Economic Reform in Mainland China

Generally speaking, democratic countries have watched mainland China's economic reforms with enthusiasm, seeing in these changes the possibility for selling to a market of one billion people and, in the long run, a chance that economic freedom may lead to more political freedom. Yet what has been the reaction of the people on the mainland themselves to the developments of the past few years?

Changes first began in the countryside, in late 1978, when instead of being obliged to turn over all of their produce to the state, peasants were instead given a fixed quota to fulfill and the freedom to do whatever they wished with the surplus. The policy stimulated rural production considerably and helped improve the lives of some of mainland China's peasants, who make up 80% of the country's population. Housing construction boomed, and products such as bicycles, radios and watches slowly began to be seen in rural areas, while demand grew for other consumer goods, such as refrigerators and motorcycles.

Yet the new policies made some people winners and others losers. Families without ample labor power fell behind those that could produce on a large scale. While the policies of the "Iron Rice Bowl" left the countryside in a general state of poverty, it was nevertheless a condition that all shared. Many had grown accustomed to a system of equal wages and limited economic competition, particularly government cadres, many of whom view the present reforms as being a betrayal of the past thirty years and a return to the days before 1949.

However, industrial organization is far more complex than agricultural structures, and reforms consequently are harder to implement in the cities than in the countryside. The family serves as the nexus of economic life in the rural sector, and all members of a household are motivated to work for its benefit. Factories, on the other hand, draw their labor supply from many different sources, and commitment to the job varies widely. Managers also often lack elementary accounting and technical skills.

After a large measure of decision-making authority was granted to local factories and enterprises, their managers went on a spree of foreign buying, resulting in a debt of US$3.7 billion. This spring the central authorities were forced to reimpose controls, which sometimes necessitated the canceling of contracts.

Apart from foreign debts, many communist ideologues find other reasons to oppose the current liberal policies. Some deplore the presence of "spiritual pollution", seeing a growing materialism among mainland Chinese. Others view foreign investment as pure and simple exploitation of cheap labor, with the special treatment afforded to foreign firms and their workers inimical to the spirit of equality that communism was supposed to bring.

One obstacle that changes on mainland China have run into in the past and will encounter in the future is that several of their ideas and methods directly contradict traditional communist ideology. For example, uncontrolled prices produce inflation, making life worse for the proletariat, a turn of events supposedly impossible in a communist society. Chengchi University Political Science Professor Li Kuo-hsiung predicts, "These contradictions in the long run will undermine people's trust in authority, and when this doubt begins to threaten the regime's stability, we can expect them to put the brakes on these reforms."

In addition, fierce factional politics characterize high-level decision-making, and no one is certain, not even Teng himself, how long the momentum of these reforms can be sustained after he passes away.

Planners and economists on the mainland commonly use the metaphor of a bird in a cage to describe the present set of policies. The economy is represented by the bird, free to fly wherever it likes in an area bounded by the cage, which symbolizes the central plan. According to Wei Ai of the Institute of International Relations, "This means all changes will be made in a communist framework. Inflation and misguided investment they'll be able to solve perhaps as they go, but there will still be problems they never anticipated."

The issue of private property rights might well be one such difficulty. Despite the fact that enterprises have much more responsibility for their own profit and loss, property rights are still vested in the state. "A factory may do its best to fulfill the state quota, care for its workers the best it can, and run at full capacity, but in the long run this will wear down the equipment. Upgrading technique is also difficult under these conditions," says Lu Min-jen, head of the Graduate School of Economics at Chengchi University.

State-controlled prices form another bottleneck. Price information is crucial in market economies, allowing manufacturers to decide which products to make and which materials should be utilized, in theory resulting in efficient production. While several controls have been lifted on the mainland, there still exists considerable state manipulation of prices, preventing the price mechanism from working effectively as it might.

Unemployment also gives Peking's policy-makers headaches. The government for the most part still assigns jobs to employment seekers, and the need to give several people a task that one person could perform quite adequately is an important factor in keeping mainland China's wages among the world's lowest. As factories and enterprises increasingly pay attention to profit and loss, quality control, and technical skill, they will also seek to streamline and improve their workforce, resulting in fewer but better employees for the unit and added unemployment for the society.

Other communist countries besides mainland China have been experimenting with market reforms, but results have been mixed so far. Yugoslavia, with its workercontrolled enterprises, has experienced inflation and high unemployment, while Czechoslovakia reports one of every six workers to be jobless and a foreign debt of US$20 billion. Hungary, which many mainland Chinese economists cite as a model for their experiments, boasts a per capita income of US$4,500, but growth has tailed off sharply from the 8% rate of the fifties to 2.5% in 1981. One economist sees Hungary's previous success as being the able execution of a good plan on a relatively simple economy, but now views the economy as having grown to a stage of complexity where central planning cannot adequately coordinate and develop it, resulting in a state of general stagnation.

At present mainland China lacks the personnel and expertise to implement in its far greater economy a Hungary-style plan. And if the past is any clue to the future of mainland China's economic policies, one can be certain that politics will remain firmly in command.

(Mark Halperin)

[Picture Caption]

Shenyang, 1984.

Chungking, 1984.

Yangtze River, 1984.

Chungking, 1984.

Yangtze River, 1984.