Feature Article: How Deng Xiaoping ignited China’s capitalist revolution

For many, the most important political event of the twentieth century is considered to be the implosion of socialism in eastern Europe, when, from 1989 onwards, a series of chain reactions followed the collapse of the Berlin Wall. 

But, another event happened more or less concomitantly which fiercely contests this title. Deng Xiaoping, “Paramount Leader” of the People’s Republic of China from 1978 onwards, working in concert with the other so-called Eight Elders, ushered in radical free market reforms that sparked off the economic revolution which released China from the suffocating stranglehold of socialism. The resultant phenomenal economic growth and socio-economic improvements for the greatest number of people have occurred in the shortest time ever recorded.

“The market is not an invention of capitalism. It has existed for centuries. It is an invention of civilisation,” said Deng Xiaoping. He could have added that the market is a reflection of human nature. Like language, it evolved spontaneously in primitive times when people, motivated by what they perceived to be in their best interest, bargained to exchange goods such as crops, furs, metals, weapons and other manufactured goods, and hired skilled people to carry out certain functions. These exchanges were rational and self-serving and were calculated to leave the transacting parties in a better state than before. 

Deng Xiaoping was a politician and very well-schooled in the diplomatic art of selling the unsellable. Through consensus, compromise and persuasion, he succeeded in selling capitalism to communists. This seemingly impossible feat makes him one of the greatest statesmen of modern times. He allowed capitalism to flourish and implemented concomitant reforms without calling them capitalism.

Even before the disastrous Cultural Revolution (1966 to 1976), Deng Xiaoping had the foresight to say, “It does not matter if the colour of the cat is black or white so long as it catches the mice.” To him, it did not matter what economic system was implemented so long as it was the one that could deliver the socio-economic results that people aspired to. Later on,  as head of the Communist Party, he was instrumental in unleashing market forces in China that made its policies comparable to those of Hong Kong, its small island neighbour, which, for decades, had boasted the freest economy in the world.

Situated just across the border from Shenzhen, in Guangdong Province, China, Hong Kong was first a British colony and then later a British Dependent Territory from 1841 to 1997. Britain concerned itself only with the political administration of the territory and did not interfere in any way with the economy. By default, therefore, it allowed the spontaneous order of free markets to operate. Deng Xiaoping, it seems, cast his eye across the border, and witnessed the demonstration effect of free market policies. .

Deng Xiaoping’s market reforms began in the late 1970s with the de-nationalisation and de-collectivisation of agriculture. This allowed entrepreneurs, first in agriculture, and then in other sectors to establish private enterprises and turn certain areas of the country into attractive destinations for foreign investment. The city of Shenzhen, in Guangdong province, was the centre of these reforms and designated as a Special Economic Zone, along with other areas such Guangzhou and Shanghai.

The economic expansion of Shenzhen was phenomenal. During the 1970s, it was a small town with 300,000 residents. In 2010 Shenzhen recorded a per capita GDP of US$ 14, 615.  The following year, 2011, saw the per capita GDP soaring to US$ 20,000.  The national average for the whole of China posted per capita GDP of US$ 5,414 (China Daily 09/24/2012).

During the second wave of the market revolution in the late 1980s and 1990s, massive privatisation of state-owned industries was implemented in the designated Special Economic Zones and to some extent in parts of the country outside of these areas. Simultaneously, price controls, onerous regulations and protectionist policies were phased out and in many cases abolished in one fell swoop. By the year 2005 the private sector in China, largely concentrated in special economic zones, already accounted for 70% of China’s GDP.

The Chinese quickly embraced the boundless opportunities that a market economy presented and heeded Deng Xiaoping’s words that “it is glorious to be rich” (directly translated from Chinese as “wealth is glorious”). Within two decades, China had become the second biggest economy in the world, and it is predicted that it will be the biggest by 2015. Between 1978 and 2010, China’s economy grew at an average of 9.5% per annum.

The empirical evidence regarding Special Economic Zones (SEZs) worldwide shows that the majority by far have been failures and, to be maintained, have required substantial injections of additional government (taxpayer) funding. Some of the successes are Shenzhen, Mauritius and the Tema Free Zone in Ghana.  It is noteworthy that by 2011 the Tema Free Zone accounted for 28, 899 jobs created (Eleanor Whitehead and Robert Green 1 May 2012). Even a cursory study of the success cases, globally, illustrates that, if SEZs are to succeed, they must be free market enclaves.

If the policies pertaining to successful SEZs were implemented wall-to-wall for entire country economies, the economies concerned would take off.  In the process, the largest number of people would be lifted out of miserable socio-economic conditions in the shortest possible time.

It is important to understand that China’s phenomenal socio-economic success is primarily accounted for only in those areas where the most radical free market reforms have taken place, such as Guangdong Province. The experiment is now being widened to cover more geographical areas. It boggles the mind what the results could be if the whole of China adopted such policies.   

The first business licence in China was awarded in 1979. The recipient was nineteen-year old Zhang Huawei, the daughter of state factory workers who started out humbly selling trinkets from a table in the city of Wenzhou. Today, she is a millionaire in dollar terms and heads the Huamei Garment Accessory Company (2008 Jeffrey Hays). Her story exemplifies the wisdom of another of Deng Xiaoping’s exhortations, “Markets are good … Let a part of the population get rich first.”

A sad blot on Deng Xiaoping’s brilliant diplomacy, pragmatism and fixity of purpose is that the tragedy of Tiananmen Square took place during his watch. Deng Xiaoping’s route to the free market revolution was grounded in common sense, rather than theory. The Chinese people, allowed space,  spontaneously gave practical effect to economic freedom.

In their book, Mao: The Unknown Story, historians Jung Chang and Jon Halliday detail the misery that the practice of communism visited on China. Taking advantage of access to recently opened Chinese and Russian archives and interviewing hundreds of people who were close to Mao Tse Tung, they record the deaths of at least 70 million Chinese, a figure substantiated by various independent sources, that were primarily caused by the famine which resulted from the devastating interventions introduced under the supposed “Great Leap Forward”. 

An observation made by the philosopher, economist and sociologist Ludwig von Mises was that “capitalism needs neither propaganda nor apostles.  Its achievements speak for themselves”By introducing free market principles, Deng Xiaoping turned things around.If China succeeds in keeping up its current rate of economic growth, there can be no doubt the Chinese dragon will create the largest economy in the world.

Source: This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

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