Living with Declining Living Standards
Chapter 5: People’s Republic of China
INTRODUCTION1 Deng Xiaoping, while China’s paramount leader, made two momentous decisions that underlie China’s current political economy. The first decision in the second half of the 1970s produced the household responsibility system (HRS). The second, in 1989, was to use the Red Army to repress in Tiananmen Square the pro-democracy student demonstrations. Together they show both the strengths and weaknesses of a political economy in which a single person, committee or party can influence the future. The result of the first decision was to release the energy and initiative of China’s rural majority as private sector entrepreneurs. The second decision led to new leadership which sabotaged the rural private sector capitalism and wellbeing released under the HRS and replaced it during the 1990s with a non-sustainable capital-intensive form of state-controlled industrial development and urbanization. The shift from facilitating household-based rural enterprise development to reliance on foreigndirected investment and State Operated Enterprises (SOE) was glaring – in the first three years of the 1990s the growth rate of SOEs ‘tripled over that in the 1980s.’2 Deng’s decisions were not without opposition. Underlying the household responsibility system was Deng’s belief that creating wealth at the household level, and hence differences in wealth between households, was to be encouraged, contrary to previous policies of the Communist Party. Violently repressing student demonstrations in 1989 was contrary to the recommendations of others within the Party, including Zhao Ziyang, the Party’s general secretary, who ‘advocated using “democracy and the rule of law” to settle the crisis’3 – a...
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