Isabella M. Weber, How China Escaped Shock Therapy: The Market Reform Debate. Routledge, 2021. Hbk £108, pbk £29.99 (July 2022 sale price £23.99)
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RATING: 80
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Buy this book?
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Yes
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Weber's title is over-dramatic and misleading - I put that down to marketing. But this book is worth reading all the same. It gives a competent and well-informed account of debates between economists in the 1980s over price reform, with useful comparative and historical background, extensive first-hand knowledge of Chinese-language documents and of the secondary literature in English, and very rich material gathered from interviews with protagonists in the debates, quite a few of whom had been 'sent down' to the countryside during the Cultural Revolution. It covers similar ground to Julian Gewirtz, Unlikely Partners: Chinese Reformers, Western Economists, and the Making of Global China (2017), which I reviewed here, but is far superior. Weber's own review of Gewirtz (Weber 2019) is critical for reasons complementary to mine - I criticised Gewirtz for failing to take sufficient account of the role of the World Bank, whereas Weber focuses on his reliance on one narrow group of Chinese economists with particularly strong ties to the West, and ignorance of the extent and character of broader debate. In the book itself, she itemises in the text and footnotes many specific empirical and interpretative errors that confirm that Gewirtz's account is unreliable. Interestingly, her review gives the title of her then forthcoming book as Reassessing China's Reform Debate (1978–1988): Price Regulation and Market Creation, which might not have sold quite as well. The reference to shock therapy has the downside of making it appear that Weber tells the story largely in terms of 'Western' approaches to policy-making. She doesn't. She gives due prominence to the many Western 'experts' whose views were solicited by various Chinese agencies and authorities, but she actually centres her attention on indigenous traditions of policy-making, and the institutional settings and dynamics of the internal debate. Her account of the ancient Guanzi and Salt and Iron debates and of policy-making in part influenced by those debates in the Maoist period in Part I is valuable background material; Part II tells the story of the market reform debate. My reading of it is that China did not come anything like as close to the liberalisation of all prices at a stroke (a 'big bang' rather than 'shock therapy' anyway) as she suggests. Her narrative brings out clearly that the overwhelmingly predominant approach was one of gradualism - and of a distinctive kind in which 'crossing the river by groping for the stones' and 'seeking truth with facts' produced an iterative, open-ended and often experimental process in which many voices could be heard, but one at the same time in which the state had the power to call a halt, step back, and change direction at any point, and the will to use it. When a substantial move towards freeing prices in 1988 gave rise to a burst of inflation (peaking, though, only at 28 per cent) and provoked considerable unrest, it was swiftly reversed, while in the aftermath state power was wielded ruthlessly against dissident economists and student-led protesters alike. Debate between economists over price reform was only a part of a much bigger picture, but it is a part on which Weber makes a fundamental contribution, and in doing so she gives some important insights into the wider policy-making process.
Part II, on the reform debate, starts with a bridging chapter on the reforms that began to gather pace after the deaths of Zhou Enlai and Mao in 1976, and leads up to the emergence of Deng Xiaoping as paramount leader. Here, the 'starting point' for reform is identified as follows:
'Achieving price stability after prolonged hyperinflation [under the previous nationalist regime] was an important source of legitimacy for the revolutionary government and was maintained, with few exceptions, throughout the Mao period. But this came at a high cost: the squeezing of the peasants. China's heavy industry-focused industrialisation strategy of the Mao era faced a macroeconomic challenge similar to that of a war economy. Large investments in heavy industries did not generate an increase in consumption goods in the short to medium term. Yet workers building these industries had to be fed, clothed, and housed. This burden was carried largely by China's peasant majority [rural population]. Under the state monopoly of purchase and sale, the agricultural communes had to deliver considerable shares of their output under state quotas. Prices were set to the disadvantage of the rural economy, thus extracting the inputs, food, and funds needed for industrialisation from the countryside' (110-11).
