China Boom CMS

<p>I will speak precisely. Political autocracy, various monopolies in basic infrastructure and resources, and the freedom and openness of labor intensive industries and the export processing industry, are the reasons for the success of China's 30 years of reform. Because, at this very time, the world underwent a process of globalized division of labor, and China capitalized on the opportunity. But, of course, it brought about some of the disadvantages that we experience today. There's a Laozi saying, &quot;The good fortunes of the past might become the misfortunes of today and yesterday's misfortunes might become the good fortunes of today.&quot; So, we can say that the land reform that took place 30 years before the Reform and Opening was very brutal and unjust, there were a number of unreasonable factors behind it. But, without the land reform at the end of the 40s and 50s and the communalization later on, which was, in effect, a nationalization, how could you have had the economic reform of the past 30 years with a large amount of cheap land resources? Whatever you call it, whether a coincidence, or that generation's ambition, with the land nationalized, when reform came, the land became a low cost factor of production, it became an advantage that China had in its economic boom. At the same time, if so many peasants were still like they were thousands of years ago, with one piece of land per household, it's hard to make them give it up. So I say, the land reform and communalization was painful and maybe disastrous at the time, but it became a good basis for the 30 years of reform.</p>

<p>Our modern higher education system was founded in the late Qing Dynasty. Institutions of higher education -- like Beida -- were established by the Qing dynasty. And Tsinghua University. So, the education system was started in the Qing dynasty. And we had&nbsp;<em>Jiangnan Zhizao Ju</em>, I forgot the English name of this factory, but they imported some German engineer. They brought in modern technology, basic skills for manufacturing. And ROK [sic] established a modern financial system. In 1935, when there was <em>Baiying Weiji</em>, the civil crisis -- actually, the civil crisis was caused by United States -- they hurt China and forced the Guomindang government -- the Nanjing government -- to create a modern currency system. And then in Mao Zedong&rsquo;s time, China established a modern interest rate system, so when Deng Xiaoping launched his reform, China was already a very strong country.&nbsp;In 1949, out of 500 million Chinese people, there were only 160,000 daxue sen, people with bachelor&rsquo;s degrees. But, by the end of Mao&rsquo;s rule, there were over 8 million. And the life expectancy in 1949 was just 39; less than 40. But, by the end of Mao&rsquo;s rule, when the reform started, the average life expectancy had risen to 69. Thirty years more than in 1949. And China had <em>liangdan yixin</em>, ballistic, intercontinental missiles, satellites, nuclear bombs, and nuclear submarines. So as an academic, I would try to stick to a so-called political-neutral stance.</p>

<p>I'll tell you a story: When I worked for Shanghai International Securities, we tried to learn how the international capital markets operate. We still can find some old executives who worked for the Shanghai Stock Exchange before 1949. The new Shanghai Stock Exchange is set up at the same location and under the same rule as before 1949. I don&rsquo;t think that in Russia, after 70 years, these people could still have survived. We are lucky. I met these people and they taught me how to trade and they are in their 60s. That&rsquo;s much better than what we can learn from Goldman Sachs, Merrill Lynch, or Morgan Stanley, because they are Chinese and they have operated in this country before. So, we can learn all the rules, but this is one story. What I mean, is that the commercial spirit of this country has not been lost after 30, 40 years, after 1949.</p>

<p>And so, you had this concern about the population, it extended during the Mao era as well. There had been different attempts to manage population growth during that time, but the one-child policy was, really, a radical departure from anything that had been tried before. And the argument made by its advocates, which was originally a group of rocket scientists who came up with this, was that they used their computers and ballistic formulas to project how the Chinese population might grow and they had access to sort of Western thinking about population studies at that time and at that time, it was commonly thought that the world faced a population disaster. So, they had access to these ideas, they combined it with their mathematical formulas that they had, and the access to computers which most other policy makers didn&rsquo;t have access to, and they came up with these projections and they presented it to the leadership essentially as, &quot;If we don&rsquo;t do anything, this country is ruined. The economy cannot grow fast enough to sustain the population that we have and not only that, but the environment won't be able to sustain the population that we have. And the half measures that we have taken previously will not be enough. The only way to move forward is with the one-child policy.&quot; They presented it as the only viable option. The leadership accepted this and implemented it. Sometimes, people forget that the one child policy was devised by the same people who endorsed the party retreating from so many other aspects of people's lives and embraced these market reforms. At the same time, they are stepping in and really regulating the most private decisions of families. So, it was sort of a contradiction.</p>

