Reform and Opening: China’s Turning Point19 min read

Crossing the river by feeling for the stones – Klaus Mühlhahn


On December 13, 1978, at the end of a month-long preparatory conference for the historic Third Plenum of the Eleventh Central Committee, to be held in Beijing from December 18 to December 22, Deng Xiaoping delivered a carefully thought-out, well-calculated speech, which not only dared a risky break with the Maoist past, but ushered in a new era of reform and opening. It is time, Deng stated, that the members of the Chinese Communist Party “emancipate their minds, use their heads, seek the truth in the facts, and look to the future together.” He criticized that many Party members clung to “book knowledge” and were accustomed to “hang their flag in the wind.” But conservatism and the worship of theories must be overcome in order to make China a “modern and powerful socialist state.” Deng also made it clear that pragmatism should never call into question the political leadership of the Chinese Communist Party.

These calls were presented in a sober tone and in a modest setting. A new political climate emerged that was fundamentally different from Mao Zedong’s pompous political style. The country, exhausted and battered by the Cultural Revolution and Mao Zedong’s utopian ambitions, opened itself in a dramatic turnaround to the outside world and was the first socialist country to make daring reforms, especially in terms of the economy. The policy of “reform and openness” (gaige kaifang) was consistently and uncompromisingly pursued by Deng Xiaoping since 1978. It laid the foundation for a successful transition from a planned economy to a market economy oriented towards the global market, achieving unprecedented high growth rates. No country in human history ever grew so fast over such a long period of time. Average annual growth rates of 9.7 percent pulled hundreds of millions of Chinese out of poverty. The policy of reform and openness also led to a fundamental departure from norms in Mao’s China, replacing collectivism and group conformity with individual performance and diversity. The unparalleled rise of China also fundamentally changed the international world order. The country began to wield its economic influence in search of raw materials with the confidence and intentions of a future global superpower. China’s growing economic power inevitably resulted in an increasingly assertive foreign and security policy. From the inconspicuous beginnings developed a breathtaking success story, which presents itself increasingly as an alternative to the liberal social order of the West. But how did this development come about and what is the secret of Chinese success?

The architect behind the Reform and Opening policy was Deng Xiaoping (1904-1997). Without ever assuming top government posts personally, he ruled the People’s Republic of China from 1979 until his death in 1997. In the 1920s, he spent six years studying and working in France (1920-1926). From France he went to the Soviet Union, where he attended the party school in Moscow for nearly a year and joined the Communist Party. Due to his important role in the Chinese civil war of 1945-1949, he rose quickly in the party and was subsequently one of the main pillars of Mao Zedong’s rule. After the founding of the People’s Republic of China in 1949, he helped Mao, among other things, conducting brutal political campaigns in the 1950s and 1960s. In the Cultural Revolution, however, he was publicly criticized for advocating a moderate economic policy. Despite two punishments (1968 and 1976) and relocations to the countryside, Deng succeeded in taking over the leadership of the Chinese Communist Party (CCP) after Mao’s death on September 9, 1976. With great political skill, he understood how to exploit the emerging power struggle within the Chinese leadership for his goal of modernizing China. In the course of 1978 he gained a clear supremacy over the military and the radical Maoists.

Instead of a grand strategy, Deng Xiaoping relied on incrementalism”

In addition to ideological pragmatism, he emphasized above all the necessity of a fundamental reform of the party, especially by reviving the inner-party discussion and decision-making processes, known as collective leadership. The vast majority of the CCP’s senior members, many of whom had suffered under the Cultural Revolution, supported Deng Xiaoping. They shared a common interest in ensuring that never again should a single political leader gain as much power as Mao and the Gang of Four. Deng’s de-escalation, political pragmatism, and emphasis on intra-party democracy were in line with the general and widespread wishes and expectations within party and also the population. This gave Deng the necessary political support to implement his reform program.

The impetus for reforms came not from Deng Xiaoping alone. Back in 1977, Hu Yaobang, then Vice President of the Central Party School and supporter of Deng, encouraged party officials to promote new thinking. Under his aegis an internal journal was published called Theoretical Trends, which in its articles called for overcoming ideological barriers. In May 1978, for example, an article entitled “Practice Is the Only Criterion for Checking the Truth” was published, which was later reprinted in other major national newspapers. The idea that practice, not political doctrine, was the only criterion for assessing social developments, received overwhelming approval. At the same time, Zhou Enlai’s concept of the “Four Modernizations,” which had been designed in 1964, was revived. The program proposed a 15-year “transition phase” to modernize agriculture, industry, science and technology, and national defense. Raising the Four Modernizations to the top of the party program, Deng began to stress the need for “development,” a term that would later become the mantra of the party leadership. In fact, from that moment on, economic development became the ultimate goal of the party to which all other goals were subordinated. Growth and development, and not the pursuit of a political utopia, should lead China to “prosperity and power.” Deng Xiaoping officially made real improvements about ideological correctness and revolutionary zeal.

