Lessons from China’s Policy of Reforms

As China marks 40 years of its policy of reforms this year since they were adopted at the Third Plenary Session of the 11th Central Committee of the Communist Party of China in December 1978, there are many in the developing world who would also share their sentiments at the impressive results. I wish to share my recollections on the journey covered during these years as an eyewitness account of the major reforms leading to China’s epic transformation. I arrived in Beijing in September 1980. Beijing then was very different from the Beijing today. A sea of people in green and blue uniforms on bicycles was sure to attract any foreigner’s attention. Cars and taxis were very few. Essential consumer items such as cooking oil, sugar, flour etc. were in short supply. What was, however, available in abundance was Chinese people’s generosity, hospitality and warm heartedness. Whatever few commodities were imported by the government from within its scarce foreign exchange resources were made available in the few ‘Friendship Stores’ frequented by the diplomats who could buy them against the hard currency known as ‘Wai Hui’. The foreigners and particularly the diplomats felt somewhat pampered.
In the initial days of economic reforms and open door policy in 1978, China was the largest underdeveloped nation of the world, where the people used to greet each other with ‘ni chi fan le ma’ meaning whether they had their food. It meant that having three meals a day was indeed a luxury. Decades of war and conflict, Western hostility, foreign invasion, and, the ideologically inspired Western imposed sanctions had inflicted widespread miseries on Chinese masses and restricted China’s policy options to promote economic development. China had indeed become the ‘biggest orphanage of the world’. Survival of the masses, Party and the State was the most important of China’s policy preoccupation from 1949 to 1979 under the leadership of the first generation of Post Liberation leaders namely Chairman Mao Zedong and Premier Zhou Enlai. Both great leaders passed in quick succession in 1976. 

Whether the West acknowledges the rise of China or not is not important, the clock of history cannot be reversed. The essential question is why China succeeded while other developing countries could not.


China had 70 percent population under poverty in 1979. The state badly needed reforms for transition to market economy. First of all, it must be acknowledged that it was not achieved with a ‘Midas touch’ or ‘magic lamp.’ The Chinese Communist Party drew correct lessons from the rise of the Western civilization, particularly the processes of Industrial Revolution in Great Britain and subsequently in other parts of Europe and in the United States. The Chinese also mastered the correct sequencing of the process of entry in the Machine Age, which very few nations in Asia, with the exception of Japan, have been able to do. Despite India’s delusional attempts to sneak into the Industrial Age through ‘showpiece’ urban developments, information technology, transport industry, gem and jewellery sectors, two-thirds of Indians survive on USD 2 per day with economic inequality measured by Gini coefficient among the highest in Asia. In many respects, India stands today where China stood in 1978 before embarking on an epic process of transformation. Though enjoying the support of the Western Powers and their mainstream media, India is, however, held back by its delusional mindset; religious tensions; caste and class inequalities; social stress; and, obsession with its neighbours. 

During the various phases of China’s reform program, Western observers predicted that the growth would shortly run out of steam. Instead, China’s economic boom has continued almost uninterrupted right through the decades of 90s and 2000s. China’s achievements have been hard-earned which in the words of the reformist leader Deng Xiaoping was made possible by ‘crossing the river by feeling the stones’. This meant that the process of ‘crossing’ was gradual, exploratory, pragmatic, focused, and mission oriented. Institutions and policies evolved in response as well as in anticipation of each next phase of cumulative causation of economic governance in transition trajectory. For example, when one phase of economic life was reformed, the subsequent advantages made necessary reforms in related sectors as a mutually complementary process beginning from farm privatization, fixation of farm tenure, farm goods pricing, reducing farm subsidies, development of farm markets, farm intermediaries, farm credit market, rural industrialization, township village enterprises, urban wage adjustments, adoption of planned urbanization, innovation and adoption of advanced technology, reforms in financial and banking sector, etc. 

Side by side with suburban housing just north of Kunming in Yunnan Province, these greenhouses grow high-value crops such as fruits and vegetables. In the relatively mild climate, crops are raised year-round.

