Ian K Perkin: A look at Deng Xiaoping's legacy, 30 years after opening China to the world

 “Poverty is not socialism. To be rich is glorious.” – Deng Xiaoping

It is now three decades since China’s twice purged and twice rehabilitated executive vice-premier (and later Paramount Leader) Deng Xiaoping took his most momentous policy decision. By agreeing to open the Communist State to the world, he and his colleagues at the Third Plenum of the 11th Central Committee of the Communist Party of China in December 1978 launched a social and economic revolution.

It is a decision that continues to have massive effects to this day. It has impacted on China and the world. It has transformed China economically and socially and altered, perhaps for all time, the global economic and political balance of power. And for Hong Kong, it not only transformed the local economy (and its orientation to the Mainland), it also established the conditions under which return of sovereignty from Britain to China could be accomplished.

It has left virtually no one on the planet untouched. For some that might mean a “Made in China” T-shirt or mobile phone and a modest Chinese investment in a resource project somewhere; for others, especially in China and the West, it has meant rapid wealth creation, huge money transfers, and a re-ordering of global economic, corporate and political power.

A quick look at the numbers reveals the dramatic changes. China has averaged close to 10 percent growth over the 30 years since the opening to the world policy began – an unprecedented growth record for any country. During that time growth has ranged from a couple of low years of around 4 percent real growth to highs of 14 and 15 percent, but mostly has been in the low double-digit range.

Gross domestic product in US dollar terms last year reached around US$3.3 trillion (that is, 3.3 thousand billion). This year it will be about $3.8 trillion. Thirty years ago, when Deng Xiao Ping launched the country’s opening to the world reform program, GDP was a mere $200 billion or so at the then strictly managed official exchange rate, or about $55 billion at today’s rate to the US dollar.

China’s share of global GDP on a purchasing power parity (PPP) basis has risen to around 11 percent from an estimate of just under 2 percent in 1978. China’s share of global merchandise trade is now closing in on 8 percent (2007) compared with miniscule amounts back in the late 1970s and early 1980s. The country now (2007) accounts for 8.8 percent of global exports and 6.7 percent of imports.

Its share of commercial services trade, while much smaller at 4 percent (3.9 percent of exports and 4.2 percent of imports), has also grown rapidly, and the country ranks seventh in terms of exports and fifth in imports of all types of services.  

Since Deng’s reforms began, the country’s GDP in US dollar terms has risen many times over, between 16.5 times and 66 times, depending on which dollar-yuan exchange rate is used to re-base the 1978 figure. In national currency or yuan terms, GDP is up also by a multiple of more than 60 times. This has transformed the country and lifted hundreds of millions of people out of poverty. It has also created a new middle class of property and business owners, as well “rich” and “super-rich” élites.

This growth of China and the rise in importance of its economy in the international context have been so sudden (in economic time) and powerful that they have effectively upset the global economic balance, especially as far China’s relations with the United States are concerned. It may even have contributed ultimately to the financial meltdown the US and the world have been experiencing in recent months.

When the real history of this crisis comes to be written and its causes explored in detail, most roads will surely lead to the excesses of America and its now diminished financial centre, Wall Street. Yet this will be only part of the story. In a globalised world, all are participants, as the spread of the impact of the current crisis shows. The Americans could not have achieved what they have alone.

Europe (including Britain), Asia (including Japan and China), the Middle East and the Americas will all have played their part. There may even be a place for an African role, although only a modest one. In this broader context, it is also worth remembering that China’s opening not only radically changed the country, but the world.

Links to crisis
Because of its huge ramifications for the global economy, it too may have played a key causal role in the current crisis. And it is not hard to draw a line that links the rise of Chinese productive power, Western consumption, reduced prices for goods and services, consumer price disinflation, low interest rates, asset price inflation (including the housing bubble), the sub-prime crisis and eventual global financial meltdown.

Yet this may be too simplistic. Another line might, for example, start with the West’s seemingly insatiable consumption habits, leading to massive investment in China where cheap land and labour were exploited to produce huge amounts of goods, increase global trade and produce massive imbalances in global capital, with US deficits, China surpluses and ultimately a financial collapse.

