Chinese Leader Deng Xiaoping
Deng Xiaoping was a Chinese leader, who took a great responsibility in changing the old Chinese government system under Mao Zedong and establishing a new administration. He had enough experience living in the countryside for three years that is from 1969-1973. He, therefore, understood the Chinese old system of management, and the ways of overcoming problems brought by Mao Zedong’s Government.
Regardless of the dire state of the political system, he led the country to adopt science, technology, management and anything new from the world. During this period China was rich in cultural heritage. However, the country experienced a high level of poverty among its people. The country’s unique problems could not be resolved, by adopting new systems from abroad, since different ideas could not match with the extraordinary needs and beliefs of the Chinese people, Deng was well aware that establishment of new markets could not solve the problem and bring a smooth transition. He, therefore, establish institutions that would gradually help China to achieve success.
Deng influenced other individuals who held high political positions, to travel everywhere in the world and learn the reasons behind their success. He encouraged them to gather promising technologies, management styles and to perform experiments on these practices to test their viability in China.
He facilitated this strategy by improving foreign policies with other countries. His aim was to make the Chinese Government administer a good rapport while working with them. He believed that only the Communist Party was in a position in establishing the rebuilding process. Also, Deng gathered the most experienced leaders who had risen to high political levels in early 1950’s and 1960’s. He encouraged the young generation to obtain training overseas and bring back to their country best ideas and skills in science and technology .
To achieve these goals, he changed the communist party objectives, operating methods and laid a strategic work plan by assigning roles and responsibilities to a selected team. Their main agenda was to coordinate, supervise, and ensure they deliver feedback of happenings from abroad. Deng committed himself to reviving hope without raising expectations; he experienced a tall and unprecedented order which no other communist country had achieved. That is building its economic system and establishing rapid growth, bearing the fact of China's one billion population .
Poor Country and Economy
In earlier years China’s economy was described as poor as it depended on old rural farming methods and bad policies. It had few inefficient industries and economically did badly. Firstly, .th is was highly contributed by Mao’s regime, since he isolated his country from other countries; he encouraged rural agricultural practices, as a strategy to survive economically in case of war. Thus, industrialization was never embraced as compared to Eastern Europe and former Soviet Unions.
Secondly, the country was entirely based on central planning thus regional, and trade competition became impossible. The leading political party contributed these by focusing on the economic and social transitions improving on its politics. The country, therefore, remained united but isolated, as compared to other middle-income countries that concentrated on urbanization and industrialization. These countries gained great experiences, became highly civilized and developed effective state planning.
Thirdly, the Cultural Revolution brought many deaths and diminished the Chinese culture and beliefs hence many people disliked it especially in the rural areas. Fourthly, Great Leap Forward which led to a great Chinese famine and economic disruption from 1951-1961 made people yearn for a change of government and reforms, this economic and social campaign discouraged
hard working individuals due to its forced agricultural collectivization, where yields from ones farming practices w ere shared equally with the nonparticipating individuals. Over-reliance o n farming practices led to hardly any development of consumer goods The Chinese people suffered from all these and desired a market-based change which they were willing to support.
Lastly, the high economic growth and development portrayed by their neighboring economies that were practicing market-oriented strategies became a case study that a market economy can perform efficiently. Practical examples were North and South Korea, East and West Germany, and Eastern and Western Europe .
Key Spheres Where Reforms Took Place
Reforms development begun in the rural areas, involving household responsibility, urban and rural enterprising opening up the economy to foreign trade. The changes started to play a significant role in 1990's and included the financial sector reforms much discussed in 1980’s but propelled in the mid-1990s. These changes were partially implemented, gradually and experimental rather than comprehensively .
Major Components Of Economic Reforms
China began adopting the household responsibility in agriculture. Mao’s regime had introduced commune system and an economic campaign called The Great Leap Forward in 1958. In this system, no extra rewards were gained above the fixed quantity required by the government. This system involved forming a group of forty farmers who would labor and deliver their products to the governm ent. The system discouraged hard working farmers because their effort was not recognized .
The system was later replaced in 1978 under Deng’s leadership reforms. The state distributed its land to individuals, and each household would receive an additional reward for any extra output that surpassed the fixed quantity required by the government agencies. This enabled farmers to be hard working and made them richer. These reforms served as the foundation of all other changes in the other sectors.
State Owned Enterprises
State-owned enterprises portrayed a good example of economic reforms through experimentation. The changes involved, giving government state enterprises autonomy in production, marketing, and investment decisions contrary to the earlier regime where decision-making originated from central planning systems. In fact, a pilot study involving six companies in Sichuan province was carried out, and the result was positive. The second step included allowing the se enterprises to keep their profits after submitting government tax incentives. The earlier system, on the other hand, kept businesses revenue. This action facilitated financial independence in these enterprises .
