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Rebirth
The Tiananmen debacle resulted in a brief spell of conservatism, but within a few years, Deng Xiaoping choreographed the rebirth of reform and openness with his historic “southern tour.” With Deng’s assurance that “to get rich is glorious,” entrepreneurial energy exploded again, concentrated now in the coastal cities. The leadership, guided by economic czar Zhu Rongji, enacted a far-reaching structural transformation of the economic sphere, anchored in privatization of state-owned enterprises. Ironically, China’s lack of full reform—especially in the financial sector and monetary policy—protected the Chinese economy from the vicissitudes of hot money and capital flight that ravaged its neighbors during the East Asian financial crisis. |
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Where the USSR Smashed, China was ConservativePeriod: Rebirth (1990s) | Structural Transformation of the Economic Sphere
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Click to expand The 80s certainly form a very coherent period, but then it was brought to the end politically by Tiananmen. And then Tiananmen was followed by the attempt to roll back the whole reform process. It’s a complete fiasco. The conservatives take power politically at Tiananmen but they then discredit themselves economically by a series of absolutely ridiculous policies that simply don’t work at all. They are essentially in the position of saying – they start out saying “we need to re-control the economy and strengthen energy and cut back processing industry”, and they adopt all of these policies which have no effect. And in the meantime, the economy essentially rights itself, through market processes. And they’re left high and dry. And when Deng Xiaoping steps back in in 1992 to make it clear that the momentum towards a market economy will continue, he’s really stepping in very strategically at a point where the pendulum is already starting to swing back the other way, and then he just kind of steps in and kind of gives it a nice whack to complete the movement. So from an economic policy standpoint, really the key turning point is in 1993, 94, where they begin to make the institutional changes that are needed to undergird a more thorough movement to a market economy. We think of the 1980s as liberalizing, decentralizing, opening up market relations, but very little in the way of creation of the kind of institutions that can govern a market economy, very little in financial reform, very little in corporate governance reform, and of course almost no ownership reform in a formal sense. Those things then get tackled after 1993. So in that sense, a very clear difference in terms of economic policy, and those are the kind of changes that for economists seem like the clearly necessary next step in pushing forward. And instead they said no, you know, let’s let this economy adapt for a while. We’ll take the pressure off, we’ll give people an opportunity to reorient towards market dynamics. We’ll let incentives strengthen somewhat but without creating a free for all in the overall economy. It was that instinctive conservatism to the first stage of economic reform – what we might call the instinctive conservatism of a Zhao Ziyang, who wants to move toward a market economy but knows that his political position isn’t very secure, knows he has to be careful, knows he can’t survive if he creates a lot of inflation or unemployment, or if he really damages the interests of, say, urban workers. So he has to be very careful. But this instinctive conservatism turns out also to be economically a good way to proceed. And of course the contrast with the Soviet Union is just so striking, you know, where the political calculation for to some extent Gorbachev but even more strikingly Yeltsen is the opposite. He figures he has to move fast, or he’s going to be in trouble. He has to smash the political hierarchy or they’ll re-seize power. So it’s almost exactly the opposite in terms of the kind of political calculation that underlies the economic policy.
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