The Third Plenary Session held in December of 1978 became the decisive turning point in China’s political, economic and social development. It officially announced the epoch-making departure from Mao’s class struggle for economic reform. Deng Xiaoping gave a speech encouraging new thinking and emphasizing the improvement of living standards. The atmosphere of the new beginning generated great optimism both in China and abroad.

In addition to the articulation of a new political line, a new reform-oriented government was formed. Deng promoted officials who were ready to break new ground and experiment with new measures. At the end of the 1970s, the party was still dominated by supporters of Mao Zedong. Shortly after Mao’s death, members of the so-called Gang of Four, including Mao’s widow Jiang Qing, were arrested. In a live televised public trial, the Gang of Four was blamed for the excesses of the Cultural Revolution. All four defendants were sentenced to death, with the verdict after the trial reduced to life imprisonment. In China and abroad, the public interest in the process was huge. The remaining left-wing supporters of the Gang of Four in the party committees were thus removed, while the moderate party and government leaders who had been sent to the countryside during the Cultural Revolution regained their offices and influence. Reformers such as economist Chen Yun and Hu Yaobang moved to the Politburo. Zhao Ziyang became Prime Minister in 1980. Li Xiannian took over in 1983 the reintroduced Office of the President, which had been abolished in the Cultural Revolution. Thus, all key positions in the state were filled by reformers.

The party also tried to draw a line under the Maoist period. A commission was charged to make an assessment of the rule of Mao Zedong. Only after a long discussion did it come to an agreement on this difficult and painful question, which reopened many old wounds. On the basis of the discussion, the Sixth Plenum of the Ninth Central Committee finally adopted the “Resolution on Certain Issues in the History of Our Party Since the Formation of the People’s Republic of China” in 1981. The resolution basically confirmed the historic achievements of Mao, but noted that after 1958 he had made left-wing mistakes. His mistakes included, above all, the Great Leap Forward, 1958-1960, and especially the Cultural Revolution 1966-1976. The resolution says, “The main responsibility for the grave, left-wing error of the Cultural Revolution, a mistake of huge size and lengthy duration, lies indeed with Comrade Mao Zedong.”

December 1978 became the decisive turning point in China’s political, economic and social development”

Equally important was the introduction of new formal rules and informal norms, which limited the term of office of politicians and enabled a regular exchange of government leadership. With rare exceptions, officials could serve a maximum of 15 years in a given rank. For all top positions, the term of office was limited to a maximum of two times five years. Unless they were granted a special exemption, cadres had to retire from all government and party posts, depending on their rank, between the ages of 55 and 72. These exceptional and remarkable measures for a one-party system subsequently made it possible for the political leadership to be peacefully exchanged and renewed on a regular basis. This courageous institutional reform created an authoritarian system that was nevertheless characterized by competition and regular personal exchange.

Perhaps the most important policy was introduced even before the official announcement of Reform and Opening. In early August 1977 Deng set up and chaired a multiday forum on science and education in Beijing, which was attended by 33 leading Chinese scientists and educators. The discussions quickly came to focus on the backwardness of China’s education system. The participants agreed on the causes. After graduation, high school students were sent to work in the countryside, instead of attending universities. Enrollment in tertiary education depended on class background and not on individual performance. Shortly after the forum, Deng Xiaoping announced the reintroduction of the national entrance examination (gaokao) to all universities. The exams would be open to all students, regardless of their class status and level of political activism. Just four months after the meeting, in early December 1977, nationwide exams were held – something that had not happened since 1962. The level of participation was unexpected and overwhelming. Some 5.7 million high school graduates showed up to compete for 270,000 places at the universities.

For the first time in the history of the People’s Republic of China, enrollment in the universities was based exclusively on exam results. The reintroduction of the entrance examination system, which Deng Xiaoping pushed through against heavy odds and with much personal commitment and energy, had enormous impact. Competence and performance were made the criteria for university enrollment and therefore also the criteria for access to higher positions in state and society. This reintroduction has to be seen as one of the most dramatic and important decisions made at the outset of China’s era of Reform and Opening. From that time onward, the gaokao was held annually. It is also important to note that this significant reform was not based on transfers from the West. Rather, it revived a century-old Chinese institution. Public and open examinations for selecting the best talent to serve the state had been a hallmark of imperial China. In the reform era, the need was to implement a competitive system that promoted skills and qualifications instead of party loyalty and ideological submission. The imperial examination system provided the blueprint of a solution which also, thanks to its historical legacy, could enjoy a high degree of acceptance in society.

