re posted from EXECUTIVE INTELLIGENCE REVIEW
This article appears in the June 26, 2020 issue of Executive Intelligence Review.
China’s Long March Out of Poverty
June 18—With the initiation of the policy of “reform and opening up” in 1978 by Chinese leader Deng Xiaoping, who had taken the reins of power not long after the death of Mao in 1976, China began to reestablish its relationships with the rest of the world. It also embarked on its first really successful attempt at developing its economy based on the promotion of science and technology.
Far from following some overriding “game-plan” for achieving “world hegemony,” a notion being foisted on the general public by China-bashers like Michael Pillsbury, who in his 2016 book, The 100 Year Marathon—China’s Secret Strategy To Replace America as the Global Superpower, depicts the process of “reform and opening up” as a conscious effort by China to develop into the world hegemon, China really made its way to where it is today only through a rather arduous process of “crossing the river by feeling the stones” as the Chinese adage says. Contrary to Pillsbury’s rather paranoid—and simplistic—view of history, the process of “reform and opening up” was far more complicated—and far more erratic—than anyone might imagine.
Charting a New Course
With the death of Mao in 1976, the Chinese government and the People’s Liberation Army (PLA) could dismantle the disastrous Cultural Revolution, an attempt by Mao to maintain the Mandate of Heaven after his disastrous Great Leap Forward debacle. While the Cultural Revolution had wrought havoc with much of what was then China’s intellectual elite, who had been trundled off to the countryside for “rehabilitation,” or killed, Premier Zhou Enlai, himself a subject of ire for the Cultural Revolution’s “storm troopers,” the Red Guards, had assisted those who were victims, to survive the ordeal.
During the worst days of the Cultural Revolution, Zhou did his utmost to maintain a certain sector of Chinese high-tech production in the area of space and in the nuclear industry, which had been created under Mao’s program of “two bombs [atomic and hydrogen] and one satellite.” Zhou had in 1963 already formulated the famous “four modernizations” and, at the last Communist Party Congress he attended shortly before his death in 1976, he reiterated their importance as the basis of Chinese policy. The “four modernizations” referred to modernization in industry, in agriculture, in national defense, and in science and technology. And this was taken up in a most determined manner by Deng Xiaoping.
Although Deng Xiaoping would not himself become Communist Party Secretary or China’s president, or even premier, he was one of the Eight Immortals, the name given to those who had been involved in the struggle of the Communist Party since the Long March to the mountains of Shaanxi in 1934, to escape the wrath of Chiang Kai-shek. And like Zhou Enlai but unlike Mao, Deng had been one of those who spent time in France as a factory worker during the First World War.
Once he had overcome the opposition to his leadership, his position was fairly solid, although not completely unopposed. He began immediately to rebuild the nation from the devastation it had undergone. In 1977 he reinstituted college exams and reopened the schools, which had been largely closed during the Cultural Revolution, made only accessible, and on a limited basis, to those with the correct “class background.” Most of the professors had been sent to the countryside. They were now brought back to the classroom.
He also opened the door to the outside world, intent on accessing the necessary scientific and technical know-how to enable the country to rebuild. Deng laid stress on the advancement of science and technology as the motor force for economic development. This was the long-term perspective. In the short-term, however, it was not totally evident to Chinese scholars how they should proceed in order to move forward. And a major period of consultation, deliberation, and experimentation began in the search to find the right “development path” for China.
Deng Xiaoping Announces the New Policy of ‘Reform and Opening Up’
In December 1978, the 3rd Plenary Session of the 11th Central Committee of the Communist Party of China met. It was preceded by a month-long discussion at a preliminary Working Conference. It was at these two meetings in which Deng and his allies—many of whom only recently returned from disgrace and even internal exile as a result of the purges of the Cultural Revolution—took control of the leadership of the Communist Party and set China on a new path.
At the time, the Chinese economy was totally dependent on state-owned industries. This had been the Soviet model and it was this model that the Chinese Communist Party had, by and large, followed. Even with the abandonment of the autarchic policy of the disastrous Great Leap Forward (1958-1962) and opening the door to trade with the Western nations, it was still unclear how China was to transform its command economy into a functioning modern economy without devolving into chaos and anarchy.