The third step resembled the household responsibility in agriculture. Under this system, enterprises were allowed to keep profit after submitting a fixed amount to the fir m controlling it. The system was encouraging to the economic officials who designed it. Nevertheless, the incentives provided turned out to be less than expected .
Open Door Policy
Open door policy encouraged foreign trade policy and investments. Deng he lped the opening of imports and promotion of exports. This was implemented by ensuring strict controls for the purpose of providing exports and paying for the imports falling under central planning. Export Promotions were also encouraged, and the establishment of cooperatives was allowed to facilitate in decentralizing trading activities.
The Price System
The system allowed prices to be controlled by the market forces contrary to the earlier regime where prices were controlled by other central planning systems. The s ystem, therefore, provided opportunities for enterprises to economize their input and increase their outputs for profit.
Development of Non-State Sectors
This involved transferring retail stores and small factories to collective ownership. This was implemented through leasing to a private or joint owners. They were expected to operate for profit although the estate remained state property .
The Banking and Financial Sectors
Banking changes were accomplished through the introduction of ne w economic banking reforms. The earlier system involved mono-bank that had a network of bra nches across the country that is to collect deposits from the public. There were no commercial banks to extend credits to enterprises. Thus in 1983, the People’s Bank was transformed into Central Bank. Other banks, which included Industrial and Commercial Bank of China, Agricultural Bank of China, People Construction Bank of China, were introduced and given the mandate to extend credits. This increased the supply of currency in 1984 to 50% with 8.8% inflation rate according to the overall retail index in 1985.
Economic and Social Infrastructure
In 1950’s all schools were brought under the government control. Private schools and universities were controlled by public organizations. The education system followed the Soviet education system and institutions were under the central planning system.In addition, universities were dissolved into technical institutions and assigned under the government ministries to train their employees. After interruptions of the Cultural Revolution, schools were reinstated . Intellectuals fired due to criticizing the old regime were restored to their previous posts. Foreign scholars were allowed to come and lecture hence they brought in new ideas and technologies. Private institutions emerged and scholarships to study abroad were offered allowing international exchange program of students.
Social Welfare System
This transformation involved health care and social securities.Earlier China adopted a comprehensive commune health care system that was effective. The system included three-tier system. Barefoot doctors based in countryside offered preventive and primary care. For complicated cases, patients were referred to the second-tier system. This constituted of ten to thirty beds, outpatient section operated by junior doctors serving 10,000-20,000 people. Patients who had complications were referred to third-tier county hospitals which were under senior doctors. However, the system was dissolved in 1980's. This resulted in doctors in the rural areas taking farming as a full-time job while others operated their private clinics. This further led to Local government financing the health care sector and the three-tier health care network still operating in rural China.
Also, Health Insurance systems such as government insurance scheme, which took care of all public employees, retirees, veterans, the disabled, university lectures, and students, was introduced; and the labor insurance scheme that covers enterprises and groups in China.
Impacts Of The Economic Reforms
Disbandment of State Ran Farms
The state farms were disbanded, and peasants were allowed to rent land for farming activities thus improving their standard of living. There was an increase in agricultural yields, which lead China to be self-sufficient in food production. Under these reforms, the township and countryside enterprises that were earlier based on the rural collectives improved in infrastructure and lead the way to the expansion of the private sector, while the government-owned firms were either privatized or placed under new management. According to The National Bureau of Statistics of China (1999), the number of village and township enterprises increased from 152, 0000 in 1978 to 18,880,000 in 1988. This success made available to the businesses, a large number of local workers and the dual-truck system that allowed them to gain access to capital and raw materials from the market. In 1978 to 1988, the share of total employment in private sector accompanied by overall productivity growth was averaging to 5.8% annually. During this period the annual growth rate of total output was 2.96% for government-owned enterprises and 3.66% for non-government collective enterprises .
China joined the rest of the world in the production of various consumer goods, electronics being among them contrary to Mao’s regime whereby China had few consumer goods production. The combination of privatization and trade liberalization had a positive effect on output growth in both state and non-state firms. In 1988 to 2007, annual average total productivity growth rate of the state and non-state firms were 5.50% and 3.67% respectively. In manufacturing sector output, growth rate during this time was even higher. According to the annual survey of industries in China (2012), an estimated growth rate in the manufacturing sector was 13.4% annually. The internationalization of the Chines economy in industrialization had surpassed that in the agricultural sector. This lead to international competition creating opportunities to learn from foreign firms. Interaction with rest of the world significantly influenced the value and lifestyle of the national population who keep acquiring higher skills in technology. Therefore, China kept expanding its domestic output in manufactured goods.
New Factory Management
Local Factory managers took control of industries, and thus the central planning system lost its control and mandate in industries’ decision-making. Workers and managers were allowed to trade for profit with private buyers and bonuses were given to motivate employees who portrayed hard work and quality job Through reforms in this sector, productivity and growth could be associated with better incentives, increased market competition and allocation of production inputs.
