Pessimism Replaces Bright Promise of 1984 Reforms : China’s Economic ‘Boom’ in Low Gear

It seems now like a Chinese fairy tale, a scene from a halcyon era when nothing could possibly go wrong, from an imaginary dynasty lost in the recesses of the past.

On the cool, sunny morning of Wednesday, Oct. 1, 1984, China staged its most elaborate parade in a quarter-century to mark the 35th anniversary of the founding of the People’s Republic.

The People’s Liberation Army proudly showed off its troops, tanks, howitzers and missiles. Platoons of civilians marched by, carrying banners with exhortations to hard work such as “Time is money; efficiency is life.” Floats rolled by with displays symbolizing the new era of Chinese consumerism--stereo systems, radios and washing machines.

For the first time in his long career, Chinese leader Deng Xiaoping addressed the nation from the rostrum at Beijing’s Tien An Men Square--the same place where Mao Tse-tung had proclaimed the founding of the People’s Republic in 1949 and had encouraged the fervor of millions of Red Guards at the beginning of the Cultural Revolution in 1966.

“Today, all our people are full of pride and joy,” Deng said. And why not be proud? That past summer, China’s Olympic team had scored great successes in Los Angeles. In September, China had reached agreement with Britain on the return of Hong Kong to Chinese sovereignty in 1997, all but ending the ignominy of a century and a half of foreign occupation on the Chinese mainland.

Helped by a stretch of glorious weather, Chinese wheat fields and rice paddies were in the process of producing the largest annual harvest that China or any other nation had ever yielded. Buoyed by high oil prices and several years of trade surpluses, Chinese foreign exchange reserves were ample and rising.

Thus, brimming with confidence, Deng announced a few days after the parade that China was on the verge of “a kind of revolution which is different from the Cultural Revolution.” A series 1868963941three to five years to carry out.

Now, the sunny optimism and the pride and joy have melted away. In the privacy of their sparse apartments or quietly amid the noise of teahouses or discos, Chinese glumly mutter, “Mei you banfa “--which means, roughly, “There is no way out.”

Frustrated Dreams

The idea that China is on the verge of a revolution is rarely heard these days. Deng’s prediction that the economic reform program would be completed in three to five years has been completely discarded.

The past three years in China have been ones of lost innocence and frustrated dreams. Few in China believe any more that the country will follow quickly along the path to prosperity blazed by its Asian neighbors--Japan, Taiwan, South Korea, Hong Kong and Singapore.

Even some of the slogans used to promote the economic reform program three years ago are being called into question these days. In May, a commentary in the Guangming Daily, the Communist Party’s newspaper for intellectuals, denounced the famous slogan “Time is money, efficiency is life,” which was carried on the float in the 1984 National Day parade.

“We haven’t considered the differences between Eastern and Western value concepts,” the newspaper said. “(Such slogans) don’t fit China’s national conditions.”

Now, a gloomy China finds itself confronting a series of serious, even desperate problems over the next decade:

-- The regime’s efforts to hold down the growth of its population are faltering. Two years ago, authorities began to ease up on enforcement of the one-child-per-family policy imposed at the beginning of the 1980s. Now the birthrate is creeping upward again, and in some provinces, authorities are warning of a “partial loss of control” over family planning.

-- Chinese agriculture is in trouble. Grain production has slumped since the record harvest of 1984, and most experts believe that the steady annual increases of the early 1980s have come to an end. In order to keep feeding its population, China may have to import food, invest much more money in agriculture or begin forcing peasants to grow more grain.

-- Amid these social and economic difficulties, China also faces the certainty of major, potentially destabilizing political change. Not only Deng, but other first-generation Communist Party officials who have helped run the country since the revolution of 1949 will be retiring or dying.

-- The West’s fascination with China appears to be on the wane. Foreign investment dropped by 50% last year, according to U.S. estimates, and the steady, rapid growth in tourism in China in the first half of the decade has slowed considerably. The result is to limit the money coming in from abroad that can be used for development.

-- Development of offshore oil, through which China hoped to finance its economic development, has not produced the expected revenues. Foreign oil companies drilling off the South China coast have turned up mostly dry holes. Now, as oil prices have declined sharply from the high levels of the 1970s, oil companies have begun to pull out of China or reduce their bids for offshore tracts.

-- Most problematic of all, the launching of the economic reforms and the development of a consumer society have unleashed expectations of continuing material advancement that any Chinese leadership will find increasingly hard to fulfill. It is these expectations that the 1984 parade helped to legitimize.

Hard Times Forgotten

For the hundreds of millions of Chinese who have lived through the mass starvation of Mao’s Great Leap Forward or the horrors of the Cultural Revolution, life today is much better than it was at its worst. The nation is, by and large, better fed and dressed than it was even a few years ago.

Yet, as time moves on, the Great Leap Forward and the Cultural Revolution have started to fade as China’s principal standards of comparison. More than half of China’s population--more than 500 million people--have been born since 1962. They have no experience with the starvation years at the end of the Great Leap Forward in 1960-61 and little or no memory of the outbreak of the Cultural Revolution in 1966.