After the obstacles to reform were removed, Deng and his supporters began to seek concrete solutions to China’s problems. The number of students and graduates had grown, despite the closure of the universities and the suspension of school operations in the Cultural Revolution. China also had created a sizeable but inefficient industrial base. The country was perhaps in a better position than many developing countries. Nevertheless, the economic situation in the 1970s was difficult. High urban unemployment, a stagnant food supply, deteriorating urban housing conditions, declining wages, widespread rural poverty and very slow production growth plagued China. In this respect, the willingness to reform and gradually abolish the centrally planned command economy had been pushed to the forefront by the economic problems caused by the Cultural Revolution.

While the effects of the Cultural Revolution had discredited Mao’s radical approach to economic and social development through mass mobilization, there was no clear alternative in 1978. In principle, there were two possible directions that China could have taken: First, China could have returned to the Soviet-style planned economy. The planned economy had never really had the chance to coordinate economic development in China, except in the mid-1950s when it had worked relatively well. Second, China could have shifted to a very different model and abandoned the planned economy in favor of a market economy. In fact, the leadership initially preferred the first approach. Deng Xiaoping was not committed to any particular economic system. He started the reform period by assuming that the planned economy should be reformed and made more efficient, but he never wanted to abolish it altogether. Chen Yun, who was responsible for economic policy in the party leadership, agreed with this approach.

However, since the bureaucratic system of the planned economy was largely destroyed by the Cultural Revolution, it proved difficult to revive the old planning system. Due to the ongoing economic crisis, the Chinese leadership was under pressure to deliver rapid results. The limited and gradual introduction of market-based elements suggested itself. The economic reforms therefore began without a vision, but as a byproduct of an inevitable economic readjustment. The economic reforms in China were a partial and gradual reform strategy characterized by gradual institutional adjustments and frequent regional experimentation. Deng Xiaoping and the senior leaders initially encouraged new ideas to be tested in areas where regional party leaders supported certain reforms and conditions were favorable. If a new initiative worked, other party leaders were brought in to see the achievements. When these changes provided positive results in other regions or places, they were adopted into party politics and rolled out nationally.

During the 1980s and 1990s, rural businesses rose at 30 to 35 percent per year”

Based on experiments in two provinces, Sichuan and Anhui, the Central Party Committee in 1978 recommended the introduction of a “household responsibility system” in the countryside. Contracts between farmers and rural collectives (people’s communes) were introduced in this system, which redefined relations between rural producers and the state. Individual peasant households entered agreements with the collective that allowed them to till the “collective” land as their own responsibility. Individual households were also allowed to set up small rural firms for the production of agricultural machinery or for the provision of services. In return, the private household paid the collective contracted quotas of its income to meet tax obligations and other fees. This enabled a rapid reintroduction of household farming and the stimulation of private agricultural production. The gradual transition to a rural market economy, but with retention of collective ownership, was nonetheless sufficient to relieve the shackles of the command economy, which had previously subjected the rural people’s communes and their members to the dictates of the state plan. As a result, most people’s communes disappeared in the early 1980s.

These rural reforms were a huge success. Between 1978 and 1984, the gross value of agriculture grew at an average annual rate of nine percent. There was an impressive increase in rural labor productivity. Rural per capita income doubled within six years. Almost everywhere in China’s vast agricultural regions, a substantial increase in living standards could be seen within a short period of time. At the same time, rural industry turned into an extraordinarily dynamic force in the Chinese economy. The dismantling of government-imposed barriers to establishing rural businesses was also enthusiastically welcomed by rural local governments as they sought to derive benefits from the high economic viability of the industry, with the encouragement of the central government and the influx of capital. For example, from local governments, private investors and various cooperatives, rural industries developed rapidly. During the 1980s and 1990s, the production of rural businesses rose at an impressive rate of 30 to 35 percent per year. By 1995, 125 million jobs were created in the rural industry, which became the fastest growing area in the overall dynamic Chinese economy. In 1984, the government extended the reforms to the urban areas, where a similarly dynamic development was initiated. It should be noted that these policies were successful because they largely simply revived historical institutions such as household farming and rural commerce. Building on the historical advantages of a sophisticated rural economy allowed China to grow fast and without much outside help.

The opening up of the country for international trade and global investment began in 1979. Here, too, China was able to capitalize on a unique global opportunity. At the end of the 1970s, for the US, China became a strategic partner in the cold war against the Soviet Union and a pioneer of a more flexible version of socialism that could eventually evolve into a liberal society. As a result, the US was prepared to give China trade preferences, such as low custom duties and technology transfers, which were denied to other countries. Deng Xiaoping initially proceeded step by step. In July 1979, the coastal provinces of Guangdong and Fujian were selected as key regions to begin China’s new open door policy. A year later, the central government designated the cities of Shenzhen, Zhuhai, Shantou and Xiamen as Special Economic Zones. The government’s goal was to attract foreign capital, innovative technologies and foreign expertise to the export-oriented manufacturing and processing sectors. In return, the Special Economic Zones offered foreign investors a level of legal protection that was not available to Chinese companies.

