1978, the aerospace company Boeing announced the sale of 747 aircraft to various airlines in the PRC, and the beverage company Coca-Cola had made public their intention to open a production plant in Shanghai.
In early 1979, Deng Xiaoping undertook an official visit to the United States during which he met President Jimmy Carter in Washington and several congressmen, and visited the Johnson Space Center in Houston, as well as the headquarters of Coca-Cola and Boeing in Atlanta and Seattle, respectively. With these visits so significant, Deng made it clear that the new Chinese regime's priorities were economic and technological development.
Deng Xiaoping met with British Prime Minister Margaret Thatcher, to ask the Chinese to use one country two systems policy must be recovered in 1997, sovereignty over Hong Kong.
Sino-Japanese relations also improved significantly.[24] Deng used Japan as an example of a rapidly progressing power that set a good example for China economically.
True to his famous phrase "do not care if the cat is black or white, what matters is it catches mice", spoken in 1961, and that had caused so much criticism, Deng Xiaoping, along with his closest collaborators, such as Zhao Ziyang, who in 1980 relieved Hua Guofeng as premier, and Hu Yaobang, who in 1981 did the same with the post of party chairman, took the reins of power and the purpose of advancing the "four modernizations" (economy, agriculture, scientific and technological development and national defense) put up an ambitious plan of opening and liberalization of the economy. The last position of power retained by Hua Guofeng, the chairman of the Central Military Commission, was taken by Deng in 1981.
From 1980, Deng led the expansion of the economy and in political terms, took over negotiations with the United Kingdom to return the territory of Hong Kong, meeting personally with British prime minister Margaret Thatcher. The result of these negotiations was the Sino-British Joint Declaration signed on 19 December 1984, states that the United Kingdom should return Hong Kong to China by 1997. The Chinese government pledged to respect the economic system and civil liberties of the then British colony for 50 years after the return. In 1987, Portugal, under pressure from the Chinese authorities agreed to arrange the return of its colony of Macau by 1999, with an agreement roughly equal to that of Hong Kong. The return of these two territories was based on political principle formulated by Deng himself called "one country, two systems", which refers to the coexistence under one political authority areas with different economic systems, communism and capitalism. Although this theory was applied to the cases of Hong Kong and Macau, it seems that Deng Xiaoping intended to also present it as an attractive option to the people of Taiwan for eventual incorporation of that island, claimed as Chinese territory.
In the economic sphere, the rapid growth faced several problems. On the other hand, the 1982 population census had revealed the extraordinary growth of the Chinese population, which already exceeded one billion people. Deng Xiaoping continued the plans initiated by Hua Guofeng to restrict birth to only one child, a reason why most couples could only have one child under the pain of administrative penalties.[25] On the other hand, the increasing economic freedom was being translated into a greater freedom of opinion and critics began to arise with the system, including the famous dissident Wei Jingsheng, who coined the term "fifth modernization" to refer to democracy, missing element renewal plans of Deng Xiaoping. In late 1980s, dissatisfaction with the authoritarian regime and the growing inequalities caused the biggest crisis to Deng Xiaoping's leadership.
In October 1987, at the Plenary Session of the National People's Congress, Deng Xiaoping was re-elected as Chairman of Central Military Commission, but he resigned as Chairman of the Central Advisory Commission and he was succeeded by Chen Yun. He continued to chair and developed the reform and opening up as the main policy, put forward the three steps suitable for China's economic development strategy within 70 years: the first step, to double the 1980 GNP and ensure that the people have enough food and clothing, was attained by the end of the 1980s; second step, to quadruple the 1980 GNP by the end of the 20th century, was achieved in 1995 ahead of schedule; the third step, to increase per capita GNP to the level of the medium-developed countries by 2050, at which point, the Chinese people will be fairly well-off and modernization will be basically realized.[26]
Deng, however, did little to improve relations with the Soviet Union, continues to adhere the Maoist line of the Sino–Soviet split era that the Soviet Union was a superpower equally as "hegemonic" as the United States, but even more threatening to China because of its geographic proximity.[27]
[edit] Economic reforms
Main articles: Chinese economic reform and Socialist market economy
China's nominal GDP trend from 1952 to 2005. Note the rapid increase since reform in the late 1970s.
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", and "seek truth from facts". (This somewhat resembles the Leninist theoretical justification of the New Economic Policy (NEP) in the 20s, which argued that the Soviet Union had not gone deeply enough in to the capitalist phase and therefore needed limited capitalism in order to fully evolve its means of production) This interpretation of Maoism 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."[28]
Unlike Hua Guofeng, Deng believed that no policy should be rejected outright simply because it was not associated with Mao. 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.[29]
Dr. Fengbo Zhang introduced Western Economics to China, provided methods and theory for Deng Xiaoping leadership promoting economic reform and decision-making.[30]
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. An often cited example is the household-responsibility system, which was first secretly implemented by a poor rural village at the risk of being convicted as "counter-revolutionary." This experiment proved very successful.[31] Deng openly supported it and it was later adopted nationally. Many other reforms were influenced by the experiences of the East Asian Tigers.[32]
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.[33]
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 the Socialist Federal Republic of Yugoslavia and the People's Republic of 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.[34]
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.
Maoists consider these economic reforms to confirm Mao's somewhat paranoid belief that "capitalist roaders" - members of the Communist Party of China, who joined primarily to force through reforms toward capitalism - were indeed present within the Party, and therefore that the purges initiated were not entirely in vain. This is similar to the Stalinist view that the Perestroika reforms confirmed the presence of "revolutionary traitors" within the Communist Party of the Soviet Union, therefore justifying the so-called Aggravation of Class Struggle under Socialism.
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 Vladimir Lenin's NEP as well as those of Nikolai 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.
