A gloomy anniversary

This week marks the 40th anniversary of what the leadership of the Chinese Communist Party (CCP) calls the “Reform and Opening Up” process initiated by the second generation of communist leaders led by Deng Xiaoping. The process, which began with agricultural reforms that increased rural incomes sharply, and then by the growth of township and village enterprises and the special economic zone of Shenzhen, accelerated over time. As a consequence of four decades of sustained high growth, the People’s Republic of China is now the world’s manufacturing superpower, and rivals the United States for global economic power and influence. In the official celebrations of this event, the achievements of previous generations are minimised and the centrepiece is the current leader, Xi Jinping. 

Yet Mr Xi’s decisions are, in many ways, a repudiation of the instincts of previous generations. Not only did Deng take a brave decision to experiment 40 years ago, but there have been several other points in the past decades where the leadership has made decisions that, in spite of risks, shifted the People’s Republic to a higher growth trajectory. One such point was Deng’s “southern tour” around the time of his departure from official life in 1992. He visited the fast-growing southern provinces of Guangzhou and Shenzhen and stayed in Shanghai over Chinese New Year. Through speeches and signalling, Deng created support for market-oriented reform over the wishes of conservatives such as erstwhile Premier Li Peng. Eventually, Deng’s successor, Jiang Zemin, had to also commit to following through the reform programme even though there was a vocal section within the CCP that believed it would lead to more Tiananmen-style dissent against the Party’s authority. Nor was this the only occasion where the leadership took a risk on reform. Less than a decade later, in the run-up to accession to the World Trade Organization, Zhu Rongji conducted painful restructuring of state-owned enterprises in the teeth of political opposition. This set the foundations for the super-charged growth of the 2000s. 

Under the current leadership, however, it appears that stability is considered preferable to reform — or growth. Although Mr Xi’s first few years in office were marked by a major credit boom, that has been substantially slowed in recent years. The primary concern of the CCP leadership now is to maintain stability. Further growth will require cutting state control of the economy further, and empowering the private sector that is already a dominant part of the Chinese economy and contributes the vast majority of growth. This would, however, fly in the face of Mr Xi’s centralising instincts. As a result, companies are being forced to re-establish their closeness to the centres of power in Beijing. The current leadership, in other words, has turned away from the risk-taking tradition being celebrated on this anniversary of reform. The question is whether a lower-growth equilibrium is in itself not destabilising for one-party rule in a way that higher growth turned out not to be. The aspirations of the people of China are represented best today, just as they were 40 years ago, by the private sector.

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