CC BY
0Канан А.Э.
Кандидат наук. Докторант. Бакинский Государственный Университет.
Историко-теоретический анализ экономического подъема Китая
Kanan A.E.
Candidate of Sciences. Doctoral candidate. Baku State University.
A historical-theoretical analysis of China's economic rise
Introduction. At the beginning of the 20th century, Europe's position in Asia and Africa reached its highest point. It seemed that no country could match Europe's superiority in arms and commerce. Sixty years later, only ruins remained of this European dominion. It is quite surprising that the largest earthquake in human history happened so quickly. This change in the position of the peoples of Asia and Africa was the surest sign of the coming of a new era. According to Arrighi, when the history of the second half of the twentieth century is written from a long perspective, it is clear that there was no issue more important than the economic renaissance in East Asia.
East Asia has been the most clearly rising region among developing countries. The economic boom began first with Japan, then continued in its former colonies of Korea and Taiwan, and even in Hong Kong and Singapore, among the territories that would later be called the "four tigers". South Korea, Taiwan, Hong Kong and Singapore, which are called the first Asian tigers, started their economic breakthrough only in the late 1950s, and were joined by Malaysia, Thailand, Indonesia and others in the 1970s, and later by China1. This boom reached its peak with the rise of China as the world's most dynamic center of economic and commercial expansion.
The new party-run state organization that emerged after the Chinese revo-
1 "The World According to China" // URL: https://thediplomat.com/2018/10/the-world-according-to-china/
lution was equipped with the ability to mobilize the public to exert control over the country's economy and accelerate economic development. The revolution created a highly centralized and completely bureaucratized state in China.
The new regime that came to power after the Chinese revolution had the potential to penetrate and mobilize every stratum of society, quite unlike the old one. Therefore, he was able to carry out a great socio-economic transformation by restoring the national order. By ending nearly a century of "humiliation," he was able to increase China's power and prestige vis-à-vis its international rivals.
By 1949, China faced a situation in which its sovereignty had been declining for over a century. After 1911, there was only limited sovereignty as the Central government had to share its sovereignty both with the occupying powers and with various local rivals. Communists face three interrelated tasks: the restoration of the country's sovereignty, the reunification of China and the reconstruction of the state, and the establishment of a unitary government. With the defeat of the Nationalists by the Communists in a civil war in 1949, the country was finally reunified (except for the "lost territories", i.e. Taiwan, Hong Kong and Macau)2.
The Chinese Communist Party (CCP) played an important role in the defeat of Japanese colonialism and the unification of China and the establishment of the modern Chinese state. After more than a century of decline and fall, it finally gave China the international status and power of its former era.
The establishment of the PRC and the era of Mao Zedong. The period from 1949, when the People's Republic of China was founded, to 1978, when the policy of "reform and openness" began, is named after Mao Zedong (1893-1976), who left his mark in this period. The two-year period from Mao's death (1976) to 1978 is included in the Mao era, because the system established by Mao still did not undergo significant changes. Although the miraculous rise of China's economy took place in the post-reform and opening-up period that began in 1978, it cannot be explained only by developments during the period of market reforms3. Certainly, the contribution of cultural and institutional infrastructures created by millennia of imperial tradition is undeniable. Similarly, the Mao era greatly influenced many economic, political, and social characteristics that played an important role in China's rapid growth.
In its first phase, the communist government of the People's Republic of China (PRC) succeeded in creating a major change in China's fortunes. The foundations of China's industrialization and modernization were laid in these
2 Matthew E. Silk Road expands to Arctic and beyond, Asia Times, 2019..
3 Nye J. "Hard and Soft Power in a Global Information Age", Oxford, 2017.
years. The new administration was able to reverse the failure of the previous century of Chinese history. By restoring unity and stability in the country, he was able to guarantee an economic revival that previous regimes could not achieve. Despite Mao's sometimes disastrous abuses and excesses, the foundations of China's extraordinary transformation were laid under Mao. In addition to restoring the unity of the country, the main task facing China was to overcome the economic backwardness.
During the Mao era, the share of agriculture in the national income in the Chinese economy decreased significantly, while the share of industry increased constantly. While the share of the agricultural sector in the national income was 57 percent in 1952, it steadily decreased to 32 percent in 1978. In 1978, the share of other sectors in the national income was lower than in 1952. The share of industry in the national income increased significantly, from 19.52% in 1952 to 49.4% in 1978. By 1978, the production of industrial products accounted for 49.4 percent of the Chinese economy, while the weight of agriculture decreased to 32.76 percent4.