One thing was clear from the beginning, however, and that was the need for a revival of China’s scientific capabilities. Even before the 1978 Third Plenum, Deng was aware that the revival of education and science was of the utmost importance. Within a month of his return from a visit to Southeast Asia, Deng convened a Forum on Science and Education in 1977, to begin the reorganization and expansion of scientific institutions. In addition to reviving the Academy of Sciences (CAS), he founded a new Chinese Academy of Social Sciences (CASS). He reinstated the State Science and Technology Commission and ordered the drafting of a new Seven-Year Science Plan. Speaking at that forum, Deng said,
We must create within the party an atmosphere of respect for knowledge and respect for trained personnel. The erroneous attitude of not respecting intellectuals must be opposed. All work, be it mental or manual, is labor.
With regard to areas of study in institutions of higher learning, there should be a unified plan to specify which ones should be merged or divided, where new ones should be added or reductions made, and which ones should be abolished….
The United States has 1,200,000 scientific research people. The Soviet Union had 900,000 the year before last, and the figure has grown since. We have only about 200,000….
Nevertheless, as some comrades have pointed out, this small number of researchers can undertake more projects and achieve greater successes than the same number in capitalist countries, if only we take advantage of the superiority of our socialist system and organize our efforts in a unified and rational way….
Then on December 13, 1978, Deng announced at the closing session of the Central Working Conference of the Third Plenum, the policy of “reform and opening up.” The method to be followed would be based on the concept that “Practice Is the Sole Criterion for Judging Truth.” This was in direct contrast to the prescription given by Deng’s predecessor Hua Guofeng, who had formulated the doctrine of the “Two Whatevers”: Whatever policies Mao supported, and Whatever instructions Mao gave, should still be followed.
Deng told the delegates:
To make revolution and build socialism we need large numbers of pathbreakers who dare to think, explore new ways, and generate new ideas….
At present, most of our cadres need also to apply themselves to three subjects: economics, science and technology, and management. Only if we study these well will we be able to carry out socialist modernization rapidly and efficiently. We should learn in different ways—through practice, from books and from the experience, both positive and negative, of others as well as our own….
While these words seem to ring of common sense now, this was such a break with the old ways of doing things that there were many in the audience who doubted the wisdom of moving in the direction Deng indicated, and many who felt that this ultimately would undermine the leading role of the Communist Party by introducing reckless “experimentation.” In fact, Deng’s radical shift in policy no doubt preserved the role of the Communist Party which was losing support as a result of the disastrous policies it had followed during the previous two decades.
But there was great excitement in the nation as a whole. The students who had been sent to the countryside to work, when the universities were closed, were now back in the classroom. Intellectuals who had been exiled and harassed were now brought back to revive the education and science centers of the nation. The Chinese Communist Party, which had previously shunned intellectuals who didn’t have a pristine “proletarian” background, were now openly recruiting them into the party.
‘Crossing the River by Feeling the Stones’
But the road ahead was still somewhat unclear. Two things were key. China must open itself to the outside world, the world where science and technology was advancing rapidly. And it must find a way to tap the creative capabilities of its own people by opening the door to some form of market economy. While state-owned enterprises could continue to be the mainstay of the Chinese economy, a niche had to be found in which private enterprises could have the freedom to experiment and develop.
But how to move from a dirigistic “command economy” into a more “open” economy that could tap more effectively into creativity and innovative ideas—and tap into experimentation, which could not be done in a rigid top-down structure—was not so clear cut. Chinese scholars, reflecting on their own experience, also went to the books to look for answers. And they began to invite foreign scholars to China to examine how things worked in other countries.
Initially Chinese scholars started to look at other attempts to reform the old Soviet model in the East European nations. CASS began a study of the Yugoslav and Hungarian experiences in “market socialism.” They also began to study the New Economic Policy that had been practiced in the early days of the Soviet Union in the 1920s. And the work of Soviet economist Nikolai Bukharin, who had been purged and executed by Joseph Stalin after Stalin’s launch of the forced collectivization, became a hot item for economists.