From this starting point, Weber places the heavily controlled pricing system at the centre of her analysis, insisting that the debate was not one between conservatives and reformers, but over alternative paths of reform: nobody thought that things could stay as they were. She describes a rich and wide-ranging policy debate. Of particular note in Chapter 5, 'Rehabilitating the Market', are material (largely from the detailed contemporaneous notes of Adrian Wood, the principal economist on the first World Bank mission in 1980 and a significant source) on discussions with a number of Chinese agencies and individuals, and the contributions of invited experts (121-6,135-45), and the account of the content of the lectures Šik gave in 1981, from an unpublished booklet produced at the time, expanding considerably on that in Gewirtz (131-5). Chapter 6, 'Market Creation versus Price Liberalisation', gives an engaging account of the rapid shift away from collective farming to the 'Household Production Contracting Responsibility System', the massive growth in output to which it gave rise, and the 20 October 1984 'Decision on Reform of the Economic Structure'. It profiles the generation of intellectuals (born 1940-1960) whose formative years were spent in the countryside, whether voluntarily or involuntarily, during the cultural revolution, and highlights the contributions of the 'Rural Development Group', the 'System Reform Institute', and the Moganshan Youth Conference of September 1984, weaving together personal biography, institutional history, debate and research to present much broader and richer background than the primary focus on the dual track price system might suggest. The section 'Rural Reform and the Rise of the Young Intellectuals' (154-65) in particular is not only informative, but quite charmingly empathetic too. It is clear throughout where her sympathies lie, and it is not with the Kornais and Friedmans of this world.
The two final chapters then present a story of 'debunking' (Chapter 7) and 'escaping' (Chapter 8) shock therapy. The starting point is that by 1985, 'the dual-track price system regulated the core of the Chinese economy: grain and basic industrial inputs. Opening a market track while keeping state procurement intact, the dual-track price system allowed the possibility of both a return to a greater emphasis on the plan as well as a more radical shift to the market'. She aims, then, to tell 'the widely overlooked story of how ... a big bang [NB] was almost implemented in 1986 [and again in 1988] and how it was debunked and prevented by economists who were fully dedicated to marketisation but subscribed to the alternative approach of "groping for stones to cross the river"' (184). But to me the narrative as a whole tells a different story, crucial to which is the fact that Janos Kornai and his closest Chinese ally Wu Jinglian, who both favoured the freeing of all prices at once, made it no secret that their proposed strategy envisaged and ended logically with system change. Weber comments:
'[Edwin] Lim, who had at the time of the [Bashan Boat] conference been the World Bank's lead economist in China, stressed that Kornai was critical of the World Bank's activities in China in the 1980s due to their focus on economics rather than politics. In fact, it is remarkable that amidst the global neoliberal shift, the World Bank took a relatively balanced approach in China, bringing in a diverse set of views while leaving the judgement to the Chinese side. ... Cairncross, Tobin, Kornai, and Emminger - to name just a few international participants - did not see eye to eye when it came to the question of China's economic system reform. Lim (2016) pointed out that the World Bank was considered naïve by Kornai for their hope to contribute to economic reform in China without promoting a change in the political system. According to Lim, Kornai's view was that economic reform without political change would get stuck' (196).
But who was more naïve? The key here is precisely that the bottom line was that the party would never willingly relinquish power: 'In Deng's view, the sole leadership of the party had to be preserved to guide China to the stage of economic development that would allow the creation of a fuller version of socialism' (228). Weber highlights inconsistencies in Kornai's position that were relevant to the debate between economists (197-200), but the political leadership were more likely swayed by the fact that in post-war West Germany (erroneously presented to them as a case where all prices were freed at once) reform was intended to create a pluralist system dominated by free enterprise, while in Russia and Eastern Europe the 'big bang' recognised and confirmed the collapse of the previous regimes. Things might have been different in China if the policy of gradual reform with partly controlled prices had failed entirely, but there was a clear consensus that overall it had been a great and even startling success, not least in the crucial area of food supply. It is not surprising, then, that the perspective that prevailed was Yi Lining's emphasis on ownership reform and enterprise competitiveness (206-9), backed by the policy of 'seeking truth from facts': in 1986 the research and analysis carried out at the System Reform Institute (showing the highly positive results of the dual-track price system and the general popularity of the reforms overall, and suggesting modifications to it rather than its abandonment), along with the clear findings of a study trip to Hungary and Yugoslavia, proved decisive (209-18) in ruling out a 'big bang'.
