1. POLI 324: Asian Politics
Dr. Kevin Lasher

2. Deng’s Economic Reforms, 1978-89

3. Deng’s Economic Reforms, 1978-89
Gradual introduction of quasi-capitalist reforms based on “cat theory”
Prices gradually freed on most goods during this period
Rural reforms
Urban reforms

4. Deng’s Economic Reforms, 1978-89
In many ways impressive; however, more important as laying the groundwork for additional reforms which will come in 1990s and beyond
Beginning of the economic reform process

5. Rural Reforms Household responsibility system Special households
Township and village enterprises (TVEs)

6. Household Responsibility System
Begun in 1978
De-collectivization of agriculture and return to a version of private property
Land “belongs” to townships and villages but can be leased to private households for fifteen years

7. Household Responsibility System
Households (families) decide what to grow
Households “own” land, animals, tools, etc.
Quotas at low state prices plus taxes, surplus can be sold at higher state prices or in free market

8. Household Responsibility System
: 8% increase in agricultural output
: 3% increase in agricultural output
Reduced state investment and other state services

9. Special Households
25-35 million households by 1990s involved in commodity production (fruits, vegetables, meat, dairy products, fish)
Some involved in services, small manufacturing, transportation
Portion of production or taxes to collective, keep rest

10. Special Households Family or 10-15 person operations
Risk by focusing on one or two products, but potential for great financial rewards

11. Township & Village Enterprises (TVEs)
Real transformation of countryside
Larger rural manufacturing operations
Great Leap Forward which “worked”
Not part of Deng’s original plans
Brand-new enterprises

12. Township & Village Enterprises (TVEs)
Manufacturing, construction, transportation, services
Components, small consumer goods, simple electronics
Variety of ownership schemes: owned by township, private owners affiliated with local CCP, local party members as owners
TVEs located in countryside with a variety of ownership forms (pure private ownership rare in this period)

13. Township & Village Enterprises (TVEs)
Early 1990s employed 125 million people
Represent 30% of GDP by 1995
Low-tech industrialization of rural China
TVEs have been reduced or transformed in last twenty years

14. Township & Village Enterprises (TVEs)
“China’s rural industrial revolution has brought about the greatest improvement in human welfare anywhere at any time.” World Bank

15. Rural Reforms: Problems
Collapse of commune-services
Rural jealousy of the more successful
Lack of reform in certain regions
Loss of farmland
Floating population of million former peasants
Countryside of young and old
HOWEVER: success far exceeds new problems

16. Urban Reforms Special Economic Zones Private businesses
Reform of State-Owned Enterprises (SOEs)

17. Special Economic Zones (SEZs)
In 1979 four “capitalist enclaves” created as Special Economic Zones in southeastern China

18. Special Economic Zones (SEZs)

19. Special Economic Zones (SEZs)
Special tax incentives for foreign investment
Focus on export-oriented industries
Joint ventures with foreign firms and wholly foreign-owned firms
Market-oriented economic activities

20. Special Economic Zones (SEZs)
Cheap labor by mass migration of Chinese rural citizens to these zones
Western-based management principles

21. Special Economic Zones (SEZs)
Expanded to 14 coastal cities in 1985
Expanded further in early 1990s

22. Special Economic Zones (SEZs)

25. Special Economic Zones (SEZs)
A good deal of economic and personal freedom, but not extended into the political realm
Periodic crackdowns on spiritual pollution, crime and liberalization
Jealousy from areas of China “left behind”

26. Private Businesses
Retail shops, restaurants, video stores, internet cafes, beauty parlors, others
Originally eight employees and less than $500,000 (later expanded)
Individual business firms

27. Private Businesses
Brand new or purchased very small state-owned enterprises
10,000,000 individual business firms by mid-1990s
Estimate million employees

28. Private Businesses
Private enterprises are larger with more than eight employees
420,000 with 6.5 million employees by mid-1990s
Larger the enterprise, the more ambiguous the ownership structure

29. Private Businesses
Eventually distinction between smaller individual business firms and larger private enterprises becomes blurred

30. State Owned Enterprises (SOEs)
Prior to Deng’s reforms, almost every enterprise of any size was owned by the government
In 1984 there were 400,000 medium and large state-owned enterprises which employed around 100 million people
One estimate suggested that half of these were functionally bankrupt

31. State Owned Enterprises (SOEs)
1984 saw the beginning of efforts to introduce capitalistic reforms to SOEs – more management control, phase out subsidies and move to profit and loss status, factory responsibility system where percentage would be produced for market

32. State Owned Enterprises (SOEs)
Tremendous resistance to SOE reform within party because it would mean significant unemployment for short-term
Real reforms of SOEs are delayed until mid-1990s

33. 9.5% annual GDP growth,

34. Deng’s Economic Reforms, 1978-89
Introducing quasi-capitalism to China and calling it “market socialism” or other terms acceptable to CCP
Considerable success but only a prelude for what is to come in next thirty years

35. The End