1 | Transformation & Transition Processes in Greater China

The Bird in the Cage

Reconciling the Liberal Market Economy with
Communist/Socialist Governing Structures in China

The Chinese Economy – Antecedents

- One of the largest economies in the world for the last two millennia
- Nonparticipant in the industrial revolution
- Regress enhanced and promoted through Mao’s disastrous reform policies: Cultural Revolution, Great
Leap Forward, Collectivization
The Chinese Economy – Reforms
- Deng Xiaoping commonly recognized as godfather of Chinese economic reforms
- Formal initiation of reforms in 1978 by the Third Plenary Session of the Eleventh Central Committee of
the Chinese Communist Party with the goals of Readjustment, Reform and Consolidation
- Reforms began in the agricultural sector, primarily due to the rising threat of food shortage. Among
the initial steps were:
o Decollectivization
o Household-Responsibility System
o Retention of income from production, after tribute was paid to the state
- Reform of agricultural sector met with initial great success as 80% of the population was still
employed within it
- Private enterprises were allowed to resume operation
- Introduction of a dual price system; Surplus output could be sold; Sales were allowed to take place
both at plan and market prices
- Removal of longtime conservative leaders which allows for increased radicalization of reforms by mid-
90s
- Final large scale privatization of remaining state firms occurred in 1997/1998
- China joins the WTO in 2001 upon guaranteeing the elimination of price controls and export subsidies
on agricultural products
- China surpasses Japan as world’s second largest economy in 2010
The Chinese Political Economy
- Many names for the Chinese brand of capitalism: ‘Capitalism with Chinese characteristics’ OR
‘Socialism with Chinese Characteristics’ OR ‘Socialist Market Economy’
- China as a ‘special case’ in economic reform:
o Economic systems and structures do not just emerge on their own but are constructed to
serve specific ends.
o Emerging economic systems in transitional states are politically, historically, socially and
culturally embedded.
- Three Pillars devised by Xiaoping leadership: Ideology, Performance, Stability
o Ideology: No longer based on radicalization, but rather constructed primarily around the
creation of a national interest, which then must be defended.
o Performance: Understood primarily as economic performance – a political need to ensure
accumulation of capital.
o Stability: Political stability and personal safety to be guaranteed by continued CCP rule. The
stability provided by the CCP seen as a prerequisite for continued economic growth
- The ‘Three Pillars’ clearly portray how the continued political success of the CCP is predicated upon
China’s economic trajectory, and that CCP leadership is cognizant of this.
- Leads to the formation of an ‘unwritten social contract’ between the CCP and the people: CCP Rule
must remain unchallenged, and the Party will tolerate no questioning of its hegemony. The CCP in

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2 | Transformation & Transition Processes in Greater China

turn calculates that the vast majority of people will accept this so long as their economic well-being is
provided for. The people will not compete with the party for political power as long as the party looks
after their economic fortunes.
Understanding Modernization Theory
- Francis Fukuyama
o Fukuyama’s essential question: “Have we in fact reached the end of history? Are there, in
other words, any fundamental contradictions in human life that cannot be resolved in the
context of modern liberalism that would be resolvable by an alternative economic
structure?”
o The Universal Homogenous State
 The stage in history where all prior contradictions are resolved and all human needs
satisfied. There is no struggle or conflict over ‘large’ issues, and consequently no
need for generals or statesmen; what remains is primarily economic activity.”
- Modernization Theory “predict[s] that such developments as economic growth, the spread of science
and technology, the acceleration and spread of communications, and the establishment of
educational systems [would] all contribute to political change”
o Modernization Theory assumes that ‘traditional’ societies can be ‘modernized’ by
replicating certain societal conditions
o Heavily criticized on the basis of its broad assumptions and particularly because of its
Eurocentric worldview
o The so-called ‘Modernization Myth’: All people desire to modernize and it is necessary
beneficial.
Research Questions & Outlook for Final Paper
- How precisely have economic reforms been implemented without jeopardizing the communist tilt of
the political system?
- What factors still separate China from other ‘true’ liberal market economies?
- How can transition/modernization theory explain China’s contemporary political-economic climate?
- What predictions can be made within the framework of transition/modernization theory concerning
the hold on power of the Chinese political elites?

Literature
BRESLIN, Shaun: Capitalism with Chinese Characteristics: the Public, the Private and the International, Warwick University, Working Paper
No. 104, June 2004
WEI, Lin & CHAO, Arnold: China’s Economic Reforms, University of Pennsylvania Press, 1982
SHIRK, Susan L.: The Political Logic of Economic Reform in China. University of California Press, 1993
FUKUYAMA, Francis: The End Of History. The National Interest, Summer 1989
PYE, Lucian W.: Political Science And the Crisis of Authoritarianism, American Political Science Review, Vol. 84 No. 1, March 1990
CHAI, Jospeh C. H.: China: Transition to a Market Economy. Oxford University Press, New York. 1997

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