A factory worker tests robot arms at a plant belonging to Zhejiang EverRobot Robotics Co., Ltd. in Jiaxing, China.


China’s success is courtesy of many diverse factors, but amongst all these, the following deserves particular mention: collective leadership; mindset change; civil service reforms; learning from global best practices; simplification of rules and procedures; restoration of rule of law – individual freedoms and entrepreneurship; harnessing of social capital and soft power etc. The era of globalization and digitalization also worked to China’s advantage in addition to its huge market size for economies of scale, consumer base, and endless supply of productive, disciplined, skilled and cheap manpower. Since I happened to be in China for a decade, during the conceptualization as well as implementation phase of this epic transformation, initially from 1980-1987 and subsequently from 2001-2003, and thereafter regularly visiting the country, I found the following major factors responsible for China’s success: 
Collective Leadership: Deng Xiaoping was a far sighted man. He was a great team builder who valued talents and merits. There was no victim, nor any villain. The reformist leadership guided by him became the beacon of change. He was respected by not only his friends but more importantly his foes, too. He valued merit, skills and efficiency and believed in consensus building, pragmatism, humility, moderation and practical results. He took keen interest in grooming the successive generations of the future leadership for the continued implementation of his vision of reforms. 

Farmers harvest wheat in a village on the Loess Plateau, a highly fertile area in central China that has been productive for centuries. Powdery soil and poor farming practices have led to serious erosion, but better farming techniques are being introduced.


Mindset Change: Development is a state of mind and has to develop as a culture for transformation of a society. The development paradigm promoted by the new reformist leadership in China in 1978 was in sharp contrast to then Centrally Planned Economic Model which had laid waste China’s potential with devastating consequences with poverty level exceeding 70% in 1978. China had a self-imposed ‘egalitarian trap’ in which poverty was adored ideologically and ‘everybody ate from the same iron rice bowl’ irrespective of his/her contribution, enjoying lifelong jobs and social security. The reforms were painful as it required a mindset change to earn his/her living, allowing everyone freedom to prosper with lawful means and hard work. The paradigm change was along Communist Party’s ideological line from ‘reforming intellectuals to letting intellectuals reform the society’. China realized that modernization was courtesy of higher education, innovation and reforms, and not due to political slogans and mega projects. The position of intellectuals was elevated from the ‘stinking 9th category’ of the past, to VIP category in post-1978 era, as per China’s rich culture and traditions. Investment in higher education was made a key plank of the reforms and open door policy to the outside world. The greatest ancient teachings of Confucius, Lao Tzu, Sun Tzu and Buddha were reintroduced. 
Learning from the Best Global Practices: China’s senior leader Deng Xiaoping, the Vice Premier at the time, visited Singapore in November 1978. On his return, the Third Plenum of the 11th Central Committee of the Communist Party adopted the policy of economic reforms and open door to the outside world. Immediately thereafter, the Chinese government began deputing hundreds of ‘study missions’ abroad for learning the best global practices in an institutionalized manner. Several dozen of these missions visited Pakistan, too. Singapore’s late statesman and founder Lee Kuan Yew recalls in his memoirs ‘From Third World to First: The Singapore Story: 1965-2000’ that following the visit of the Chinese reformist leader Deng Xiaoping to the island state in November 1978, the Chinese government deputed more than 150 study missions next year alone. He recalls ‘they came with video recorders, cameras, notebooks, pens and pencils’. This was in sharp contrast to the class struggle mindset of the so-called Cultural Revolution (1966-1976) when for example the official line was that ‘foreign capital was not welcome’. Deng Xiaoping was ready to experiment with new ideas.

China’s success is courtesy of many diverse factors, but amongst all these, the following deserves particular mention: collective leadership; mindset change; civil service reforms; learning from global best practices; simplification of rules and procedures; restoration of rule of law – individual freedoms and entrepreneurship; harnessing of social capital and soft power etc.  