With the promise of the huge Chinese market and a cheap but relatively well-trained labor force, foreign direct investment started to flow into China. Business people from Hong Kong and other countries founded new companies, introduced new technologies and set new standards for efficient management. Between 1979 and 1984, 942 foreign investor deals totaling over $6 billion were made. When these innovations and experiments had positive effects in individual regions, they were expanded nationwide. In January 1984, Deng Xiaoping traveled through Guangdong and Fujian, where he announced that the policy of setting up special economic zones had proved successful. In April 1984, another 14 coastal cities were opened from Dalian in the northeast to Beihai in the southwest. By the end of 1990, nearly 30,000 agreements had been signed for the investment of foreign capital totalling $68.1 billion. While this figure is relatively low by today’s standards, it represented a substantial amount of foreign investment for China at that time. These investments were also important because they strengthened the economy outside the state plan.

Even in the mid-1980s, however, it was hard to see if China followed any systematic development plan. In the summer of 1984, Deng began using the term “socialism with Chinese characteristics,” an impressive but ambiguous expression. He suggested that the party’s political program should be extended to justify in principle market-oriented economic measures to improve living standards. Deng used the term to carry out comprehensive reforms in the fields of industry, commerce, science and education, but also to maintain party rule and loyalty to socialist values. Deng also spoke of the policy of “one center and two basic points.” The “center” was economic growth and the “two points” were “Reform and Opening” and the “four basic principles.” These consisted of the socialist path, the dictatorship of the people, the rule of the Communist Party, and Marxism-Leninism and Mao Zedong Thought. Of the four principles, only the third was really important, since Deng’s “emancipation of thought” made the others obsolete during the 1980s. By contrast, the third fundamental principle (rule of the Communist Party) clearly defined the limits of reform and openness.

Instead of a grand strategy, Deng Xiaoping relied on incrementalism. In place of comprehensive planning, he proceeded in small manageable steps and applied opportunistic flexibility. Planning served only to provide a rough orientation, and deviations from plans and scenarios were perceived not as disruptions, but as inevitable adjustments and innovative readjustments. Deng Xiaoping himself described this policy with a Chinese proverb: “groping for stones to cross the river.” This policy enabled unprecedented economic growth. Contrary to Western assumptions and hopes, Deng and the party never intended to adopt a liberal democratic system with a completely free Western-style market economy. In general, Western ideas or influences played only a minor role in the early years of the reform. While hopes for further liberalization were repeatedly articulated in and outside of China during the 1980s, the CCP has consistently denied all efforts. In many ways, China’s haphazard and hectic economic success since 1978 has been an impossibility: the economy was booming, but without clear protection of political rights and property rights. Despite increasing pluralism, state and society continued to be authoritarian, dominated only by one party, the CCP.

Deng Xiaoping described his policy with a Chinese proverb: ‘groping for stones to cross the river’”

The historical perspective reveals the keys to the success of reform policy: Gradualism and experiments instead of system change was a key ingredient. The reforms also revived historical institutions, making use of China’s unique historical legacy of investing in education and running a premodern but sophisticated agricultural economy. While in the 1980s contact with the West increased and information and technology started to flow, the birth of the reform policy was above all based on activating China’s own strength and legacies. Another key factor in the success of the reforms was global opportunity and the relatively unrestricted access to the markets of Europe and America. As a result, China became the world’s workbench over time, supplying the markets of Europe and America at a breathtaking pace. It quickly came to large trade surpluses. In 2010, China became the second largest economy in the world, behind the US.

Historical strengths, global opportunities and incremental policies allowed China to succeed. This is a lesson to be learned by other regions in the world seeking to jumpstart development. However, political opportunism may also be China’s main weakness. The overall reform policy was fixated on economic success. If economic growth can no longer be maintained due to trade wars or cyclical economic slow-downs, the party in China sees its hold on power as threatened and fears that party-rule is faltering. As the historical review shows, the party’s one-sided pursuit of growth and profits was linked to its intention to hold on to power. Everything that threatens the economic success of the reform policy pursued since 1978, thus questions the basis of the legitimacy of the post-Maoist system as a whole. The focus on growth and prosperity saved the party’s rule 40 years ago after the Cultural Revolution crisis. But it required constant balancing and made China deeply vulnerable. ∎

Excerpt adapted from Making China Modern: From the Great Qing to Xi Jinping by Klaus Mühlhahn (Harvard University Press, January 2019).
Copyright ©2019 by the President and Fellows of Harvard College. Used by permission. All rights reserved.
Header: Portrait of Deng Xiaoping from the 1980s, architect of China’s Reform and Opening policy, in a square in Shenzhen, Guangdong Province (sina.com).