In 1988, however, as inflation began to rise, the whole experiment was seriously thrown into doubt. Weber suggests that 'China once more came within a hair's breadth of a big bang' (225). Once again, I think this is overstated. Rather, an initial step towards a broader freeing of prices brought out the underlying character of the regime, in circumstances where the state retained control, and would use its power ruthlessly to keep it. It is at this point in the narrative that the central focus on price reform and the superimposed image of 'shock therapy' is least helpful. Presumably, a state as prepared to deploy force against dissent as China proved to be could have imposed a general freeing of prices if it was committed above all else to doing so. But the over-riding challenge was not to 'get prices right', but to resolve some of the social tensions and economic imbalances created by the path of reform so far, and allow the party state to continue to promote growth and development. Weber is well informed on the debates between the intellectuals and economists (many of whom ended in prison or exile), but they do not much illuminate the path that emerged, and which she touches on only briefly. This built on experiments in export promotion already under way to place millions of Chinese workers at the disposal of global capital, while the state continued to guide enterprise development. Zhao Ziyang moved to combine enterprise contracting with a 'coastal-development' strategy, following the logic that 'labour-intensive industries always go where labour costs are lowest' (236-7). Weber makes a valiant effort to present this as a development of the 'dual-track' strategy:
'We can think of the coastal development strategy as an as an internationalisation of the gradual dual-track marketisation. The idea was not to integrate all of China at once into global capitalism or to loosen state control over core upstream and technology-intensive industries. Rather, ... coastal development was to be pursued in a way that would not drain China's domestic resources. The slogan "extend both ends abroad" ... meant that raw materials should come from abroad to be processed by cheap Chinese labour for export. This strategy would channel the abundant investments in light industry by township and village enterprises into exports. In Zhao's vision, small enterprises engaging in export industries could be privatised to free up funds that could be invested in technology-intensive upstream industries. The expansion of upstream industries, in turn, would help to overcome the shortages in industrial inputs - one of the key drivers of cost-push inflation. Revenues from light industry exports could also finance the import of industrial inputs and further ease the pressure on prices. Foreign indebtedness should be avoided, according to Zhao. Instead, China's coastal enterprises should attract foreign direct investment. This would not only prevent the risks of being dependent on foreign creditors, but it would also bring the advantage of acquiring new management techniques, thus contributing to enterprise reform. The domestic version of the dual-track system transformed China's socialist production units into market-oriented enterprises. The coastal-development strategy extended this approach to the global market. China's enterprises were to be not just marketized; they were to catch up with global capitalism' (238).
So, the formula here was 'cross the river by groping for the stones' + 'seek truth from facts' + 'extend both ends abroad'. The path taken moves us out of the realm of the dual-track price system and the debates around pricing into broader issues of classical political economy that Weber does not address. A state determined to stay in command whatever the cost and an apparently bottomless reserve army of labour that could be placed at the service of foreign capital were the key determinants of China's escape from the constraints of the 1980s. China's 'peasant' majority would continue to be squeezed, and the key issues arising were the management of the foreign trade system (including the pricing, management and distribution of foreign exchange), and the degree of autonomy to be allowed to provincial leaders. Weber reports one of the architects of the strategy, Wang Xiaoqiang, as declaring later, 'We never guessed that the economy of the coast would become the engine of Chinese economic growth' (238), and this usefully warns us not to apply too much hindsight to analysing the events of the period. But some things were perfectly clear. A contemporary account, written in 1990 and published in the following year, highlights both the shift from 'what we have, we export' to 'what they need, we make and export' and its very wide-ranging policy implications as perceived at the time:
'When Wang Jiang, a researcher in the State Planning Commission, first proposed to peg China's coastal economy to the world economy, he contemplated it in terms of using cheap Chinese rural labour to earn foreign currency in order to support China's industrial modernization. Yet when Wang's idea was reprocessed by Zhao's think tanks, a much more wide-reaching strategy was extracted. That is, through the restructuring of the coastal economy based on 'international practice', a new economic system could be erected first in the coastal areas that would ultimately influence the whole country. In this new system the property rights of the producers would be made clear, factor inputs would be free to float and labourers would be free to circulate through the job market. In order to change an inward-directed coastal economy to one that is internationally oriented, considerable reforms would need to be put in place in the systems of foreign trade, administration of foreign exchange, allocation of raw materials, customs regulations, taxation and tax exemptions, settings of interest rates, preferential credit and bank loans and so on. As the practice of 'what we have, we export' gave way to 'what they need, we make and export', central planning over these provincial economies would gradually lose much of its relevance' (Li 1991: 78).
Yang (1991), who picks up on the tightening of foreign trade regulation after the fall of Zhao, and the ups and downs of the 'coastal development strategy' to the end of 1990, sets the strategy in the context of previous export promotion initiatives: 'The State Council ... issued a directive in early 1979 entitled "Provisional Measures on Using Imports to Support Exports". ... Among its provisions, the directive called for processing imported raw and semifinished materials and parts and then reselling the finished products on the world market. However, the same directive also included the initiative-stifling stipulation that the foreign currency for using imports to support exports was to be administered by the Foreign Trade Ministry' (Yang 1991: 44). Now Wang Jiang called for China to join 'guoji daxunhuan (the big international circle)' (ibid: 46, cf. elsewhere 'beneficial international cycle'), or the world market:
'Wang believed it would take twenty to thirty years to form the linkages that would make the circle from agriculture to industry and then back to agriculture. At the same time, it was hoped competition on the world market would help "streamline industrial and agricultural production," improve industrial productivity, and contribute to China's economic reform. With one imaginative stroke, the big international circle promised a solution for two crucial challenges confronting China: employment of China's vast agricultural surplus labor and a significant improvement in China's industrial competitiveness' (ibid: citing a Foreign Broadcast Information Service report from 30 December 1987).
