BOOK REVIEWS

Zhang Weiwei, Transforming China—Economic Reform and its Political Implications

The economic changes that have taken place in China since 1978 are nothing less than an industrial revolution that has not only quadrupled GDP but tripled GDP per capita within a period of only two decades. The Chinese diaspora has played an important role in laying the groundwork for the Chinese Economic Area (CEA). The overseas Chinese, primarily through Hong Kong and to a lesser extent from Taiwan, have provided capital and trade opportunities and have carried new ideas into China. They have also provided substitutes for institutions that were lacking in China and initially played a very important role as intermediaries with the world outside when China was isolated and cut off from major changes in an increasingly global world economy. Hong Kong and Taiwan have directly provided some 65% of foreign direct investment (FDI) and another 10% has come from the Chinese overseas community. Thus, they have been dominant in China’s success to the point of becoming the most lucrative source of FDI for this developing country.

China has emerged as a significant actor in global trade and this development has been accompanied by a dramatic shift in the composition of its trade—from raw materials to manufactured goods—that also includes a substantial share of machinery and equipment. This being the case, this industrial revolution in China constitutes an economic threat to ASEAN countries and to developing countries that want to adopt an export-driven development strategy. The reforms of 1978 and onwards are the sixth major attempt by China to guide itself towards modernisation—the earlier attempts have been made in 1860, 1898, 1911, 1927 and 1949. The author of this book puts forward a convincing argument that the most recent change has not been a spontaneous process but has been guided by determined reformers, among which Deng Xiaoping emerged as a key mover—“in seeking truth from facts”.

The author has divided the book into three major sections, the first providing an overview of the economic reforms, the second describing its distinctive features and the third and final section discussing the political implications of the economic reforms and constituting a major part of the book. In the first section the author summarises the reforms in China’s rural and urban sectors before moving on to macroeconomic reforms and its opening to the outside world, the latter being of particular significance to a continuation of the reforms that were first implemented in 1978.

The rural reforms were easy to implement and were accomplished very quickly as entrenched interests were limited and very weak. Mao’s great experiments in rural China had failed and the commune system was seen by almost everyone as an obstacle to efficiency and creativity. Although the rural sector was in terms of size by far the largest sector in China, by 1978 its contribution to the national economy had been reduced to less than 30% of the total and it was obvious that there had been much waste and a great deal of instability.

However, the reform of the urban sector has not yet been able to overcome the entrenched interests that are centred in the state-owned enterprises (SOEs) but that also exist in the township and village enterprises (TVEs), and in all other places where government agencies still pursue strong interventionist control—either from Peking or in localities. The reform of the SOEs, which started in Sichuan in 1984, provided early guidance. A major decision was taken in 1997 to pursue a sell-out of smaller SOEs while retaining control of some 1,000 major SOEs that would be consolidated into groups, partly inspired by the chaebol system in Korea, and eventually to be corporatised although not privatised. The author argues that much more remains to be reformed at the macroeconomic level in terms of policies for pricing, fiscal regimen and financial institutions, where the banking system and large non-performing loans remain a serious stumbling block for the establishment of a sound economic system.

The opening to the outside world has proceeded much more smoothly than the macroeconomic reforms, with the early Special Economic Zones (SEZs), followed by the opening of larger coastal areas to bring them closer in line with the global economy and topped by the development in Pudong in Shanghai to make it a global city of technology and finance. However despite the fact that alternatives may have been very limited, the emphasis on foreign trade and FDI has led China to become heavily engaged in foreign trade processing.

The author’s contention that the reform process in China has been holistic is supported throughout the book. He also shows credibly that it has been a guided and gradual approach that has avoided both a return to the extremes of Mao’s ideology and of liberalism—the latter being strongly advocated by many economic reformers. The process has been guided by determined reformers among which Deng Xiaoping has had a leading role through his stress of his belief that reforms would bring wealth and power to China. The author says the reformers were guided by a vision, were willing to initiate policy through experiments, and were aware of the importance of creating an environment that was conducive to allowing this development to occur. He characterises Deng as a determined man putting his faith in his guiding star, contrasting him with other more conservative reformers who wanted to follow a detailed roadmap of reform that would contain numerous elements of a planned economy. He also argues that the “visionary” reformers were greatly helped by the almost complete failure of Mao’s ideology, by substantial exposure to the outside world, and a looming crisis that China had to deal with.

The author further argues convincingly that the reforms of the past two decades have destroyed China’s totalitarian institutions, although the failed Cultural Revolution had already played a major role in this respect. The weakening of totalitarianism is today strongly influenced by a growing middle class in China. However, the economic reforms have not yet been followed by any major reforms for political liberalisation, although the threat of radicalism, whether from the left or from the right, appears to have been eliminated. At the same time it has become increasingly clear that the dynamic changes taking place in China have brought with them heavy costs. These include a stratification of Chinese society, large income gaps and a floating population of job-seekers (mingong) of some 200 million people from rural areas. These migrant workers are jokingly referred to as Deng’s Army and this social mobility is one significant element in the array of political implications of the reforms, even though living standards have increased substantially for a majority of the country’s population. The population continues to grow however, and the TVEs are no longer able to absorb as many unemployed as previously.

The author argues that the leadership has during the past two decades adopted soft rather than hard policies, with June 4th 1989 being the most notable exception. This has created conditions for what the author refers to as informal liberalisation of the Chinese society, such as foreign travel for millions of Mainlanders as well as the spread of the Internet. This combined with the rapidity of economic development has created major shifts in personal values, which will continue to transform China. Corruption, which already existed before the reforms has become a major political hazard, as it is practised not only for personal gain but also for institutional gain thus touching all areas of society and the state. The author seems to downplay the seriousness of corruption in comparison with many other non-Chinese observers. However, he stresses that corruption reflects a crisis of values that became evident in 1989. He suggests that there is still a strong desire to intervene in economic decisions, and that a lack of transparency and a lack of free press will continue to fuel corrupt practices, even if criminals are occasionally punished under the law to set an example.

Among the political implications, the author also discusses the forces of regionalism that has been a favoured theme among many foreign observers. He dismisses this notion by referring to the heterogeneity of the population and the absence of disintegrative forces, at the present stage of development.

The Chinese reforms since 1978 have often been described as a model of economic reform without political reform. However, the author points to rural elections and mentions a number of developments showing a movement towards democratisation such as vastly improved living standards, the information and communications revolution, increased levels of education, the expanding middle class and non-state sector, extensive ties with the outside world, and the recognition by the Party that it cannot micro-manage Chinese society. However, he admits that fully fledged democratisation may still be difficult to achieve. He says that the barriers to democracy include: the Party’s refusal to tolerate any independent political organisations, the general perception of Deng-style reform as a success and the Russian experience as a failure, the absence of credible models for a large country like China to move out of the bureaucratic version of Communism, the inability of disaffected groups to join forces, and the fear among the population that adversarial politics might cause an economic downturn and political chaos.

Thus, the Party will continue to base its political legitimacy on economic development and continue its gradual reforms based on soft totalitarianism. In the meantime there is little doubt that the reforms initiated in 1978, which brought China into the international arena, will in a major way affect not only the Asia-Pacific but also the rest of the world. The author provides the reader not only with a discussion of the key aspects of the reforms and their content, but food for thought by which to consider future changes as well.

Zhang Weiwei is Professor at the College of Humanities at Fudan University in Shanghai and also Senior Research Fellow at the Modern Asia Research Centre of Geneva University in Switzerland. He has with this work provided an enlightened and enlightening view of China’s past two decades of reform.