Increasingly, many Chinese, particularly the young, have come to want what others have elsewhere. They have begun to judge their lives by other points of reference. Urban Chinese compare their lives to those of the peasants. Intellectuals compare themselves to workers. Ordinary Chinese compare themselves to the privileged elite. China as a whole compares itself to other countries, or at least to other Asian countries. And by these standards, the Chinese people are often unsatisfied.

In Mao’s time, comparisons between China and other countries made little sense. The Chinese were regularly told that they were setting their own standards, that the country was blazing its own revolutionary path, that the masses were developing their own labor-intensive alternatives to the high-technology approaches of the West.

Invited Comparisons

Under Deng, China has opened the door for its people to learn more about the rest of the world. At the same time, by seeking to follow more traditional paths of economic development, it has invited comparisons with other countries.

As a result, it has lost a bit of its sense of uniqueness. On a visit to Beijing last year, one veteran China watcher from abroad mourned that he found it harder and harder to keep writing about China.

“The place is beginning to seem more and more like other poor, Third World countries,” he said.

That is an exaggeration, because China still remains exceptional, both in its size and in the extent to which it has kept itself isolated from foreign influence. Yet it illustrates the extent to which China is being judged by the standards of the rest of the world.

The programs launched under Deng seemed for a time as if they might put China in the vanguard once again, this time as a model for economic development.

At the beginning of this decade, China launched a series of reforms in the countryside that for several years produced steady, sizable annual increases in grain output. The reforms were based primarily on the idea of breaking up communes and allowing peasants to cultivate their own plots.

The economic reforms initiated in 1984 were intended to bring to Chinese cities and industries the same sort of radical transformation and rapid spurt in growth.

The thrust of the reform program was to reduce the role of centralized state planning, to let prices be determined increasingly by market forces and to reduce the role of the Communist Party in industry.

Promote Consumer Spending

The leadership also hoped that increases in consumer spending would help spur Chinese industries and stimulate growth.

“The growth of consumption gives a strong impetus to creation of new social demands, opens up vast markets and encourages production,” said the Communist Party in the October, 1984, document laying out the blueprint for urban reforms. “We must gradually bring about substantial increases in the pay of workers and staff members and in the people’s level of consumption.”

Chinese propaganda organs put it more bluntly: The Chinese should feel free to spend more money. They should quit keeping money under the mattress and go out and buy. In a nation where the values of thrift and hard work had been preached for decades, the message was, in its own way, revolutionary.

Where, then, did the reform program go wrong? Why is China so much more sober and pessimistic about the future today than it was three years ago?

In retrospect, the answer is a combination of overconfidence, bad policies, determined resistance, the intractable nature of Chinese culture and the inherent tensions of trying to develop a market-oriented economy within a socialist system.

Even if everything had worked well, it sometimes seemed as if, from the outset, the contradictions were too great.

The Communist Party was supposed to be the supreme authority in the nation, yet factory managers were to operate independently. Prices were to be determined by the law of supply and demand, but they should not be allowed to go up too much. Private businesses should flourish, so long as they did not hire too many people or compete with state industries. Scientists and writers should be allowed intellectual freedom but must not challenge Marxism, the rule of the party or the socialist system.

The resulting economic system struck many people, foreigners and Chinese alike, as a bizarre hybrid.

“Tell me, do you think this Chinese system is socialist or capitalist?” a Soviet resident in China asked an American one night after a couple of vodkas.

The American, who had never visited the Soviet Union, said that while there might be quite a few entrepreneurs on the street, the Chinese system itself was still fundamentally socialist. The Soviet official, who had never been in the United States or seen Western-style capitalism, shook his head in disbelief. He could not believe anyone could label China’s system socialist.

Ignorance, Mistrust

Apart from these inherent contradictions, there was the problem that many Chinese lacked even a basic understanding of how a free-market economy is supposed to work--and mistrusted what they were told about the idea.

A few days after Deng’s 1984 speech, on the very day that the Communist Party was unveiling its package of economic reforms, an American resident in China found himself trying to explain the law of supply and demand to a Chinese friend who had missed college during the Cultural Revolution.

Suppressing the temptation to pull out Paul Samuelson’s text on economics and read from it, the American finally grabbed a notebook and held it up. “Suppose this costs 10 yuan now, but I try to raise the price to 20,” he said. “Other people may come in and sell it cheaper, and the price will fall back down.”

The Chinese looked dubious. Summoning a lifetime of experience, he replied, “China doesn’t work that way.”

In a way, he was right. In China, the idea of Adam Smith’s “invisible hand” guiding the marketplace is a distant, if not silly, abstraction. And so are the notions of an independent businessman and a modest, reasonable profit. They have seldom existed since the Communist revolution, and for that matter the Chinese are convinced they were rare under Chiang Kai-shek’s Nationalist regime, too.

In China, what drives the market is guanxi, or connections. If you have them--if your cousin knows the governor’s niece--you might corner a preferred position in the market and make lots of money. If you don’t have guanxi but your competitor does, you might get muscled out and go broke.

In 1984, when China began opening the way for private enterprise, many of the first companies were run by Communist Party cadres or their children. The businesses opened quickly, won state approval to import foreign goods and signed contracts to sell the imports to state enterprises.