If this linkage seems too farfetched, it ought not to be forgotten that while Deng’s “big idea” of opening was the initial catalyst for China’s growth there were other factors are work as well. The massive devaluations of the Chinese yuan from the mid-1980s to 1991 helped make the country even more competitive in the world markets. So, too, did the support of the Chinese Diaspora, especially Hong Kong and Taiwan investment.

Indeed, some analysts still believe China’s super-competitiveness, helped along by its sheer size and huge land and labour resources and the tremendous devaluation of the yuan, helped undermine the economic miracle that had marked the development of the rest of East Asia, including the “four (little) tigers” and the ASEAN group. Some even suggest it was a key contributing factor to the Asian financial crisis of 1997 – especially the 30 percent devaluation of the yuan in the early 1990s – even though the country itself was little affected by the crisis.  
But whatever causal links future historians may explore there is no doubting the huge impact of Deng Xiaoping’s “big idea” on the global economy and politics in the past three decades.  In short, China’s emergence onto the world stage has left no corner of the world untouched and helped re-shape and re-balance global economics and governance.  

Before the decision to open to the world in December 1978 China was already a big country in every way – geographically, politically and even economically (it did after all have to provide for a billion people or thereabouts) – but it was also largely closed (except to communist allies).

A series of events through the decade of the 1970s had conspired to make the opening possible. The thawing of relations with the US, concerns about Russia, the visits of US Secretary of State Kissinger and President Nixon, the deaths of Mao and Zhao, the brief rise of the Gang of Four and, of course, the re-emergence of the old “capitalist roader” Deng Xiaoping, who realized China’s limitations. (A short, embarrassing war on the Vietnam border also helped convince him of the need for China to upgrade.) 

Deng Xiaoping himself described the economic reform process as “China’s second revolution” – second only to the political revolution that brought the Communist party to power in 1949 – but even he would be surprised at the outcome were he alive today (he died in 1997 just a few months before the return of Hong Kong to China sovereignty). While he is regarded as the "Chief Architect" of reform, he did have to take the Party with him.   

In China itself, the 30th anniversary of Deng’s reform decision is regarded as so important that the China Daily has an entire website devoted to it. Xinhua news agency has compared it to this year’s Beijing Olympics (which would not have occurred without the opening) and the recent Shenzhou-7 space walk (which also may not have occurred without it).   

This is hardly surprising, given the dramatic changes it inspired and assisted. China’s growth since the December 1978 decision has been nothing short of remarkable. The only thing that comes near it in recent times is Japan’s resurgence after the war and through to the early 1990s when it stagnated economically (a warning for China perhaps?).

Before that, there was America’s growth and before that the Industrial Revolution, beginning in Britain and then spreading globally. Of those, only the Industrial Revolution was probably greater than China’s achievement because it began from nothing; China’s growth had an earlier industrial base and global investment and technologies to draw on.   

Thirty years ago Deng Xiao Ping’s aims were modest enough. He wanted China to benefit from technological advances evident in the rest of the world, particularly the military, of which he was political head. But he also wanted to improve the general quality of life in China by providing the basic necessities of life, including a wide range of consumer goods. China now supplies those to the world.       

His great strength was that he broke down the philosophical and political barriers to reform and development in China. He was able to carry the Party with him and he had the slogans to boost popular support – famously saying things like “It doesn't matter if a cat is black or white, so long as it catches mice” and “Poverty is not socialism. To be rich is glorious.”

He had his setbacks, of course. His role in the Tiananmen protests in 1989 is still debated and when the process of reform and opening was going off track as a result he had to venture south to Guangdong and Shenzhen in the early 1990s to re-energise the whole process. 

But in the end the real dynamics of change in China were capitalist – cheap land, cheap labour, cheap currency, private (or privatising) businesses, freedom to follow the market, foreign skills, foreign technologies, foreign markets, incentives (tax and otherwise), special economic zones (including tax, labour and other incentives) heavy laws but light regulation and supervision (e.g. environmental, land and labour laws and so on) and decentralised decision making.