China: THE GIANT WAKING : Reforms Reshape the World : Long March to a Profit Motive

Napoleon once said about China: “There lies a sleeping giant. Let her sleep, for when she wakes she will shake the world.” That time has come.

China is about to become a superpower. If China and the Soviet Union maintain the same respective growth rates they have averaged over the last decade, by the year 2000 China’s economy will be three times as big as the Soviet Union’s.

China is pursuing an independent course in foreign affairs, producing a massive shift in the global balance of military power.

China has emerged from the cultural revolution--from the convulsive and costly process of turning a whole society on its head to enforce ideological purity.

And China, to a degree unprecedented for a major communist society, is looking for guidance less and less to Marx, more and more to the magic of the marketplace. What a powerful example, when the world’s largest developing country, a country with almost one-fourth of all mankind, embraces ideas like the profit motive, private entrepreneurship and market pricing.

In 1949, the “loss” of China sent a tremor through U.S. political life that reverberates even now. Sen. Joseph R. McCarthy’s famous charge that there were precisely 57 communists in the State Department came less than eight weeks after Chiang Kai-shek picked up the remnants of his government and fled to the island province known as Formosa.

China’s revolution helped define America’s approach to the postwar world. Here was proof that the Soviets aspired to reshape the world in a Marxist image and that, unless resisted, they might. In the 1950s and 1960s, the memory of the fall of China and fears of the Chinese Communists lured us into two divisive land wars in Asia, first Korea, then Vietnam.

Against that background, it is stunning that we now find so much in common with China.

The shift began in the 1960s, with the deterioration in China’s relations with her ostensible mentor, the Soviet Union. In retrospect, the Sino-Soviet split seems to have been inevitable. Resistance to foreign domination is deeply rooted in China’s history, in the cultural self-confidence of the Confucian “Middle Kingdom” which for 2,000 years regarded all foreigners as “barbarians.”

Even the communist revolution could not erase all this history. When the Soviet Union asserted the right to defend socialism by invading sovereign nations; Czechoslovakia was the 1968 target but China saw the message--and didn’t like it. By 1969 there was sporadic fighting along the Sino-Soviet border and Mao Tse-tung was telling his people to “store grain everywhere,” and to “dig tunnels deep”--words that resonated with Americans who were concerned about Soviet expansionism.

That parallel outlook toward the Soviets opened the way for gradual normalizing of U.S.-China contacts, leading to the establishment of full diplomatic relations in 1979.

This Sino-Soviet division has been a fact of life for many years, but many may not have grasped its full importance. Not long ago U.S. defense planning was geared to fight 2 1/2 wars at once--against the Soviet Union, against China and against a smaller regional power. Now, the United States does not arm itself against China--but the Soviet Union does. This one change has brought a major realignment in the global balance of power.

What about the future? Will China slip back into Soviet orbit? No--not necessarily because of our diplomats’ skill, but because of underlying realities. We all have a natural tendency to overstate our own influence--to confuse our presence at an event with its cause, like the rooster who thinks his crowing calls forth the sun. The notion that the United States could manipulate China as part of a strategy toward the Soviet Union has always been the height of presumption--to regard the nation of 1 billion people as just a playing card in the U.S. deck.

What will keep China out of the Soviet orbit is not friendship for the United States, but reasons of her own--an underlying clash of cultures and a long and troubled border. Since China’s position is grounded in self-interest, it is all the more durable and certain.

There have been compelling new indications of a pragmatic Chinese posture in dealing with other countries, notably in the handling of the Hong Kong matter. The British crown colony of Hong Kong, operating under a very pure strain of capitalism and British law, has become one of the world’s most important commercial centers. The limits to further growth seemed defined by its lease; British tenancy runs out in 1997 when Chinese rule returns. Worries about the future were aggravated in late 1982 by some undiplomatic British hints that Hong Kong might be treated like the Falklands. Fortunately this moment passed and the negotiations that followed are a tribute to British realism and Chinese pragmatism.

Under the agreement, even after the Chinese resume sovereignty in 1997, Hong Kong’s current economic and social systems will be left alone for 50 years. Hong Kong will maintain a high degree of autonomy except in foreign affairs and defense. The Chinese, with their great gift for summation, described the result as “one country, two systems.”

The Chinese approach in this case had many audiences, not least of them Taiwan. It is one thing to talk about “one country, two systems”; it is another to enter into agreements to make it happen.

A refusal to be diverted from internal reform seems to be the operating principle of Chinese foreign policy in the 1980s. Chinese reaction to Vietnamese strikes this year in Cambodia has been muted indeed, especially in contrast to the “teach them a lesson” approach of the late 1970s. Relations with South Korea are edging toward normalcy.

