Posted: March 24th, 2023

China’s Struggle with Free-Market Reforms

Background Information

China is currently the best-performing country globally regarding economic growth. About four decades ago, China implemented economic reforms to include market liberalization. Before then, the country had backward economic policies that led to a poor economy, stagnation, central control, inefficiencies, and isolation from global financial processes. In 1979, the government initiated free-market reforms that opened the market to foreign trade and investment. Over the past four decades, the country has witnessed growth in its economy as one of the fastest-growing countries. The World Bank acknowledges the impressive 9.5% annual gross domestic product (GDP) growth through 2018. According to the institution, China’s growth is “the fastest sustained expansion by a major economy in history” (Morrison, 2019, p. 190). The growth has allowed the country to increase its GDP twice every eight years, assisting many impoverished citizens to live productive lives. China leads the global market in various economic indicators, such as merchandise trading, manufacturing, and holding foreign exchange reserves. While China has developed economically, it has been addressing challenges since the launching of economic reform four decades ago, including concerns about the loss of communism and the entry of western ideologies, which has been managed through the creation of a new culture that supports market liberalization to achieve the prosperity China experiences to-date. 

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Economic and Political Problems

China had a long history of state control over the economy. The communist regime promoted government control over the market and economic activities in the name of common interests. However, Deng Xiaoping’s government implemented notable changes in the economy (Lin, 2017). Although the changes were anticipated to benefit the state and its people, various political and economic challenges hindered their implementation and sustainability. 

Chinese society experienced a long history of trauma and problems that could have easily hindered the change toward liberalization in the absence of a strong government and cultural changes. Researchers have discussed the issue of national humiliation as an essential part of Chinese identity politics. For instance, humiliation played a crucial role in shaping Chinese modernity, although many outsiders, such as the United States, did not understand its role in creating Chinese nationalism (Hamilton & Joske, 2018). The history of humiliation made the state extremely sensitive to anything that threatens to strip the people of their perceived dignity (Johnston, 2016; Hamilton & Joske, 2018). They believed they were born nationalists reflecting the relationship between the national experience and the Chinese psyche. In 1979, many people who had undergone humiliation and a history of trauma were alive and would find it difficult to accept the changes that threatened their national identity (Johnston, 2016). Opening up the economy to external forces meant a threat to the people, and they likely would resist such a move.  

The Chinese people experienced significant changes during the reforms coming from external forces, especially the West. In the late 1970s and early 1980s, Deng Xiaoping did away with most orthodox ideologies and started to open up the economy to market liberalization. During the time, the Chinese knew that the ideas were Western and considered foreign and would also cause a decline in communism. The political environment was becoming more accepting of pro-democracy ideas, which threatened the party to lose its mandate to govern (Hamilton & Joske, 2018). For example, the party experienced conflicts regarding how to respond to the changes that were happening in the state. People had to begin accepting that communism no longer had grounds in the country and even the region following its decline in Europe. However, many people were unprepared to accept the extensive changes affecting their lives and society. 

Although China would enjoy the economic benefits of opening up the market, such as growth and addressing poverty, they would take time to spread across the society. The country took time to accept the change and any other interests that did not bind them together. During the communist regime, people experienced connection and worked together for shared interests. Although changes in the market would improve the economy and help them fight poverty across the state, the benefits would affect every person in China (Hamilton & Joske, 2018). Thus, people would also take time to accept the new changes they did not understand. The country was confronted with significant economic and socio-political changes that would take time to gain ground (Hamilton & Joske, 2018). While transitioning from the socialist regime to the market economy meant that the Chinese people would have to accept that their culture and daily lives would undergo significant transformations, it would probably be challenging before it became better. 

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Interventions to Address the Challenges

The Chinese government needed to create a new culture that accepted market liberalization. However, it was challenging to train adults to accept the new culture since they had accepted and grown up believing in the benefits of communism. The government needed to mold children’s beliefs by implementing education campaigns. The state would find it more effective to raise a new generation that accepted the change instead of forcing the current one to agree. They found it effective to educate children instead of re-educating adults to accept significant societal and economic changes (Morrison, 2019). The CCP committed to creating a generation of patriots by training children from kindergarten to higher education that understands the importance of change (Hamilton & Joske, 2018). For example, at the beginning of the 1990s, the government initiated the Patriotic Education Campaign to achieve the educational objective. Notably, by using the education system, people would be socialized to accept political ideologies. For example, CPP would maintain its power position through ideological education and administrative capabilities that would help to reform the society. The success of the changes in the country depended on the local governments’ effectiveness (Tian & Tsai, 2021). The government would help to sell the relevant ideologies to the grassroots. 

The primary focus in analyzing China’s economic and political changes was the “reform and opening” policy that the government adopted to create a conducive environment for change. Another critical intervention in the country to integrate the shift implemented from 1979 onwards was Deng Xiaoping’s “reform and opening” (gaige kaifang) (Flynn, 2016). The focus of the policy was to help society accept the economic and political changes that would potentially make China better. The government understood the need for gradual transitions to generate a buy-in by the community, making it effective at the macro-economic level. The government recognized the role of economic institutions and agencies in ensuring that people supported the policy and related changes (Hamilton & Joske, 2018). Other stakeholders in the change process included the country’s enterprises, public institutions, foreign investors, and organizations to create the framework for the change. They also recognized the need for production systems due to their role as the natural agents of change. 