But Deng had already set things into motion himself. In 1977 in Guangzhou province, which sat across from the British enclave of Hong Kong, officials complained to Deng that many youth were fleeing the province and attempting to swim to Hong Kong. Deng realized that simply imposing stricter control measures was not enough. The problem was the discrepancy between the standard of living in Guangdong and in Hong Kong. The officials also complained about the lack of foreign currency for purchasing foreign technology in order to realize many of their construction projects.
Deng encouraged them to export their fruits and vegetables to Hong Kong in order to acquire more foreign currency. He also encouraged them to build a hotel and encourage foreign tourism in the province. Then in April 1978, Deng appointed Xi Zhongxun, Xi Jinping’s father and himself a comrade from the early days in Ya’nan in the 1940s, to head the province in what would become the “critical experiment” in reform and opening up. Xi, like Deng, had also been under a cloud during the Cultural Revolution and had been exiled to manage a remote factory.
Even before the Third Plenum, Deng had already begun his own exploration of different economic models in foreign countries, traveling in 1978 to Singapore, to Japan, and to Malaysia. The success of the Asian tigers, Japan, South Korea and Singapore, countries which had largely developed according to Hamiltonian rather than free market principles, also served as models for development. During his visit to Singapore, Deng examined and was favorably struck by the tremendous development in the city-state since the time of his first visit there on his way to France in 1920 to participate in a work-study program.
The visit to Japan in 1978 was ground-breaking. Deng had been in touch with Japanese colleagues during the early 1970s and was aware of developments there. He was also eager to change the tense relationship which had existed between the two nations since the first Sino-Japanese War in 1894, and to build on the commonalities that had earlier existed between these two Asian powers.
On his visit to Japan, Deng was accompanied by Liang Chengzhi, who was born in Japan and educated through primary school in Japan, and then later at Japan’s Waseda University. Liang was also a veteran of the Long March and was the son of Liang Zhongkai, who had been one of the leading candidates to succeed Sun Yat-sen as leader of the Kuomintang, until he was assassinated by rivals in 1925.
Deng met with Prime Minister Takeo Fukuda as well as with the Japanese Emperor, Hirohito, and many of the leading political and economic figures in the country. He was particularly impressed by Japan’s effective industrial management. Here also was a nation like the United States, which had a long history of practicing Hamiltonian economics spurred on by the Japanese translations of American economist Henry Charles Carey and Carey’s disciple, E. Peshine Smith, who spent many years living and working in Japan. The Hamiltonian system was not a British “free trade” system, but rather a system in which private industry was nurtured, promoted, and encouraged by measures taken by the central government. Perhaps here was a model for China to transform its own system without losing control of its direction.
While Deng was in Japan, the two countries signed a Treaty of Peace and Friendship, thereby establishing formal relations. Deng also took a trip on the Shinkansen, Japan’s high-speed railroad and envisioned high-speed rail as a future transportation mode for China. Deng’s visit also opened up China to Japanese investment, which would take off the following year and would play a major role in helping China in building up its own industry and infrastructure during the Deng years.
The First Special Economic Zone
In January 1979, one month after the Third Plenum, Xi Zhongxun in Guangdong was given the green light to formally accept foreign direct investment and became China’s first Special Economic Zone (SEZ). Fujian province, situated across from Taiwan, would become the second.
As the SEZ experiment began to show results, there were now considerations of using more of the coastal areas, which had easy access to the export markets, as engines of growth for the entire economy. Deng’s much-cited slogan to people involved in the process, “Let Some People Get Rich First,” dramatically characterized the seismic shift in the Chinese economy.
The process did not always go so smoothly. There was opposition in the ranks from those who felt that this introduction of “capitalism” into the Chinese model would have a corrupting influence and be detrimental to the system and the authority of the Communist Party. The emphasis on export from the coastal regions also left the central and western parts of the country still in the grip of poverty as the coastal regions became more prosperous. This stuck in the craw of the traditional, egalitarian approach of the Communist Party.