According to Naughton Hong and Macmillan (1994) report, the positive impact was due to managerial representation in the production sector. Production growth rate was 2.96% for state-owned firms and 3.66% for non-state enterprises.
People were allowed to establish small businesses and to hire a limited number of workers; the private sector was given a large proportion of China's Industrial output, and l aws were amended to encourage foreign investors to invest in China thus providing the needed capital and modern technologies. Although China adopted economic reforms strategy, they completely refused to abandon the communist system. In fact, i n 1988, college students demonstrated demanding greater professional freedoms and democracy this took place in Beijing Tiananmen Square.
The 15th Congress of the Chinese Communist party held in 1997-sanctioned ownership reforms of government-owned firms and legalized development of private companies. Between 1998 and 2007, total urban employment in domestic private enterprises and foreign invested firms increased from 8% to 24%. The growth in the manufacturing sector was even more by 2007. Local companies alone accounts for 51% of total urban employment. From 1978 to 2007, China's annual growth rate of total factors of productivity was 3.61% annually.
Industrialization has been known to favor urban producers rather than rural producers. However, in China, more than 200 million peasants were lifted out of poverty by the state reforms, through creating a newly free market and new income opportunities. Also, rural industries developed from almost nothing to become the fastest growing sector in the whole economy. The rural income per capita increased by 63% between 1985-1997.
Development Information Resource
In earlier years, communist China media functioned as a mouthpiece for the party central committee. However, in 1980, the political, economic and social situation changed this tradition of propagating a self-centered government and leaders in power.In 1982, free and fair information was introduced as a new concept in the Chinese media sector.
The major success was the rise of the internet and other media, which grew from conflict to integration. Development of internet facilitated freedom of speech and a chance in maintaining a degree of anonymity. The use of internet has become popular among the younger generation and by the end of June 2008, there were 253 million internet users in China. This is 400 times in comparison to October 1997. However, this accounts for 19.1 % of the population, which is below the world average of 21.1%. Also , 43.3% of cyber owners in China have their blog or other internet space.
Future of China Economic Growth
Basing experience from other economics especially East Asian economies e.g. Japan and Taiwan, implies that times of extremely rapid growth eventually slows down. Thus China' more than 8% annual growth rate per capita GDP will not last long. China GDP per capita is now around 20% of the United States level. According to the earlier composition of sources of economic growth, China GDP per capita is mainly driven by the growth of China's relative total factor output. Chinas economic reforms have resulted in productivity growth. Other economies in Eastern Europe and Latin America also have economic reforms, but their growth performance can not be compared to that of China. What is unique about China can be attributed to backwardness at the start of economic reforms that is in 1978, which increased the zeal to catch up growth. Beginning of 1978 total factor of productivity was less than 3% of the United States of America level, much less than Mexico and three communist states in South America. From 1978- 2007, China starting at a far degree of productivity rose from 3% to 13% of the United States of America (USA) level. Even if China manages to replicate this extraordinary growth for another two decades, its productivity level would still be 40% of the frontiers USA, Japan, South Korea and Taiwan levels. However, China economy got large productivity growth through reducing the existing distortions and inefficiencies in its production. An estimated potential total factor of productivity of 30% can be achieved for the Chinese manufacturing sector if the distortions are reduced to that of USA level. The financial sector (China's Banking Sectors) is dominated by state-controlled banks. These are characterized by monopoly rights to state-controlled or political resistance to economic forces. This has resulted to corruption and income inequalities in addition to economic distortion. Thus, this remains a challenge to the Chinese leadership in reducing corruption and income disparities to increase its development.
China reforms under Deng Xiaoping’s strategies enabled it to open up to the world by the introduction of household responsibilities and enabling the locals to own rural land areas developed in infrastructure through construction of factories. They were further motivated when the government allowed them to retain profits as opposed to the Moa regime where the government retained their revenue. Since people had money in their pockets, business enterprises (privately owned) boomed and started doing business with the outside world thanks to the open door policy that allowed foreign investors . Technology advancement was fully embraced, and this made China be entrepreneurs in the manufacture of consumer goods such as electronics. Also, since the prices were being controlled by the market, it enabled farmers and traders spend little in input and reap lots of output hence profit. The introduction of credit facilities in China meant that the poor could access funds and start businesses and projects to improve their living standards. Therefore, a healthy competition emerged, and the food basket of China was getting larger and better not forgetting the variety of products that developed . Students, parents, and teachers had a reason to smile since the education system improved for the better since universities were not only reinstated but also international education was introduced to prepare the youths to the outside world. Health insurance schemes combined with the old the three-tier health care network helped a lot in rural and urban China. What can be evidently noted is that the aspect of capitalism and the embrace of international trade that made China open up to the world in technology, manufacturing, and advanced agricultural practices, this led to the people of China benefiting. Other aspects include the changes in policies, ideologies, and mentality of the leaders and lawmakers who gave China the priority and were determine to seize any opportunity that would make China a great nation .
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