The History and Political Economy of the Peoples Republic of China ( )

The History and Political Economy of the Peoples Republic of China (1949-2012) Lecturer, Douglas Lee, PhD, JD Osher Lifelong Learning Institute Dominican University of California Spring 2018

The Mechanics of Deng Xiaoping s Reforms and Modernization

Lecture 5: The Mechanics of Deng s Reforms & China s Modernization 1. Reorganizing the New Leadership 2. Changes in Chinese Foreign Policy & Relations 3. The Blueprint: The Four Modernizations and Five Warnings 4. Restructuring China s Foreign Trade System 5. Legal Reforms: Law, Procedure, Judiciary, lawyers 6. Fiscal, Monetary, Currency, & Banking Reforms 7. Land Reform and Rural & Urban Material Incentives 8. Decentralization of Economic Planning (1978-1982) 9. Special Economic Zones (SEZ) and Joint Ventures (JV) 10. Advances in Science & Technology 11. Chinese Society: Rising Expectations and Failed Expectations 12. The Democracy Movement & June 4, 1989, Tiananmen Square 13. Death of Deng and July 1, 1997 The Return of Hong Kong

1. Reorganizing the New Leadership 1. Cleaning House, Dealing with the Fall out of the Cultural Revolution 2. Putting Together a New Team: Second Generation 3. Deng s Management Approach & Style 4. Moderates Recast as Hardline Conservatives 5. The New Chinese Young Turks 6. Once the Genie is Out of the Bottle.. 7. A Fragile and Faltering Partnership

Hu Yaobang, 1915-1989 Chairman of CCP 1981-1982 Secretary General of CCP 1978-1982

Zhao Ziyang, 1919-2005 Premier of PRC 1980-1987 and General Secretary of CCP, 1987-1989

Second Generation Leadership

2. Changes in Chinese Foreign Policy & Relations 1. The Soviet-Vietnamese Threat 1978-1979 2. Normalization of U.S.-PRC Relations, 1978 3. Normalization of Japan-PRC Relations, 1978 4. PRC-UK Forging A New Relationship 1982 5. PRC-Taiwan, A Cool, but Perceptible Thaw 6. China Reaches Out to the World, In the Footsteps of Meiji Japan

3. The Blueprint: The Four Modernizations and Five Warnings 1. The Four Modernizations of Zhou Enlai 1) Agriculture, 2) Industry, 3) Technology-Science, 4) Defense/National Security 2. The Five Warnings Deng Xiaoping 1. CCP Will Always be in charge 2. Chinese society will always be socialist 3. CCP Will always hold high Marxism-Leninism 4. Chairman Mao will always be honored as a great leader & teacher, who did good and bad we must learn from his both good and bad actions 5. CCP promotes modernization & Economic Reform but absolutely opposes political liberalization

4. Restructuring China s Foreign Trade System 1. China s Foreign Trade System before 1978 Foreign Trade Corporations (FTC) & The Canton Trade Fair System 2. 1979-1980 s Reform, Restructure FTC, Open Foreign Trade, Foreign Vendors & Chinese End- Users, Decentralization of Foreign Trade 3. Provinces & Major Municipalities authorized to negotiate Purchase Contracts up to US $100 million w/o review/approval by Beijing 4. Bank of China w/ Highly rated Letters of Credit 5. Foreign Trade vehicle for obtaining Technology & Foreign hard currencies

5. Legal Reforms: Law, Procedure, Judiciary, lawyers 1. Return to the Rule of Law, (Soviet Civil Law Model) 2. 1982 New Constitution of PRC, replaces 1978, 1974, 1954 (Soviet Model) Stresses 1) Duties & Rights of Citizens, and Peoples Courts & Procuratorates 3. A Mixed Legal System: Civil, Common Law 4. Reform of Chinese Substantive Law Criminal Law, Civil Law, Business Law, Intellectual Property Law, Environmental Law, Family Law, Corporate Law Tax Law, Admiralty Law, Administrative Law, International Law 5. Reform of Chinese Procedural Law, Criminal and Civil Procedure, Arbitration-Mediation 6. Reform/Modernization of Legal Education & Profession 7. Reform & Modernization of the Chinese Judiciary

6. Fiscal, Monetary, Currency, & Banking Reforms 1. Reform of the Chinese Currency System- dropping the dual system of Yuan & Renminbei currencies 2. Reform of the Banking and Monetary Systems 3. Institutionalization of New Tax System & Laws Income Tax, Corporate Tax, 4. Private Enterprise & Private Property, Private Banking Accounts, and The Emergent Stock Market 5. Liquidity and Foreign Currency Exchange 6. Public and Private Sectors re: Monetary Policy 7. The Development and Use of Credit Instruments 8. The Challenge of Inflation in the 1980 s

7. Land Reform and Rural & Urban Material Incentives 1. Dismantling the Commune System 2. Re-Configuration of Rural Communities 2. Changes in the Danwei and Hukou Systems 3. The Rural Scene: Material Incentives via private Black Markets; 4. The Urban Scene: Material incentives in State Run Enterprises, & in Private Mom & Pop enterprises 5. The Chinese Economy as a Mixed System of Socialism with Chinese Characteristics 6. Neither Command Economy nor Market Economy but actually a new Mixed Economy