And, of course, for the party leadership, the ongoing changes were often a matter of safely piloting the ship of state between the Scylla of a straight-jacketed command economy and the Charybdis of chaotic—and dangerous—free-market chaos. And, in addition to many well-meaning people in the Western nations, there was also the lure among the more avaricious of the Western capitalists of grabbing a piece of the China market and China’s resources.
By 1985, a variety of Western academics in the field of economics were being brought over to China to discuss the issues at hand in order to find a solution to problems that arose in the process. In addition to the variety of economists from Eastern Europe and its practice of “goulash Communism,” there were also many Western economists who were invited to come and discuss and make proposals, including the radical von Hayek “free-marketeer” Milton Friedman.
Dialogue with LaRouche
It was around this time that Chinese officials came into contact with economist and statesman Lyndon LaRouche. LaRouche had come to the attention of Chinese scholars particularly with regard to his proposal for the Strategic Defense Initiative, which had been adopted by President Reagan in March 1983. LaRouche organizers were invited to China to discuss LaRouche’s economic ideas and then later, a group from the Chinese Ministry of Foreign Economic Relations and Trade came to visit LaRouche and took time to get a briefing on LaRouche’s economic development model, the LaRouche-Riemann model.
In 1985 there was also correspondence between Mr. LaRouche and Professor Huang Zuwei, a leading Chinese rocket scientist at the Beijing Institute of Space Systems Engineering. Dr. Huang had some specific questions with regard to the effects of space research—and the SDI—on economic development. At this time, Chinese scientists were mulling over the implications for China of possible SDI cooperation between the U.S. and the Soviet Union. Caught in the middle as a major power, China felt that it must start to gear up its own scientific potential with respect to this major development between two countries, both of which had earlier been adversaries.
LaRouche wrote an extensive and profoundly philosophical reply to Dr. Huang, which outlined the history of technology and political economics from the Golden Renaissance to the present and his own ground-breaking notion of increasing energy-flux density as the key measure of economic development. He also dealt with the key issue of space exploration and the colonization of Mars:
If we can construct new cities on Mars, then we can more easily employ the same technologies to construct rich habitations in such deserts as the Sahara and the Gobi. Apart from the fact that we have concrete scientific-economic needs to proceed with space-colonization, the creation of task forces which must solve each and all of the problems of spaceflight and space-colonization, in a coherent way, forces mankind to make scientific breakthroughs at a much more rapid rate than would otherwise occur. Science requires a concrete task orientation, which focuses the powers and self-development of science on those kinds of practical objectives which require development of the principal frontiers of scientific inquiry….
I would recommend to you, your colleagues, and your government, that China consider concentrating much of its physical science under institutions integrated by a common mission assignment respecting the colonization of the Moon and Mars. For reason of the nature of the primary and auxiliary technologies that mission-assignment implies, not only space-research and BMD, but every frontier of scientific inquiry is implicitly subsumed in the most efficient way under that mission-assignment. This would foster the highest ratio of scientific benefit in every field, per average scientist and technician employed.
It should be noted that LaRouche’s advice was given seven years before China would commit itself to a program of manned space exploration! Dr. Huang was also interested in inviting LaRouche to China to discuss his ideas, but for logistical reasons, this never came about, no doubt to the detriment of China as the next few years would show.
One Step Back—Two Steps Forward
At this point the Chinese Government of Zhao Ziyang unfortunately went with the disastrous “free market” recipe laid out by Milton Friedman. The rapid push for free market opening moved a bit too quickly and inflation—and speculation—was starting to take off. This growing economic dilemma together with the growing impatience among the youth for more rapid change, fueled by the concerted efforts of certain forces in the West eager to utilize the uncertainties in Chinese decision-making to foment a “color revolution,” led to the tragic events of June 1989, which created a temporary hiatus in China’s relationship with the West and a temporary hiatus in the “reform and opening up.” There was now a shift back to a more stringent control of the economy while the “dust settled.” Stricter controls were implemented to curtail inflation, and for a short period it seemed the reform policy would be scrapped.