For good measure, China has trimmed its military budget and plans to reduce the size of the People’s Army by 1 million men. As a nuclear power, China has shown no interest in an arms race with anyone--maintaining less than 250 nuclear-capable missiles and bombers, compared with thousands for the Soviet Union and the United States.

Meanwhile, the country’s domestic trends have been riveting.

China has not become a liberal, democratic society. Political and personal freedoms are still sharply confined. But there have been drastic and accelerating deparures from the Marxist model in the economic sphere. They began with reform in agriculture. In 1978, the Chinese startedshifting from farming communes to a system of contracts with family farmers. They adopted such unorthodox prescriptions for agriculture as regulation by market forces, profit incentives and experiments in enterprise economy.

The agricultural reform was called a “self-responsibility system.” (Not a bad way to define U.S. aims.) It has been stunningly successful--bumper harvests for four years running, including a doubled production of food grains, permitting sharp cutbacks on purchases abroad. The shift produced great wealth in the countryside and a sense of excitement--perhaps even of mission--among rural Chinese. In the process, rural reform has helped China avoid the surge of migration to the large cities that has plagued so many developing countries.

Last year, the Chinese moved their economic revolution to urban areas. Reforms include far-reaching steps out of character with a Marxist system. The goal of the 400,000 state-owned enterprises in China is no longer aiming to fill bureaucratic orders but a return of reasonable profits. Managers now make their own plans in such areas as wages, suppliers, investment and production. American-style training has been adopted in management, marketing and accounting--using instructors from U.S. universities.

The Marxist premise, “to each according to his need” is out of favor, being replaced with a quite different premise, “to each according to his performance.” There is official acceptance, even approval, of the accumulation of wealth. Private ownership is permitted for shops, restaurants and medium-sized businesses.

Perhaps most striking of all, China is granting permission for private companies to sell shares of stock to the public. To a capitalist, this is the natural business process; to a Marxist, it is heresy.

Chinese leaders are not timid about describing what they are doing and why. The party leader himself, Hu Yaobang, has said China “wasted 20 years” after 1949 because of the “radical leftist nonsense” associated with Mao. As an example of “nonsense,” he recited Mao’s phrase, “better to have socialist weeds than capitalist seedlings.” Now the favored maxim is the reverse, summed up in the aphorism from China’s top leader, Deng Xiaoping, that a cat of any color is welcome so long as it catches mice.

Such an extraordinary concept is now acceptable because, as Premier Zhao Ziyang says, “we learned our lessons the hard way . . . . Now, we know what works best for China.”

Quotations from Marx, Lenin and Mao are still invoked to rationalize the new policies, but the goals would be anathema to theoreticians like Mao. In China recently, one official told me that the reforms would create “200 million rich Chinese.”

These are changes of historic proportions. No major communist country has tried to move so far, let alone so fast, toward a market economy. The Economist , a British weekly, recently suggested that “if the same thing were happening in Russia, it would be the wonder of the century. The West is entitled to be enthralled.”

There is some evidence that the rapid pace of decentralization in China may have outrun the competence of local managers. Even the promise of change in the pervasive system of price controls produced a ripple of panic buying; when actual price increases come, discontent is bound to follow. Opposition is surfacing among bureaucrats who are losing power and who call the reforms “spiritual pollution.” This is plainly a time of testing.

Many students of China also wonder what will happen when Deng, now 81 years old, leaves office. But Deng, the leading architect of reform, gives every indication of being concerned with posterity as well as power. He has firmly designated his successors--Hu the party leader, Zhao the premier. A cadre of younger people has replaced a generation of aging leaders, the largest power shift since 1949. The broad strategy is to assure that today’s directions will survive their chief author.

The reforms are manifestly popular--and, on the whole, working. China has grown at sustained rates comparable to Japan in the 1960s and South Korea, Taiwan and Hong Kong in the ‘70s. As businessmen dealing with China can attest, the country hungers for advanced technology, and incorporates it readily--in effect, skipping whole generations in building an industrial base.

In the midst of its “self-responsibility” approach, China is a remarkable vindication of the free-enterprise system. The largest of all the emerging countries has announced its reliance on an incentive system, the antithesis of the Soviet approach. Certainly there are fits and starts. Predictably, they try to rationalize their reforms with quotations from leading communist theoreticians. But the Chinese are opting for a market economy and they are not turning back.

Modern China is also a forceful answer to the suggestion that every Marxist society is irretrievably hostile to Western interests. Nations can be subjugated by stronger outside powers, and we know that is a Soviet ambition. But modern China shows that nations, when able to do so, are more likely to follow their own interest than someone else’s script.

It just might be true that time is on freedom’s side.