China: Boom or Boomerang

By Orville Schell
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Orville Schell
Orville Schell is the Arthur Ross Director of the Center on U.S.-China Relations at the Asia Society in New York and the former dean of the the UC Berkeley Graduate School of Journalism. Schell has dedicated…
Orville Schell

China as a Success
For anyone who was in China during the spring of 1989 as demonstrations against the Chinese Communist Party and government rocked the country to its foundations, China’s resurrection through the marketplace in the 1990s has been nothing short of astounding. In those dark months and the years that followed the Beijing Massacre, there were few who imagined the People’s Republic of China and its party leadership would survive that crisis, much less manage to lead the country so that it would flourish.

[China’s history, from 2200 BCE to the present]

That China did manage to fend off a seemingly ineluctable end-of-dynasty, tipping-point moment was in large measure due to then-supreme leader Deng Xiaoping. Indeed, as a savage crackdown against political dissidence began after June 4, 1989, causing almost everyone to fear that reform of all kinds would end, the 85-year-old Deng met with his military commanders to commemorate the service of those who had died while “quelling the turmoil.” He surprised everyone present–especially hard-line Maoists who felt that the only salvation of the Communist Party’s unilateral rule was return to a less open and permissive system–by asking all assembled a simple rhetorical question. “Is our basic concept of reform and opening wrong?” he asked. “No!” he answered. “Without reform, could we have what we do today?”

Then, he declared emphatically, “Our basic proposals, ranging from our development strategy to principles and policies, including reform and opening up to the outside world, are correct.”

It was still far from clear, however, whether Deng would be able to prevail over those who saw his economic reform policies as the road to ruin. Deng had famously declared of his Special Economic Zones (SEZs) in the 1980s: “There are those who say we should not open our windows, because open windows let in flies and insects. But we say, ‘Open the windows, breathe the fresh air and at the same time fight the flies and insects.'”

But now, it looked as if the insects had overwhelmed the situation.

It was not until 1992 that Deng felt strong enough to once again open the floodgates of economic reform. Escaping conservative Beijing, where he felt stymied, he went to Shenzhen, the market-driven SEZ on the border with Hong Kong. There, he made an iconic visit to the stock exchange and several modern electronics companies, where, like an itinerant evangelist, he began extolling the market and, in effect, economic reform.

[International Monetary Fund-sponsored speech on China’s economy in general]

“As long as we pay attention to economic efficiency, product quality and foreign economic exchanges,” he proclaimed, “we need not be worried about anything else.”

He went on to urge Chinese “to boldly take heed of and absorb all accomplishments of every civilization achieved by the human race . . . including those of developed capitalist countries.” He concluded by saying that “leftism” (meaning hard-line Maoists) had done “terrible harm to our Party in the past.”

His utterances were like a clap of thunder, for they announced loudly and clearly to everyone that engaging in business and making money had now been re-sanctioned at the highest reaches of the party. And, his very symbolic trip set China off on the tear of economic growth that continues today, more than a decade later.

[IMF-sponsored speech on China’s economic challenges]

By the end of 2004 China could boast of the following:

  • An average annual growth rate of 9.5% for the last two decades.
  • A smooth leadership transition in 2003 when Hu Jintao replaced Jiang Zemin as president and party general secretary.
  • Instead of a brain drain, ever more foreign-educated Chinese returned home to seek job opportunities, fame and fortune.
  • A gross national saving rate that was 44% of gross national income (compared to 22% for India and less than 1% for the United States).
  • An increase of almost 37% in exports, leading to $1.1 trillion in foreign trade and an overall trade surplus of $33 billion. (U.S. exports to China fell almost 10%, leaving a $54-billion deficit in China’s favor.)
  • Having become the largest consumer of steel, cement, grain, coal and copper in the world.
  • A per capita income of almost $5,000 (whereas in 1980 it was $1,100).
  • Being the world’s second-largest holder (after Japan) of U.S. securities that finance the U.S. debt.
  • Receiving almost $54 billion in foreign direct investment (compared to India’s $4.3 billion) and itself now starting to invest abroad, to the tune of $3.4 billion.
  • An almost $610-billion foreign exchange reserve, representing a year-on-year increase of 51%. (At the same time, the U.S. and Japan ran up a debt of some $7 trillion.)
  • More than 22,000 miles of new expressways.
  • 3.7 million Taiwan citizens who visited China, with just under half a million now living and working there.
  • Almost 25,000 Taiwan firms registered in China and $100 billion in foreign investment.
  • An astronaut sent into space aboard a Chinese-made rocket.
  • A new draft law making private property legal.
  • A 2005 defense budget of nearly $30 billion and an increasingly high-tech military bringing online a whole new series of weapons (such as the Type 094 nuclear missile submarines, capable of carrying 16 intercontinental ballistic missiles).
  • More than $2 billion in modern arms purchases each year from Russia, including more than 250 SU-27 and SU-30 state-of-the-art, multi-role Russian jet fighters.

[China’s National Bureau of Statistics (click English in upper right corner)]

Despite the tense relations with Taiwan and increasing friction with Japan, China’s image as a constructive world player also has steadily grown. A 2005 BBC poll showed that 48% of those queried in 22 countries saw China’s global role as “mainly positive,” suggesting how far China has come in correcting its post-1989 image.

Not since Mao took power in 1949 had China been viewed so positively around the world. And never in its history, or that of any country for that matter, have so many people’s material lives been improved so rapidly as during the past two decades.

[Preview “The Chinese Century”]

That the former “poor man of Asia,” which was once isolated, reviled and steeped in losing ideology dedicated to world revolution and developmental backwardness might have found a way to transform itself into a productive, modern and globally engaged–if not democratic–country filled with modern cities that seemed to arise overnight has indeed been impressive.

[IMF Roundtable discussion about the Chinese economy]

Continued: China as a Failure
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