But the aging Deng was not going to let that happen. In January 1991, Deng visited Shanghai, and after a briefing by Shanghai mayor Zhu Rongji (whom Deng would soon bring to Beijing to head the newly established Economic and Trade Office), he visited some aeronautic and automobile factories. Deng reiterated his own earlier expressed desire to make Shanghai a special economic zone, but Chen Yun, a conservative economist, who had been the virtual dictator of Chinese command economy policy in the People’s Republic of China since its founding in 1949, opposed the move and prevented it from being implemented at that time.
Then in 1992, Deng again traveled to Guangdong province to visit the first SEZ. This trip became known as Deng’s “Southern Journey,” and it was his final decisive intervention in securing permanence for the changes initiated in 1978. Throngs of people came to see the aging leader. He encouraged them to do more to make the region a hub of economic development and to follow the lead of the four Asian “dragons”—Singapore, Hong Kong, South Korea, and Taiwan. A New Year’s phone call from the new Party General Secretary Jiang Zemin to Deng while on his trip indicated that Jiang also was leaning in the direction of continuing the “reform and opening up” policy.
By this time, some of the restrictions after Tiananmen had been lifted. Jiang Zemin visited the United States and met with President Bill Clinton at the APEC conference in Seattle, Washington in November 1993. The U.S.-China relationship was starting to get back on track and the new U.S. President seemed eager to re-establish close ties with China. There was also an increase in the number of Chinese students who were able to attend American universities, a process that had been promoted by Deng Xiaoping.
Economic policy was now largely in the hands of the new head of the People’s Bank, Zhu Rongji. Zhu had been one of the younger economists who had been present in the discussions with the Western economists in the 1980s. From 1993 on, Zhu was in charge of the People’s Bank of China and in 1998, with the death of conservative Premier Li Peng, he was named China’s premier.
Zhu’s major task in 1993 had been to get the overheating Chinese economy under control. He took radical measures to bring order into the state-owned enterprises (SOEs) and in eliminating some of the waste and inefficiency in the public sector, a measure that would draw the ire of many of the leading bureaucrats running those enterprises. He was also intent on dealing with the endemic problems of corruption. In 1993, the idea of a “market socialist economy” was inserted into the Chinese Constitution. Zhu instituted a tough policy of curbing the issuance of currency, limiting bank lending, and imposing order on the rather chaotic investment—important temporary measures needed to cool down inflation.
Zhu was also concerned by the extravagance of local governments intent on spending money to build new Disneylands, while the rural population was still living in conditions of extreme poverty. Even before the anti-poverty campaign in the countryside, initiated by President Xi, fighting poverty was also a matter of long-term concern for the government.
When the Asian financial crisis hit in 1997, Zhu was at the helm, directing a policy of aggregate spending in order to help counter the collapse of the Asian financial markets. He kept the exchange rate stable in spite of the pressure to revalue the RMB vis-à vis the other Asian currencies. He also used the crisis to overcome some of the conservative opposition to further economic reforms
China Agrees to Join the WTO
As the dust settled after Tiananmen, President Jiang Zemin was eager to stabilize China’s relations with the Western powers. He felt that if China could join the World Trade Organization (WTO), the successor to the post-war General Agreement on Tariffs and Trade (GATT), which the People’s Republic of China was never able to join, it would help secure China’s ties with the West. While this would necessitate tough changes that would seriously affect the Chinese economy, particularly prices and employment, it was felt that it would be better to be inside the organization and have a say in setting the rules for the world economy, rather than being outside and having the rules imposed on China.
As head of the People’s Bank, Zhu Rongji had shown little interest in WTO membership since his main concern was to bring about a reform of the top-heavy SOEs, in order to make them more competitive, before opening up more widely to foreign products. But given the tough resistance from the SOEs to his reform project, he felt that WTO membership and the forced entry of foreign competition into China would force the SOEs to make those reforms. So when he was appointed Premier in 1998, he took the lead in negotiations for membership.