Public Service and Governance Reforms: The reformist leadership realized that the economic reforms and open door policy would be doomed if it was not preceded by reforms of the civil service. Deng Xiaoping once observed that the ‘gravity and size of the problems did not matter, what is important is the capacity, will and methodology to deal with them’. The Communist Party and the central government took momentous decisions on the devolution of power to the provinces, autonomous regions, and municipalities; restructuring of ministries; separation of the regulatory and revenue functions in the ministries; rapid transfers and promotions to weed out the old; rooting out corruption and wastage by stiff punishments; penalties and deterrence; ensuring capacity building i.e., efficiency, coordination, supervision, monitoring, implementation, and results; establishment of sound law and order by effective border controls; modern security equipment; human intelligence; neighborhood committees; close circuit observation/monitoring; positive role by electronic print media; legal system reforms and use of ‘mediation courts’ to settle civil disputes etc. The principle of merit became sacrosanct in recruitments. Being ‘Red’ or a member of the Communist Party was not enough. The employing authorities were given powers to hire and fire. The principle of ‘chi daguo fan’ i.e., ‘eating from the same iron rice bowl’ was reversed. Permanent tenures of public jobs were abolished. The civil service structure underwent a series of reforms, reducing the size of bureaucracy from 16 million in 1978 to 4 million in 2010. The size of central ministries was reduced from 79 in 1978 to 28 in 2010. Red tape was abolished with the simplification of rules and procedures.
Simplification of Rules and Procedures: The centrally planned economy of China for three decades from 1949-1979 was a highly bureaucratized society. The government run by 16 million civil servants was bloated being the ‘employment agency of the last resort’. The most popular jargon was red tape or ‘guanliaozhuyi’. Even a simple work such as registration of a vehicle had more than a hundred procedures requiring dozens of seals and signatures. No wonder foreign investment was not only officially abhorred but also unheard of. The reformist leadership cut the size of government to four million from 1979 to 2015. The rules and procedures were simplified and made available under ‘one window’ or ‘one roof’. The reformist leadership believed that the complexity in rules and procedures did not only obstruct development of the economy, growth of business, and in attracting foreign investment but also promoted corruption. The streamlining of the complex government regulations which were the relics of the centralized planning era (1949-1979), helped the economy to skyrocket. The centerpiece of the new economic development model was the ability to maintain investment at a stunning 35-40 percent of its GDP for twenty-five years. 

 

