Saturday December 22 marked 40 years since China began its long march of economic reform and opening up. The particular anniversary is of the end of the 3rd plenary session of the 11th Central Committee of the Communist Party of China, at which Deng Xiaoping effectively became paramount leader of the Communist Party, and won a mandate to begin reforming and opening up the country to the world.
Deng’s reforms started with the effective privatisation of agriculture: the collective farm system was abandoned and peasants were given their own private plots. A set quota of their produce still went to the government, but the rest they were allowed to sell in the free market. These reforms were such a success that they were expanded to other parts of the Chinese economy.
Private businesses and foreign investment were allowed for the first time since before the communist takeover in 1949, and the government gradually allowed the price system to play a part in more and more parts of the economy. Importantly, the central government created Special Economic Zones, where entrepreneurs and firms could be free of much of the bureaucracy and regulation that so hamper progress. Control of provincial governments was also relaxed, giving them the freedom to experiment and discover the best way to encourage development. Both of these helped to turbocharge the reform process and turn China into a high growth economy.
Despite its success, the process of reform and opening up has never been smooth or easy – most notably in the wake of the 1989 Tiananmen massacre and the social unrest associated with it, the ruling Chinese communist party applied the brakes to its liberalisation project. However, by 1992 the reform agenda began to accelerate once more.
The economic progress has been remarkable: since 1978 economic growth has averaged 9.6 per cent per year, and GDP per capita has increased from less than $300 to just under $9,000. Finally, although nominally still smaller, measured on a PPP basis China’s economy overtook the US in 2013 to become the largest in the world.
On a recent trip to China I was struck by how developed parts of it now are: the most affluent regions such as Beijing or Shanghai average salaries, measured by PPP, are over $35,000, higher than in much of Europe.
Nations have of course achieved rapid development before – the examples of Hong Kong and Singapore immediately spring to mind — but nothing on the scale of China. The World Bank estimates that since it opened up in 1978, more than 800 million people in China have been lifted out of poverty. It is quite simply one of the most remarkably trends in human history. Not only are most Chinese no longer poor, but a great many are affluent: today China has a middle class of over 400 million people and the largest consumer market in the world, with retail sales now exceeding those in the US.