Between 1950 and 1973, average per capita income growth worldwide was 2.92 percent, compared with 2.86 percent in China, 2.91 percent in Asia excluding Japan, 3.35 percent in the Soviet Union, 1.4 percent in India, and the United States was 2.45 percent. It was 3.81 percent in Western Europe and 8.06 percent in Japan. During this period, the fastest growth in per capita income was in Japan, and the lowest in India. Although China's growth rate was higher than India's, it was lower than the world average.
Under Mao, China's economy grew at an impressive 4.4 percent between 1950 and 1980, despite sharp fluctuations such as the Great Leap Forward and the Cultural Revolution. During this period, China managed to nearly double its GDP per capita and nearly quadruple its GDP. Similar in some respects, India less than tripled its GDP during this period and increased its per capita GDP by about 50 percent. These data show that during this period, the economic performance of the communist Chinese administration was more successful than that of India.
The period of reform and opening to the world. Although China's economy was stronger in 1978 than it had been in 1949, it remained technologically backward, isolated, and poor compared to other East Asian economies. Above all, China had to confront its legacy of civil war, turmoil, and occupation. On the other hand, China was largely isolated at the international level during this period.
4 Buzan B. "China in international society: Is "peaceful rise" possible?", The Chinese Journal of International Politics, 2010. 23 p.
Until 1971, China's legal member of the UN was considered to be Taiwan, not the PRC. In addition to ideological competition, the Korean War, the Taiwan crisis, Vietnam, etc. problems hindered the establishment of good relations with the West. On the other hand, the withdrawal of all Soviet aid and personnel in 1959 completely isolated China from the international system5. Unlike China, Japan, Korea, Taiwan, Singapore, and Hong Kong underwent major economic transformation during this period.
With the patronage, encouragement and assistance of the United States, these countries have come a long way in economic development in a very short time. Although China performed remarkably well, it remained economically backward compared to its neighbors. There was a huge gap, especially in the technological field. All these factors have greatly contributed to China's progress towards the "reform and opening" policy.
China's reform and opening-up process has been shaped by the fortuitous interaction of certain conditions and the combined effect of political choices. When China decided to open its economy to the outside world in the late 1970s, the strategies of Japan, South Korea, and Taiwan could not be imitated. It was difficult for China to build strong export champion companies behind the same economic defense walls as these neighbors. The main reason for this was the privileges derived from political choices.
Another factor can simply be termed as timing and luck. Japan, South Korea and Taiwan experienced an industrial "boom" between the 1950s and 1980s. During this period, the supply chain was mainly domestic and international trade was done either in raw materials or finished products. After 1980, with the acceleration of globalization due to the development of transportation and advances in logistics technology, supply chains began to have an international structure. Therefore, after the 1980s, it became impossible for a country to achieve economic development by applying a mercantilist policy. China's isolated and independent geopolitical structure and the timing of its reform and open-ing-up project forced it to provide free access to foreign companies in its market.
The reform and opening-up project led by Deng Xiaoping, although often viewed from a narrow economic perspective, also produced important political results. In the operation of the state, the universal ideological model of the Mao period was abandoned and a style close to the development model of the East Asian tigers was chosen in its place. The decisive element in the transformation of the economic system was the decentralization of the state6. Decision-mak-
5 Bandow D. "The U.S. Should Offer Taiwan a Free-Trade Agreement", 2020.
6 Buzan B. "China in international society: Is "peaceful rise" possible?", The Chinese Journal of International Politics, 2010. P.5-36.
ing processes, including the actual devolution of property rights and financial powers, are decentralized at different levels of local government. As a result, the central government's budget decreased significantly relative to GDP.
China's economic reform was implemented in rural areas in the first three years. By meeting expectations in the economic participation of the rural reform, it gave impetus to the implementation of reforms in other areas. Based on the success of the rural reforms, the Chinese government decided to transfer the reforms to the cities in 1984, and urban industries dominated by inefficient public enterprises also turned to reforms7. Opened 14 major cities to foreign investment to attract foreign capital and technology.