China has always been interested in the theoretical economic framework to understand how open market reforms would affect the country. The economic and socio-political model questions the role of government in the success of the reforms that have gained considerable benefits for China. Many critics have focused on the role of social agents of change in the economy and political development that occurred in the country since 1979. Some have focused on the role of “privatization,” which focuses on the factors of production, the role of the primary sector as the economic agent of change, and reducing the control of the state over the economy (Leutert, 2018). The economy also grew because it became investment-driven and less state-controlled. The government focused on “systems of production” that could include the role of various enterprises in implementing and sustaining the change. The production process and its development and the role of the people in the economy would create positive changes in the economy that are evident to date. 

Outcomes of the Interventions

Many scholars are baffled by China’s economic “growth miracle” following the open market reforms. While many have never understood the actual reason behind the growth, it is evident that the government’s interventions to create an acceptance of the change bore fruits. Since the 1990s, China started experiencing economic growth and rising prosperity that restored the people’s trust in the government’s decision to open the economy to external actors. Within the four decades of the open market reforms, the Chinese economy had grown and matured beyond expectations. For example, the country’s GDP grew from 14.2% in 2007 to 6.6% in 2018 (Morrison, 2019). Although the International Monetary Fund (IMF) anticipates that the growth will decline to 5.5% by 2024, the country’s achievements since the reforms and interventions to address the challenges that threatened the change are evident. China has become one of the leading countries globally, and its position will remain unrivaled for decades. 

The government of China focused on innovation in its manufacturing sector and welcomed foreign investment to improve its growth over the past four decades. The country has, over the years, implemented high-profile projects like “Made in China 2025,” which focused on upgrading and modernizing its manufacturing in ten main sectors through major public support to make the country a leading actor in the global economic system (Morrison, 2019). Furthermore, the state implemented policies to develop and reduce production costs and improve exportation capacity. While the state has been criticized for dominating global markets, the government remains relentless in improving its market performance to build a stronger economy. China has achieved a growing global economic influence, seriously impacting other leaders, such as the United States. The US government, especially under Trump, believed that China’s incomplete transition to a free-market economy had affected its economic interests, such as intellectual property theft and industrial policies (Leutert, 2018). Regardless of the criticism, it is evident that China will not back down on the development path. 

China has created plenty of opportunities for people from other countries and states across the world. Unlike before the market reforms, the country has witnessed an upsurge of immigrants seeking opportunities (Ding, n.d.). Through improved manufacturing and innovation, China has become one of the most lucrative markets globally. Creating a liberal economy that could participate fully in the global economy greatly benefited the country and other states that could transact. The state-controlled economy could have thwarted any efforts to be receptive to foreign forces contributing to economic development (Lin, 2017). Therefore, it is evident that changes that took place four decades ago have benefited China and its people by improving the trade environment and improving economic development to alleviate poverty. 

Conclusion

China remains one of the fastest-growing economies globally, which has led to its significant role in the global economy. Positive changes in the country’s economy commenced about four decades ago when the government implemented an open market economy, making it highly receptive to foreign trade and investment. Although the state has experienced positive changes in the economy, the last four decades have been characterized by economic and political challenges that the government has to address to achieve the “miracle growth” witnessed today. The Chinese government implemented numerous societal changes, including education and government, to change the socialist and communist ideologies and adopt the market-driven economic system. Regardless of the challenges involved in attempts to change a culture, the country succeeded in creating a market-driven economy that has led to the current financial success it witnesses today. The positive performance has also led to a favorable balance of trade for the country compared to other developed and developing countries. 

 

References

Ding, X. L. (n.d.). “The Only Reliability Is That These Guys Aren’t Reliable!” The Business Culture of Red Capitalism

Flynn, M. (2016). China: A Market Economy. Geo. J. Int’l L.48, 297.

Hamilton, C., & Joske, A. (2018). Silent Invasion: China’s influence in Australia. Melbourne: Hardie Grant Books.

Johnston, A. I. (2016). Is Chinese Nationalism Rising? Evidence from Beijing. International Security, 41(3), 7-43.

Leutert, W. (2018). Firm control: Governing the state-owned economy under xi Jinping. China Perspectives2018(2018/1-2), 27-36.

Lin, L. W. (2017). Reforming China’s state-owned enterprises: from structure to people. China Q., 107.

Morrison, W. M. (2019). China’s economic rise: History, trends, challenges, and implications for the United States. Current Politics and Economics of Northern and Western Asia28(2/3), 189-242.

Tian, G., & Tsai, W. H. (2021). Ideological Education and Practical Training at a County Party School: Shaping Local Governance in Contemporary China. The China Journal85(1), 000-000.

 

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