<p>I remember the summer and fall, in 1980. That was really blue sky, the Chinese people were so enthusiastic with that new beginning, Reform and Open Door. Particularly the younger ones. They invited me to their home at night and we'd play mah-jong together until 3 o'clock in the morning, and we talked a lot about the future, of China, of the future Japanese-Chinese relationship, perhaps naively, in such optimistic terms. And I remember, the National People's Congress had more than 3000 proposals from the Representatives and many of them were published in the People's Daily. Some of them really raised serious critical questions to the Party leadership, to the State leadership in a very honest way. Of course, they did not reveal everything, they did not report everything, but that was the day, it really captures that zeitgeist in those days. The Chinese really, genuinely wanted to change, and for the good. For the Japanese, that was really one of the most rewarding, inspirational days, because they really, genuinely seemed to be interested in things Japanese. How Japan developed after the devastation of World War II, and in what way Japan really developed its economy. How did Japan maintain its culture and tradition on the one hand while adjusting to the international economy and international society? Intellectually and psychologically, they really were trying to grope for something and it was a really refreshing and rewarding experience for me.</p>

<p>Mr. Deng Xiaoping was a great, great leader. He started the process of modernization of China. He was really the first one to put the modernization of an ancient civilization in action. And before him, some scholars and philosophers realized what we need to do to modernize this ancient civilization, in particular after the first Opium War in 1840. We lost that war to Great Britain and the transition of a traditional society into a modern society began. But, for most of those years, there was war after war, war against the Western powers, and then the Japanese invasion, the civil war between the Communists and the Guomindang and Chiang Kai-shek; the Chinese people really didn't get a chance to put the idea of modernization in action. Mr. Deng Xiaoping was the first one. But we need a lot more and we need to do a lot more. So, I think the past three decades were only a starting point for the modernization of China.</p>

<p>I should say that one prominent feature of China&rsquo;s reform is that China&rsquo;s reform was accompanied by an open door [policy]. That&rsquo;s basically the difference between Deng Xiaoping&rsquo;s reform and Nikita Khrushchev&rsquo;s reform in the former Soviet Union. Khrushchev&rsquo;s reform was just reform. At that time, they didn't really appreciate the model effect of the United States. So, everybody knows the funny debate between him, Nikita Khrushchev, and Richard Nixon, right? &quot;The Kitchen Debates.&quot; At that time, the Soviets were really very confident in themselves. They believed that, in 1980, they would enter a new stage of so-called <i>fada shehui zhuyi</i>, advanced socialism and that in year 2000, they would reach the stage of communism. That&rsquo;s very funny in man-made imagination, but I think Deng Xiaoping was very realistic and knew the reality of both the outside world and China.</p>

<p>So, I use the term growing out of the plan to describe the Chinese economic strategy during the 1980s. I think it encapsulates quite well the overall experience, along, of course, with this famous Chinese expression of <em>mozhe shitou guohe</em>, cross the river by groping for stepping-stones. That phrase, which people often attribute to Deng Xiaoping but, of course, it was Chen Yun who said it, is meant to say we should be very careful, we should proceed very cautiously. Very characteristic of this person. But, as the strategy was successful, it turned out to encapsulate a lot of the overall strategy. &quot;Growing out of the plan&quot; is not a Chinese expression, it&rsquo;s just something I made up, but I coined it for the first time in 1984, after I was talking to some people from the material supply bureau, which is the part of the planned economy apparatus that does the most planning in the very nitty gritty sense. They&rsquo;re the ones who allocate the materials from one factory to another. And they described to me very clearly, in 1984, the fact that they intended to fix the absolute level of the allocation plan, but encourage factories to produce more outside, or above the plan on the market. So I then asked them, &quot;But this means that the economy, as it grows, will increasingly become a market economy. Is this right?&quot; And they said, &quot;Yes, that is exactly what we envision.&quot; And so, it was this idea that was clearly there in their minds that I then labeled &quot;growing out of the plan.&quot; &nbsp;And that is, in fact, pretty much what we see through the 1980s. As the planned economy is fixed, but the growth impetus is still substantial, a larger and larger proportion of the economy is on this second track in the dual track system. And then, by the early 1990s, this dual track, the market track, has become large enough that, in the beginning of 1993, they just eliminate the planned economy and nobody even notices. It sort of disappears not with a bang, but with a whimper and the economy is driven by market prices.</p>