China's integration into a capitalist market economy involved micro and macro reform instruments, including abolishing agricultural commons, decentralizing economic decision-making, promoting the growth of non-state sectors, increasing incentives for profitable entrepreneurs, and adapting to liberal economics and fiscal policy.
China's transition strategy is called two-pronged reform due to its dual structure of planned and market economy. Rather than directly privatizing state-owned enterprises, the state allowed the development of market relations over time and tried to eliminate the factors that hindered the development of private enterprises. Therefore, during this early period of the reform process, China's public sector had not experienced significant production declines, and serious layoffs had not yet occurred.
Unlike the revolutionary approach adopted by Eastern Europe and the Soviet Union in the transition to a market economy, China in this first period of reforms preferred a gradual transition, taking into account the economic conditions. Thus, China was able to make this first phase of reforms less painful in many ways.
From 1978 to 1988, China transitioned to a market economy in 10 years. During this decade, a significant part of the country's production was still carried out by state-owned State Economic Enterprises. Although private initiative has been released, no significant activity has yet been demonstrated. Along with an economy based on state ownership and planning, a free market economy was also formed in the country. Therefore, a gradual transition took place in which the state planning system and the free market economy were implemented together.
During this period of major structural change, economic growth rates rose to 9.5 percent annually between 1978 and 1992, surpassing the Mao era's sig-
7 Bandow D. "The U.S. Should Offer Taiwan a Free-Trade Agreement", 2020.
nificant annual average of 4.5 percent. The economy grew by an average of 10 percent annually between 1978 and 1988, and the country's GDP increased 2.5 times in 10 years. At the beginning of the reforms, exports, which were around 10 billion dollars, increased 5 times by 1988 and reached about 50 billion dollars. Imports grew even faster, exceeding $50 billion, and the resulting deficit could only be financed through foreign direct investment8.
It is instructive to compare China's transition to a capitalist world economy with Russia's transformation in the early 1990s. Because both countries experienced the problems of transition from planned economy to market economy. Applying a "revolutionary transition" approach, Russia abruptly ended state planning, liberalized prices, and transitioned to a market economy through rapid privatization. This resulted in hyperinflation, large-scale capital flight, currency collapse, and foreign debt defaults in the 1990s. In contrast, China was able to avoid hyperinflation by taking a more gradual approach.
The government continued to be credible internationally. Unlike Russia, there was no capital outflow and, on the contrary, it was able to attract a large amount of foreign direct investment. During the transition period, inflation in Russia rose to 1,500 percent annually in a short period of time and did not fall below 100 percent for a long time. The country's GDP decreased by 15 percent and was able to return to the pre-transition level only 10 years after the transition to a market economy. China has achieved the reversal of Russia's economic contraction and turmoil very steadily, with growth of around 150% over the same period. Unlike Russia, China's economy was able to achieve very rapid growth through major structural changes.
Although China's economic transformation did not require large economic costs like Russia's, this transformation was not easy and cost-free. During this period, as direct state control of the economy weakened, the economy periodically overheated, inflation rose to levels unusual for China, although not as high as in Russia, and production bottlenecks arose. In the distribution and use of economic resources, state planning is increasingly replaced by the decisions of local administrators and company leaders, and the intertwining of planning and the market has created ample opportunities for corruption.
The softening of state control over the society has also created conditions for expressing dissatisfaction with these issues. These discontents, which appeared from time to time in the form of student movements, reached their peak in 1989. Growing economic and social problems halted reforms in the late 1980s.
8 Terry F. "Entertainment media, cultural power, and post-globalization: The case of China's international media expansion and the discourse of soft power, Sage Journals, 2016. 285 p.
The momentum of the reforms was severely interrupted in 1989, less than a decade after it had begun, when a massive student demonstration in Tiananmen Square was brutally suppressed by the military. But the transition to a market economy began again and more radically in the first half of the 90s. In a very short time, a significant part of state-owned companies was privatized, and state planning in production was significantly reduced.
Employee-employer relations were regulated according to market economy conditions, millions of workers were laid off in state-owned companies. The infrastructures required by the market economy have started to be created in many areas. The process of deeper integration with the capitalist world economy began in 2001 with the participation in the World Trade Organization (WTO)9.