It happened so often that a year later, the Communist Party had to issue an order barring party officials and their children from engaging in private business. But the political damage was already done: It reinforced the deep resentment that ordinary Chinese already feel toward the privileged elite.

“Those cadres’ kids are always first,” fumed one Chinese woman in her late 30s this year. “They were the first ones to come back from the countryside to the cities after the Cultural Revolution. They were the first ones to get back into school in the late 1970s. And they were the first ones to get into private businesses.”

Ideological Resistance

Predictably, the 1984 reforms also ran into determined resistance.

Some of it was ideological. Conservative leaders within the party decried the new spirit of materialism and argued that it undermined “socialist spiritual civilization.”

“We should overcome the unhealthy tendency among some people of putting money above all else, or even judging a person’s social status by his income,” warned Politburo member Hu Qiaomu in early 1985.

The reforms also aroused the opposition of powerful economic forces. The huge state enterprises set up under China’s centrally planned economy feared changes that might raise the prices they pay for materials such as coal or steel and might phase out the state subsidies that they receive when they lose money.

No Chinese official would come out and say directly that he was against the 1984 reforms. That is not the style in China, where politics operates by consensus and public opposition to the leadership is strongly discouraged.

“We are not against reform,” one elderly official said in an interview two years ago at a time when the official and his friends were, in fact, working with quiet determination against the party leadership. “The question is, what kind of reforms does China want?”

Thus, while everyone said they agreed with the economic reforms, some Chinese simply ignored them, while others worked to subvert them.

After China opened the way for factory managers to give cash bonuses as a reward for those who worked hard, many factories responded by handing out bonuses to everyone on the payroll. When the regime gave factory managers the right to dismiss workers, some declined to use the power except in a token way.

At one textile factory with 4,700 workers in the city of Xining, in Qinghai province, the manager told reporters he had fired a total of three workers.

What had these people done? The manager said they had committed “serious mistakes.” What were they? Well, the workers had been arrested by police for criminal charges outside the factory, the manager answered. In other words, they were fired after they were jailed. The manager said he would not dismiss a worker merely for incompetence on the job.

Huge Demand for Goods

Finally, in launching the reforms, the regime completely misjudged the depth of the pent-up demand in China for consumer goods. It is an article of faith in China that whenever something new is allowed, one must rush to seize the opportunity. And so in those last months of 1984 and the early part of 1985, virtually every bicycle, truck, cart, buggy and pedicab on the streets of Beijing and Shanghai was carrying home household appliances. Overnight, it seemed, entire cities were upgrading from black-and-white television to color, from radios to tape decks.

Furthermore, once given a bit of autonomy from the central government in Beijing, provinces, cities, towns, ministries, army units, offices and factories rushed to buy automobiles or video recorders for their institutions. In some instances, they also bought clothes, food or even television sets to distribute to their workers.

The Chinese were not restricting themselves to Chinese-made goods. The state-owned industries could not increase output fast enough to meet demand. In any event, the buyers didn’t want Chinese products, which were considered inferior in quality. Wherever possible, they were buying brand-name imported goods.

In 1984, China imported 2.3 million color television sets from Japan, seven times as many as the year before. In 1985, it bought another 3.5 million color television sets from Japan, nearly 40% of the total number of sets that Japan exported for that year.

The impact of such policies on the Chinese economy was dramatic. China went fairly rapidly from a nation with regular trade surpluses to one with persistent deficits. It began running up particularly large imbalances with Japan, its largest trading partner, creating a source of friction between the two countries that persists today. And its foreign exchange reserves began plunging rapidly.

Beginning in mid-1985, the regime began clamping down both on imports and on the use of foreign exchange. But the spending boom proved hard to control. After authorities began lifting price controls and opened the way for the most serious inflation since 1949, many Chinese found yet another reason to spend money: as a hedge against inflation.

Policy Repudiated

After Communist Party General Secretary Hu Yaobang was ousted from his job last January, one of the criticisms lodged against him by the party was that he had improperly encouraged too high a level of consumer spending.

In a sense, blaming the national spending spree on Hu was like blaming the Cultural Revolution on Mao’s wife, Jiang Qing. What had once been the policy of the nation’s top leadership was now being rejected as a mistake.

This year, the Communist Party’s original 1984 blueprint for economic reform, the document promoting consumption that had been issued with Deng’s approval and in the name of the party Central Committee, has achieved the status of a non-document.

No Chinese leader mentions it or quotes from it. The party line now is to say nothing about the past three years, but to speak instead of the general prosperity in China since 1978, when Deng and his allies came to power. It is a tacit admission that the reforms launched with such fanfare in 1984 veered off course. China realizes now that there will be no economic revolution, that the hopes of transforming the economy within three years were unrealistic.

Those who favor change in China have not given up. They are studying what to do next. A new blueprint for reform may be unveiled later this year, after a national congress of the Chinese Communist Party. But this time, the chances are that the tone will be extremely modest. The Chinese will not be told again to expect revolutionary changes in the next few years.

China knows now that it will remain an extremely poor country for decades, that the joy of the big parade is over.