Rule of Law – Individual Freedom and Entrepreneurship: The ‘security paranoia’ which was prevalent in China prior to 1978 had made it an abnormal society. All, particularly overseas Chinese and foreigners, were suspected. This was obviously not healthy for the society to develop. The leadership enacted laws guaranteeing individual freedoms and dignity. The powers of security apparatus were curtailed. Foreign investors, overseas Chinese, tourists and students were all received with welcoming attitude and provided facilitation to live and work in China. Contrary to the Western sinologist’s prognosis, China decided to open up further after the Tiananmen disturbance in June 1989. However, Western assessment of China’s developments lack credibility and have invariably been prove wrong. For almost four decades, Western scholars have been predicting as well as searched for signs of ‘political liberalism’ without any success. China’s opening up since 1978 should avoid certain misconceptions. Notwithstanding the fact that China has moved from a ‘security state’ paradigm to an ‘economy state’ template, the most widespread misunderstanding about China especially in the U.S. prior to June 1989 was that it was moving inexorably towards ‘political liberalization’. 
Agriculture Household Responsibility System: In 1978, in a village called Xiaogang in Anhui Province, villagers took law into their own hands. They divided local commune land into family plots. Soon the word spread. A political debate followed. Some saw it as a violation of law and therefore, a punishable offence. Deng Xiaoping and other reformist leaders saw it as an opportunity to strike off the outdated Soviet commune system and replace it with what is known as the agriculture household responsibility system. The peasants were allowed freedom to grow crops and vegetables and sell them in the ‘free markets’ after meeting the state quota. The measure revolutionized agriculture production and transformed the countryside. This proved to be the bedrock of the economic reforms. The increased income also set in motion adoption of better technology, seeds and research extension techniques, improving output. The measure transformed the countryside. The farmers were also given permission to establish small and medium enterprises (SMEs) for agro food products initially under the cooperatives and subsequently to employ seasonal labor under contracts. This led to Rural Industrialization, spreading prosperity at the grassroots level ensuring sustainable growth.
Township Village Enterprises (TVE): The adoption of household responsibility system in the agriculture sector revolutionized it by generating surplus production and modernizing agriculture. The modernization of agriculture, however, rendered millions of farmers without jobs for the better part of a year. The reformist leadership undertook the establishment of township enterprises for developing SMEs which produced toys, home appliances, embroidered items, gifts and daily use articles mostly for foreign markets, thus shaping a ‘global industrial workshop’ or ‘workshop of the world’. The first generation TVE Chief Executive Officers (CEOs) were heads of villages and veterans of the Korean War.
Investment in Human Capital: China’s higher education governance had inherited the Soviet model i.e., ideological, legalistic and non-critical. The outcomes were disasters such as Great Leap Forward, Cultural Revolution, subsistence economy etc. The transition from a ‘centrally planned economy’ to a ‘market economy’ in 1978, had its own set of demands for new subjects, new disciplines, and new areas of specialization. During the initial years of China’s liberation, it invested heavily in the education and health sectors; banishing mass illiteracy and infectious diseases. Minimum literacy i.e., an ability to read newspapers and basic health facilities were made available to the overwhelming majority of population until 1978. But these were only sufficient for ‘subsistence living’. China could not become a developed country with such rudimentary investment. ‘Equality’ in higher education in centralized planning period was replaced by ‘quality’ in higher education in market economy phase. The reformist Chinese leadership realized that the Soviet socialist central planning with bias for infrastructure and mega showpiece projects had not served China’s objectives. The leadership ‘changed the gear’ by investing heavily in higher education by deputing annually thousands of students to the universities in Western Europe and Japan in 1980s and subsequently to the United States, Canada, and Australia, etc. More than 4 million were sent from 1980-2015, out of which more than sixty percent returned to China contributing to its prosperity. Those who remained overseas act as intermediaries for market development of Chinese products; help upgrade higher education institutions; and, subsequently bring in endowed technology, skills and techniques. 
Mobilization of Overseas Chinese: The fifty million overseas Chinese who had left China over the past two centuries due to foreign imperial powers’ intervention, decades of civil war, economic miseries and general despondency were scared of returning to their motherland in view of the security paranoia. Due to Confucian, Taoist and Buddhist values of hard work, discipline, frugality, and filial piety they had succeeded as ‘money making machines’ in their respective occupations and abodes. The reformist leadership made focused efforts to attract them but they only took the ‘bait’ fully after the 1992 ‘southern tour’ of south China by Deng Xiaoping. In due course, the investment by the overseas Chinese comprised more than half of FDI inflows in China between 1980 to 2015.
