Chinese Economic Development

The era of market socialism, 1978–1996 331The drift towards market socialism began anew in the early 1990s. Price reformwas completed between 1991 and 1996; the Tian’anmen repression and morecontractionary macropolicy made that easier to accomplish by holding downdemand and by cowing the workforce into accepting rises in the prices of keywage goods. In many ways, this was a classic neoauthoritarian programme. At thesame time, many of the restrictions on foreign trade and inward investment wereremoved in the wake of Deng’s ‘southern tour’ in 1992, which extolled the virtuesof the special economic zones. However, macroeconomic policy again becameoverly expansionary, leading to a new inflationary bubble in the mid-1990s. For allthat, a genuinely market socialist economy had been created by the time of Deng’sdeath in 1997. Large swathes of the industrial sector remained in state hands, butvirtually all prices had been liberalized and the open door policy had been implementedso fully that membership of the WTO became a realistic policy option.This rather chequered path demonstrates one of the key truths about this era:there was no blueprint for reform, and no country which China could easily copy.The experiences of the East Asian newly industrializing countries were instructive,but the legacies of Maoism made China’s situation unique. A new Chinesemodel of development had to be developed from scratch. It is therefore worthlooking in more detail at the way in which policy unfolded after 1978.Readjustment, 1978–1982Economic policy-making between 1978 and 1982 was dominated by the themeof ‘Readjustment’. More precisely, Party policy was encapsulated in the slogan‘readjusting, restructuring, consolidating and improving the national economy’approved by the Central Committee in April 1979. 13 The central idea was thatthe growth rate could be accelerated by reallocating state investment from lessefficient sectors (defence, metallurgy and machine-building to name but three) tomore efficient sectors (in particular those which produced inputs for agricultureand consumer durables). The corollary was that ownership change was unnecessary.Structural change rather than systemic reform was all that was needed toaccelerate the growth rate. Nevertheless, even though Readjustment was not anespecially radical policy initiative, its adoption heralded the end of Hua Guofeng’s‘foreign leap forward’. 14Several areas were identified for Readjustment: the ratio of agricultural toindustrial production, the ratio of light to heavy industrial production, the structureof heavy industry itself (meaning increased production of inputs destinedfor agriculture and light industry) and the structure of agriculture (meaning lessattention to grain production). Self-evidently, this was an agenda for balancedgrowth which was directed primarily towards the task of raising living standardsby increased production of (non-grain) agricultural commodities and industrialconsumer goods (Liang 1982).The other key component of the Readjustment strategy was a change in the relativeprice structure. Policy here was designed to align state-set prices more closelywith social marginal costs in an attempt to provide incentives to producers. This