China’s Economic Odyssey in the Contemporary Era: Yao Yang gives a broad-ranging talk assessing the unintended consequences of four decades of economic reform
For the first talk of the fall 2023 semester’s Critical Issues Confronting China series, the Fairbank Center hosted Yao Yang, Dean, National School of Development, Peking University, for a broad-ranging talk that aimed to assess the unintended negative consequences of four decades of economic reforms in China. According to Yao, reforms launched by Deng Xiaoping in 1978 dramatically raised living standards but also brought “dire consequences.” President Xi Jinping’s economic and political policies, he said, aim to address these problems. While critics argue that such interventions will hinder economic growth in the short run, Xi is betting that these measures could eventually usher in sustainable progress and stability.
China’s Four Epochs: From Mao to Modern Reforms
Yao highlighted four distinct epochs of the Chinese economy. He described the first, starting in the 1950s under Mao Zedong, as a time of optimism, when a unified and central ideology made the masses hopeful for the future. Then, in the late 1970s and 1980s, Deng Xiaoping ushered in an era of enlightenment, characterized by significant strides in reform and opening up to the outside world. The “opening” (duiwai kaifang 对外开放) allowed for the adoption of capitalist-style practices and welcomed foreign capital investment; the “reform” (gaige 改革) spearheaded an internal overhaul, leading to the blossoming of civil society.
The first 20 years of reform, according to Yao, largely avoided conventional developing country problems such as political monopoly, alliances between business and politics, widespread corruption, and pronounced inequality.
Fragmentation and Disparity: China’s Struggles in the Era of Unrevealing
The third epoch, from 1998-2017, spanned the leadership of Jiang Zemin and Hu Jintao and saw the surfacing of societal issues, Yao said, in particular the fragmentation of authority. Drawing from Jean Oi’s assessment, Yao referred to China’s system as a “fragmented authoritarian regime” characterized by extreme decentralization and local governments’ outsize control over their respective local economies. The central government’s Politburo—comprising nine members at that time—was envisioned to champion collective leadership, but instead succumbed to bottlenecks and internal fragmentation.
During this period, Yao said, China seemed to be veering towards the characteristics of a conventional developing country, as economic disparities reached concerning levels: The bottom 10% of the Chinese population accounted for a mere 0.5% of the total income and had a negative net wealth, while the top 10% controlled 35% of income and 68% of the wealth. Notably, this income distribution made China even more economically unequal than the U.S. At the same time, corruption persisted as a widespread issue, even in the face of a decades-long anti-corruption campaign—a fact that Yao especially lamented.
Yao argued that two primary reasons exacerbated the issues facing the Chinese economy: firstly, the exponential economic growth resulted in bribe amounts that became too alluring for officials to ignore. Secondly, there was a growing overlap between the roles of the government and commercial enterprises. Yao emphasized rampant commercialization across sectors—including, but not restricted to, education, housing, and finance—as trends that further blurred the lines between market forces and state authority.
Xi Jinping’s further consolidation of his power, highlighted by 2018 constitutional reforms that eliminated term limits, were seen by Yao as a corrective effort addressing these challenges. Citing Xi’s own writings, Yao understood that facing these issues with zero tolerance was crucial for the Party’s future and the nation’s healthy development. Xi aspired for these corrective actions to herald a period of high morale, similar to that of Mao’s era; to achieve this, he promoted political campaigns aimed at shaping people’s perceptions and behaviors, believing that relying on the rule of law was less effective, as its establishment would take too long. Referring to the economic slowdown and property market challenges, Yao cited Xi’s belief in the idea that a “short pain is better than a long pain.”
In the New Era—Xi’s Ambitious Quest for a Harmonized China
So should we view Xi’s campaigns as necessary? Before the advent of Xi’s New Era, the prevailing political sentiment towards corruption was somewhat pessimistic, with certain levels of corruption seemingly tolerated. However, in the New Era, Xi adopted a more punitive stance, advocating for both political and economic purity. To put things in perspective, Yao highlighted that, from 2012-2022, approximately four million officials or related personnel—nearly 5% of the entire bureaucratic workforce—were probed on corruption-related offenses. In 2023, the figures became even more startling; 258,000 individuals were investigated, exceeding the average annual count of the preceding decade. This campaign systematically swept through individual sectors, adopting a targeted and deliberate approach.
Xi’s second key strategy was the restoration of the Party’s central authority to its top leader. Yao posited that lessons were drawn from incidents such as the Zhou Yongkang (周永康) episode (which has been portrayed by some as an attempted coup by the Party’s former Security Chief) and the Tito-Yugoslavia crisis on the necessity of concentrated power—one person who concurrently held the positions of President, General Party Secretary, and Chairman of the military committee. The Party also moved to curtail local autonomy and amplify the power of the Central Disciplinary Inspection Commission, launching “inspection” (xun shi 巡视) to ensure local compliance.
However, these centralizing moves aren’t without their downsides. For instance, wary of making mistakes and facing repercussions, local officials have become increasingly risk-averse, opting for a cautious approach to opportunities. Yao even drew on the common colloquial term of the moment to describe this phenomenon as a form of “laying down” (tang ping 躺平).
To curb the extensive political and societal influence wielded by business behemoths, the government launched anti-monopoly investigations in the financial and corporate realms. Again, Yao pointed out that such measures have had their share of drawbacks. For instance, the efficiency of high-tech sectors and the vibrancy of capital markets have been compromised. Further corrective actions addressing excessive commercialization include curtailing extracurricular training programs, allowing the housing bubble to burst, and imposing restrictions on local government’s commercial debts. Since the housing sector accounts for a staggering 70% of GDP, the sector’s collapse inevitably is dragging down the broader economy.
Blending Ideology and Pragmatism: China’s Effort to Forge a Unique Development Path in the New Era
In 2021, the Party announced a victory in its fight against poverty, a declaration firmly rooted in its Marxist principles and the concept of “chuxin” (初心), or staying true to the Party’s foundational mission. However, Yao pointed out that in contemporary China, while the Party emphasizes its Marxist foundations, it also demonstrates flexibility and pragmatism in its economic policies. The balance between foundational, Marxist principles and the role of private enterprise in China’s future is a nuanced and evolving topic.
Yao concluded his talk by noting that political campaigns against corruption and in favor of economic consumption, for example—aiming to return to the optimistic times of the 1950s—might not be effective in the absence of a new vision for the future. Finally, Fairbank Center Director Mark Wu, who moderated Yao Yang’s talk, chose to point out that the late-stage development theory typically doesn’t associate increased political surveillance and heightened censorship with advanced stages of development. So, with the current situation in China, are these measures temporary responses to particular campaigns, or do they indicate China’s intent to carve a distinctive trajectory as a developing country?
Yao’s response indicated his belief in the temporary interpretation; he cited Xi’s goal of establishing rule of law by 2035. This may seem to present a particular contrast to the CCP leaders current policies, but also could be said to provide further confirmation of Yao’s short-term strategy interpretation, aligning with the idea of bearing short-term discomfort for a broader, long-term vision.