Special Economic Zones: When Deng Xiaoping visited Singapore in November 1978 he showed keen interest in the success of the island state. Singapore statesman and Founder Lee Kuan Yew observes in his book ‘From Third World to First: The Singapore Story: 1965-2000’, he told Deng that ‘there was nothing that Singapore had achieved which China cannot do and do it even better’. Deng got the message and on his return, worked hard for the historic Third Plenary Session of the 11th Central Committee of the Communist Party in December 1978, to adopt economic reforms and open door policy. The greatest lesson that Deng set out to replicate was the concept of ‘special economic zones (SEZs)’, four of which were initially established in the coastal areas of Shenzhen, Xiamen, Zhuhai, Shantou followed by fourteen additional ones. These SEZs acted as incubators and mediums for technology transfer, dissemination of best global corporate methods and adoption of internationally recognized management practices. In the first phase from 1980 to 2000, the government focused on the coastal areas and cities with the greatest potential for development instead of spreading the butter too thin.
Export Culture: The economic reforms program was also based on an open door policy for China’s exports to the outside world, drawing on the examples of Hong Kong, Taiwan, Singapore, Malaysia and South Korea. China began its export drive with labour intensive industries such as toys, textiles, home appliances, food processing, sports goods, gifts and souvenirs, embroidered clothes, carpets, furnishings, electrical goods etc. Gradually China moved into medium and high tech products such as computers, machinery, equipment, plants, engines, aircraft, automobiles, and railways. The role of China’s SEZs to attract foreign investment, and its entry in the World Trade Organization in 2001 contributed greatly to the promotion of an ‘export culture’.
Investment in Research and Development: The truth is that in life, almost ninety percent of learning can be ensured by repeating, re-engineering and copying. This is how the human civilization has progressed from time immemorial. The Chinese are keen observers having the brilliant heritage of inventing clocks, silk, paper, and gunpowder etc. In the initial years of the modernization phase from 1980 to 2000, the Chinese enterprises purchased the latest models of electronic gadgets, equipment and machines and re-engineered them wholesale. They tested these ‘prototypes’ again before commercializing them. The end products were not only cheaper but better with guaranteed after sales service. 
China has achieved in three-and-a-half-decades what the Western nations took nearly three hundred years to achieve. The Chinese have themselves been very modest to acknowledge their own success unlike others, particularly the Indians who have recently acknowledged fudging their National Income Account figures on the advice of the IFIs (international financial institutions), to look ‘equally good’. China does not seek limelight or leadership. But China’s success story should not be hidden from the international community due to compulsions of geopolitics. The earlier this realization sets in, the better it is for the global economy’s future. The emerging countries and developing world in particular need to know that the Chinese economic and development template offers a lot of lessons. This is why telling the ‘China Story’ is so important. China has indeed come a long way! Hundreds of its cities have transformed based on Shenzhen and Shanghai template. Successive generations of the reformist leadership have learnt the art of effective management of ‘change’ for ensuring balance, harmony, stability and prosperity.
In my view, the Chinese economy went through three mega structural phases of reforms and many sub-structural phases. The transition covered from a predominantly agriculture economy through proto-industrialization to become the ‘workshop of the world’, from state ownership to private ownership, and from a subsistence economy to open door policy, surfing the wave of globalization. In China, transition promoted growth and growth promoted transition. At a time when the world confronts a leadership crisis, President Xi’s presence is re-assuring for the peace, stability, prosperity and security in Asia in particular and the world in general. Under his able leadership, China has become a global power, a force for globalization, a leader in scientific innovations, climate change negotiations, an upholder of justice and international law, as well as a great supporter of the developing world. Whether the West acknowledges the rise of China or not is not important, the clock of history cannot be reversed. The essential question is why China succeeded while other developing countries could not? It is because in any socially unequal society, the privileged elite social class/classes is favoured by the government due to exigencies and ground realities of electoral, dynastic, tribal, ethnic and regional politics. This is referred to by the economists as a system of ‘exclusive extractive economics’. China on the other hand is a ‘socially equal society’ with its class struggle buried in 1978. 
China learnt the right lessons from the Industrial Revolution in the developed world, tried and tested the ideas before implementing them. Essentially, it boils down to leadership. China was indeed then fortunate to have the visionary leadership of Deng Xiaoping and his team, just as it is now blessed with the visionary leadership of Xi Jinping who is pursuing the ‘Chinese dream’ and ‘building a community of shared destiny’ for the broader European, Asian, African and Latin American world. The people of the developing world share President Xi Jinping’s vision. Pakistan can also learn from China’s transformation if our political leadership and elite are prepared to change. Pakistan stands in 2018 where China stood in 1978. Pakistan has lost precious time due to its leadership crisis, indifferent elite, porous society, IFI hitmen, archaic institutions and an absence of comprehensive policy reforms.


The writer has served as Pakistan’s Ambassador in Germany, Singapore and Mauritius. He worked in China for two diplomatic assignments for nearly a decade. He is the author of several books on China. Currently, he is Director Chinese Studies Centre, National University of Science and Technology (NUST), Islamabad.
E-mail: [email protected]

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