Forty years ago, the People’s Republic of China embarked on an economic program that has transformed the country and the world. Deng Xiaoping’s decision to embrace the market through “reform and openness” launched China on a trajectory that made it the second-largest economy in the world and it is slated to overtake the United States as No. 1 in a few years. Today, however, there are growing doubts about Beijing’s commitment to market mechanisms, and remarks by President Xi Jinping last Tuesday only compounded that concern.
Some observers credit Deng’s October 1978 trip to Japan with inspiring him to adopt market reforms. During that visit, he saw first-hand the fruits of a modern economy — he rode a bullet train and visited auto, steel and electronics plants — and pushed the Communist Party to adopt the “reform and opening up” policy at its central committee meeting that convened Dec. 18 that year.
The rejection of Mao Zedong’s collectivist vision and the unleashing of private enterprise led to a decade of double-digit economic growth. China’s economy today is more than 80 times larger than it was in 1978. Hundreds of millions of people have been lifted out of poverty, with the poverty rate among the rural population dropping from 97.5 percent to 3.1 percent in 2017. Prosperity has had a physical impact on the Chinese people: The average height of a Chinese male has increased 4 cm since 1959; the average female is now 3 cm taller.
The Chinese juggernaut has had a profound impact on global trade as exports as a percentage of GDP rose from 4.56 percent to 19.7 percent over four decades. During that time, China’s steel production expanded from 30 million tons in 1959 to 830 million tons — almost half the global production — in 2017. A steel plant built with Japanese support after Deng’s visit has surpassed its model: The China Baowu Steel Group is now the world’s second-largest steel-maker, overtaking Nippon Steel and Sumitomo Metal, according to the World Steel Association. Chinese automobile production has risen from 700,000 units in 1991 to 20 million last year.
Xi applauded that performance and promised still more in a much-anticipated speech last week. He acknowledged Deng’s vision, squashing speculation that he had been trying to downplay his predecessor’s contributions, but offered little substantive in the way of future actions. Similarly, there were hopes that Xi might offer some indication of the reforms he is willing to accept to head off the trade war that is looming with the U.S. He did not deliver.
Instead, he merely noted that “what should be and can be reformed, we will resolutely reform.” But, he continued, “what should not or cannot be reformed, we will resolutely not reform.” No one, Xi explained, can tell China what to do, and “there is no textbook that can be regarded as a golden rule.” That said, he argued China’s development “provides successful experience and offers a bright prospect for other developing countries.” But, he promised, “China will never develop itself by sacrificing the interests of other countries” — it would not seek hegemony — while insisting that China also will not “abandon its own legitimate rights and interests.”
For all the tensions, Xi thinks exactly like Deng when it comes to the role of the party: For both men, the Communist Party must remain in control of China. The first lesson from 40 years of reform, Xi said, was the need to maintain party leadership “over all tasks.” In fact, Deng launched his reforms in the sleepy fishing village of Shenzhen in southern China to avoid creating an alternative power center to Beijing.
It is increasingly unclear, however, if the two visions — of a growing and prosperous market economy and an increasingly powerful political center — can be reconciled. As the Chinese economy encounters strengthening headwinds — growth continues to slow, debt continues to mount and international pressure for domestic reform intensifies — state-supported enterprises and national champions are assuming a larger role. It is clear that Xi prefers a tighter grip on the economy to more openness, and many critics, even those in China who face real consequences for saying so, fear that trajectory will only lead to stagnation.
In many ways, China’s rise is natural. A country of its size, endowments and geographic location should be one of the world’s leading economies. That for decades it was not reflected political choices, particularly those of Mao, who put his desire for control and power over the needs of the nation. China’s upward trajectory over the past four decades is the product of a different, more thoughtful set of choices. But nothing is permanent and unwise decisions can once again push China off track. Xi must keep that in mind as he grapples with the many choices he must make.
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