8. Decentralization of Economic Planning Followed by Re-Centralization (1978-1988) 1. Model in Reform in Reform of China s Foreign Trade 2. The Rise of Key New Provincial and Municipal Leaders 3. Deng Xiaoping s management Approach & Style 1978-1982- Provide a long leash Keep Your Eyes Open! 4. Beijing Hub of the Wheel, Centralized Bureaucratic Model Modified, White Cat, Black Cat 5. Diverse & Multiple Sectors, with Local Needs, and Resources (Material and Human) Simultaneous Activities 6. Rise of Technical Bureaucratic Specialists, who are allowed maximum flexibility to follow general Policies, to maximize work product 7. Reversal of Decentralization after 1982 Concerns about Inflation and Beijing s loss of control & power to locals 8. Lifting of Price Controls 1988, public panic follows, 1988-1991 Austerity programs follow: end inflation, lower growth targets, spending flows, reduce money supply, tighten & centralize financial controls

9. Chinese Special Economic Zones (SEZ) and Joint Ventures (JV) 1. Hua Guofeng initiated The Development of SEZ 2. Pioneering efforts in Guangdong & Fujian 1980 s 3. Shenzhen, Shantou (Swatow), Xiamen (Amoy) 4. SEZ as a Hybrid Entity to Encourage & Support Foreign Trade, Technology Transfer, Acquisition of Foreign Hard Currencies (through SEZ Law) 5. The Joint Venture (JV) as a Hybrid Entity Contract JV and Equity JV (Parties, Options, Assets, Liabilities, and Benefits)

The Shenzhen Special Economic Zone (SEZ)

10. Advances in Science & Technology 1. Educational Reform (Higher Education, Overseas Studies, Technical Institutions) 2. Technology Transfer via SEZ and JV (Private Sector) 3. Theoretical Research and Development 4. Applied Research 5. Medical and Life Sciences 6. Natural and Physical Sciences 7. Engineering Sciences 8. Aviation and Space Sciences 9. Environmental Sciences

11. Chinese Society: Rising Expectations and Failed Expectations 1. Tensions between the Four Modernizations and the Five Warnings 2. Tensions between Public Policies and Private Interests and Needs 3. CCP Elitism as a Stimulus of Resentment, because of inequality, corruption, favorism, economic dislocation, lack of opportunity 4. The Aquarium Syndrome (It is Never Big Enough!) 5. Modernization & Economic Reform generate Rising Expectations amid Failing Expectations 6. Beneficiaries of Reform, Become its most ardent critics (Youth, Educated, Professionals, Children of CCP and PRC Elites) 7.) The Overseas Factor (Education, Travel, Exposure, Expertise, and Personal Experiences

Rising Expectations!

12. The Democracy Movement & June 4, 1989, Tiananmen Square 1. The Democracy Movement Beijing Spring 1978 Wei Jingsheng on China s 5 th Modernization (Democracy) Reversal of Verdicts on 1976 Tiananmen Square Demonstrators. Big Character postings on Beijing s Democracy Wall all go against Deng s 5 Warnings, 1978 2. Antecedents 1900-1905 Anti-Qing, May 4 th 1919 3. 1978-1989 Decade of Mounting Pressures for Democratic changes and Political Liberalization 4. Tiananmen Square Protests May-June 1989 5. (June 4 th Tiananmen Square Massacres)

The Democracy Movement, 1979-1986

Advocating China s Fifth Modernization

The Democracy Movement, 1979-1986

Failed Expectations

Rising Expectations

Tiananmen Square Student Protests May 22-June 4, 1989

Tiananmen Square Crack Down & Massacres May 30-June 4, 1989

Tiananmen Square January 1990, As If nothing had ever Happened

Tiananmen Square Crack Down & Massacres May 30-June 4, 1989

Forbidden Dreams Amid The Forbidden City

Tiananmen Square Crack Down & Massacres May 30-June 4, 1989

13a. Retirement and Death of Deng, 1989-1997 1. Deng Standing Firm, 1989-1992 a. June 1989 Reasserting Power w/ 5 warnings b. Resolve to continue reforms under Socialism c. Third Generation promoted, Jiang Zemin d. Keep U.S. Door Open (H.W. Bush & Deng) e. 1989-1991 Collapse of Communism in Europe Are we Immune? f. Impatience with Conservative Economic Policies 1989-1991 Austerity program curbs inflation, tighten controls over investment, balanced budgets, price reform, separation of enterprise ownership & management, tax reform, & banking reforms g. Development of Patriotic Education of China s Youth

13b. Retirement and Death of Deng, 1989-1997 2. Deng s Southern Journey at age 87 in 1992 3. Strategy to promote more aggressive, less conservative economic reform policies 4. Deng s compromised power 1989-1991 5. Antecedents of Southern Journey of Early Qing Emperors & Mao Zedong (1965) (nanxun) 6. 1992 Deng makes breakthrough to get China back on the Economic Reform Fast track with Zhuhai meeting with security leaders to out flank Jiang Zemin opposition to fast track reforms 7. 14 th CCP Party Congress 1992- Deng s Retirement Celebration and Jiang Zemin s Coming out Party

End of An Interlude, and Dawn of A New Age

13c. Retirement and Death of Deng, 1989-1997 1. Sign of times- post Tiananmen Square Massacres Foreign Investments in China, 1989-1991 averaged at US$4 billion per year, from 1992-1999 with easing of sanctions, speed up of reform the figure rose to US $35 billion per year 2. Died Feb 1997 age 93, A son of the Chinese people, unlike Mao or past Emperors, legacy of a new Prosperous and Strong China 3. July 1, 1997 Return of Hong Kong Symbolize confirmation of Deng s vision and Legacy