The Clinton Administration—and Wall Street—were also interested in bringing China into the WTO in order to gain access to the huge Chinese market and to bring China into the West’s “rules-based order.” Perhaps they could keep this economic giant in a trade-based “straight-jacket,” they figured.
The situation looked auspicious when Zhu traveled to the United States in April 1999 to negotiate an agreement. But there was opposition from some in the Clinton Administration, who wanted guarantees for labor unions and protection for U.S. industries, like textiles, that would be directly threatened by the Chinese competition. When these demands were leaked by the U.S. side before negotiations were terminated, Zhu came under heavy fire from conservatives at home, who felt that he had gone too far in the concessions that he was prepared to make. Nevertheless, President Clinton, realizing the missed opportunity, renewed negotiations—leading finally to an agreement on Chinese entry—which were finalized shortly before he left office.
Both Wall Street and the business community generally approved of the agreement, smelling the profits that could be made in China. They were successful in bringing enough congressmen on board to ratify the agreement in the U.S. Congress. But Congress was not about to give up its “prerogative” of taking China to task on human rights and other sundry issues through a blanket waiver on trade with the United States. The “straight-jacket” had to remain in place. So as a part of its agreement to grant China Permanent Trade Relations (PTR), Congress mandated the establishment of a committee, the Congressional-Executive Committee on U.S.-China Relations, which had to report each year on China’s “human rights” and military spending, thereby preserving the ability to throw a monkey-wrench into U.S.-China relations on a regular basis, which still created a serious impediment to full normal relations between the two nations.
China Assumes Its Role on the World Stage
By the time Xi Jinping assumed the post of Party General Secretary and China’s President in 2013, it was clear that China, under “reform and opening up” had become a major economic power. And the progress it was making in alleviating the endemic poverty in the rural districts showed the power that could be achieved by a developing country with a government intent on improving the conditions of life of its people. It was clear that China would also expect a say in the question of global governance, with a unique perspective from its own history and philosophy, and a strong commitment to helping other developing nations that had never succeeded in overcoming poverty in the post-Bretton Woods financial structure.
And as the largest developing country, China has maintained its commitment to the developing world. Xi Jinping’s ambitious Belt and Road Initiative was a clear declaration that what China had achieved in its ascent out of poverty could be done by any other developing country—and that China was prepared to help in that endeavor. And while the Belt and Road Initiative has also benefited many of the developed countries through its improvement of the world transportation grid and increasing the velocity of trade worldwide, it retains its primary role as the way out of poverty for countries in Asia, Africa and Latin America. And the role China played in hosting the Hangzhou G20 Summit in 2016, clearly indicated that it was hard at work to create a more just international financial system, which President Xi has named “a community of shared future for mankind.”
While the rise of China has caused some consternation among the ruling Western powers, there is no fundamental contradiction between the development of China and the development of any other country, including the United States. To the extent that the U.S. has been on a downward spiral during the last few decades, this has been due to a loss of direction among our own governing elites, as President Trump himself has indicated, and most particularly, the loss of a clear national commitment to a program of development based on the advancement of science and technology. And while the needed principles of development have been so eloquently elucidated and promoted over the last half century in the prolific works and political efforts of economist and statesman Lyndon LaRouche, his voice has been largely ignored by the short-sighted political elites of his own nation.
China achieved mankind’s first landing on the far side of the Moon and is embarking on an entirely new phase of Lunar exploration, offering its cooperation with other countries eager to explore these new frontiers. We now have an opportunity to reflect, on the occasion of the May 30 launch of Falcon 9, on our own glorious history in space during the Apollo era. Perhaps we can return to the “better angels of our nature” and revive the spirit of innovation, which has long characterized our nation. And we can—and must—do this in collaboration with China, which has so successfully learned the lessons of economic development, and implement these lessons for the benefit of all mankind. And in this respect, the recent publication of Volume I of Lyndon LaRouche’s Collected Works could serve our nation’s leaders well in reviving the true American spirit.