The approach of the Chinese leadership during this period was based on caution and pragmatism, despite the apparent radicalism of the reform process. Revolutionary transitions and large steps were avoided as much as possible. There was a tendency to constantly test and implement reforms through a process of trial and error. Meanwhile, the state was at the center of this process, although it experienced a major contraction in its economic role.
Deng Xiaoping saw international peace and domestic political stability as prerequisites for China's modernization. After 1989, with the collapse of the Soviet Union, the belief that it was vital for China to pursue only economic reform and avoid destabilizing political reforms intensified. The Asian financial crisis of 1997-1998 similarly confirmed China's avoidance of a revolutionary transition. The most important condition for China's development was political stability. Maintaining political stability also depended mainly on economic development.
Market reforms continued in the new period with a different approach from the previous period. While the reforms of the first period were carried out mainly in rural areas and were based on a bottom-up approach to change, in the new period a more top-down approach to change was applied. During the initial reforms, the state played a more active role in guiding the changes. In the new era, the center of change was the urban regions. International institutions such as the World Bank have also played an important role in changing policies in the new era.
While in the first period the change was carried out without loss, in the new period many people lost their jobs and social rights. While there was no consensus within the party regarding the goal of change in the first period,
9 Bandow D. "The U.S. Should Offer Taiwan a Free-Trade Agreement", 2020.
in the new period this goal was defined as "socialist market economy" at the XIV Party Congress. Although there was a socialist word at the beginning, fundamentally the changes required by the market economy were carried out10. Since the mid-1990s, state planning in manufacturing in China has been greatly reduced.
In the late 1990s, most of the state-owned enterprises were privatized, and the remaining state-owned enterprises became generally capitalist companies. While the number of people working in the public sector reached its peak in 1995 at 113 million, this number decreased to 81 million in 2000 and 64 million in 2007. As public sector employment declined rapidly, the resulting cheap labor was offered to foreign investors producing for the capitalist world econ-omy11. The ruling elite tried to suppress the social unrest with the slogan of socialism typical of China.
The economic system developed after 1978 is called socialist market economy. A socialist market economy is seen as a different economic model in which the market economy complements each other and the planned economy dominates. According to Chinese theorists, socialism in China did not emerge after capitalism, but in the context of the emergence of modern capitalism. Therefore, socialism in the country had to take on a historical task that capitalism could cope with. Both socialism in China and world capitalism are preparing the conditions for the transition to communism.
Although the reform and opening-up represented a significant departure from socialism, it was perceived by those willing to go any way the Chinese leadership suggested that no significant retreat from socialism was envisaged. The policy of reform and initiative that heralded the end of the revolution re-opened the debate on socialism, both in terms of goals and strategies for achieving those goals. With the participation of Chinese society in the capitalist world system under the leadership of Deng Xiaoping, a new structure was adopted under the dictatorship of the Communist Party, which was socialist in name only.
Conclusion
Since the Communist revolution in China, Chinese socialism has been guided by these interrelated goals: national wealth and security on the one hand, and distributive justice on the other. In the 1950s, in order to increase
10 Buzan B. "China in international society: Is "peaceful rise" possible?", The Chinese Journal of International Politics, 2010. 28 p.
11 Terry F. "Entertainment media, cultural power, and post-globalization: The case of China's international media expansion and the discourse of soft power, Sage Journals, 2016. 287 p.
production and ensure greater equality in society, along with collectivization in agriculture, the creation of heavy industrial infrastructure was also prioritized. The next two decades saw a period in which radical equality became a top priority and interaction with the outside world was greatly restricted.
The policies followed during this period resembled a war economy, where consumption was driven by sacrifice for larger collective goals and driven by extreme security concerns. The "reform and expansion" policy that began in the 1980s initiated the process of adapting to changes in the capitalist world economy. Issues of national welfare and security remain important. But the quest for equality gave way to the eradication of poverty through rapid economic development. In the process, distributive justice lost its power, postponing the realization of socialism to a more uncertain future.
The new era is called "socialist market economy", "socialism with Chinese characteristics" and so on. Although it is tried to be legitimized by conceptualizations, it actually means a big break. Until 1978, China was a very equal society with income distribution, but today it is among the most unequal countries. Social justice has been replaced in the new era by the goal of rapid growth at any cost.
The policy of reform and openness continues today, where China is the world's largest economy by volume by purchasing power share and the world's second largest economy by nominal values. Although China has become a very important actor in the world economy, it still has major structural problems.
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