Weber touches on these developments, and while they provoked debates that connect to those she profiles, they raised other issues beyond that of managing the foreign trade system, among them the dangers that regional disparities might be exacerbated, the dealings of provincial authorities with foreign investors might be hard to control, there would be an insufficient supply of skilled workers, and Chinese firms would prove unable to compete in the the world market or to bargain effectively with potential investors (cf. Tzeng 1991: 279-80). 'When one Foreign Trade Bureau chief was asked how many of his staff "have the eloquence to 'quarrel' and bargain with foreign businessmen",' Yang reports, 'his answer was, "Not even one' (Yang 1991: 54). Tzeng (1991: 281) was not alone in suggesting that: 'Confronting threats from both the competition of emerging NICs and the neoprotectionism prevailing in the West, prospects for the CDS do not look promising'. In this broader context, Weber's focus on debates between economists over price reform and their framing in terms of gradualism versus shock therapy misses and even distorts the political economy of the period. Her account finishes, appropriately in view of her topic, with study tours to Latin America (243-7) and West Germany (250-51), while the focus of the Chinese leadership was elsewhere, and on the lessons of export success among the 'Asian tigers' in particular. In West Germany, Chen Yizi and Wang Xiaoqiang consulted with Herbert Giersch, a former president of the Mont Pelerin Society and a prominent ordoliberal: 'When Chen cautiously raised the possibility of combining tight macroeconomic control with price liberalisation in China, following Ludwig Erhard's example, Giersch replied the action would induce a catastrophe equivalent to suicide. The West German currency and price reform had relied on market-oriented enterprises and a legal system designed to sustain a market economy, Giersch argued. Neither was in place in China' (251).
In the end, then, as Weber reports:
'To Deng Xiaoping ... the leadership of the CPC was a cardinal principle that he considered essential for China in its pursuit of catching up. After listening to Li Peng's and Zhao Ziyang's report on the explosive reactions across the country to the announcements of the price-reform plans on September 12 [1988], Deng said that the Central Committee had to assert its authority. There was no way to govern without authority; both economic and political controls were now needed. When the push toward radical price reform shook the political and social stability, the government rolled back the programme, called for recentralisation of power, reintroduced price controls over important commodities, and imposed a strict retrenchment policy to regain control' (253).
Shock therapy, to be sure, but to adapt The Firm's immortal ditty of 1987, 'It's shock therapy, Jim, but not as we know it'.
References
Ji, You. 1991. 'Zhao Ziyang and the Politics of Inflation', Australian Journal of Chinese Affairs, 25, pp. 69-91.
Tzeng, Duh-wen. 1991. 'The Political Economy of China's Coastal Development Strategy: A Preliminary Analysis', Asian Survey, 31, 3, pp. 270-284.
Weber, Isabella. 2019. Review of Julian Gewirtz, Unlikely Partners: Chinese Reformers, Western Economists, and the Making of Global China (Harvard University Press, 2017), China Quarterly, 237, pp. 257-9.
Yang, Dali L. 1991. 'China Adjusts to the World Economy: The Political Economy of China's Coastal Development Strategy', Pacific Affairs, 64, 1, 42-64.
Part II, on the reform debate, starts with a bridging chapter on the reforms that began to gather pace after the deaths of Zhou Enlai and Mao in 1976, and leads up to the emergence of Deng Xiaoping as paramount leader. Here, the 'starting point' for reform is identified as follows:
'Achieving price stability after prolonged hyperinflation [under the previous nationalist regime] was an important source of legitimacy for the revolutionary government and was maintained, with few exceptions, throughout the Mao period. But this came at a high cost: the squeezing of the peasants. China's heavy industry-focused industrialisation strategy of the Mao era faced a macroeconomic challenge similar to that of a war economy. Large investments in heavy industries did not generate an increase in consumption goods in the short to medium term. Yet workers building these industries had to be fed, clothed, and housed. This burden was carried largely by China's peasant majority [rural population]. Under the state monopoly of purchase and sale, the agricultural communes had to deliver considerable shares of their output under state quotas. Prices were set to the disadvantage of the rural economy, thus extracting the inputs, food, and funds needed for industrialisation from the countryside' (110-11).
From this starting point, Weber places the heavily controlled pricing system at the centre of her analysis, insisting that the debate was not one between conservatives and reformers, but over alternative paths of reform: nobody thought that things could stay as they were. She describes a rich and wide-ranging policy debate. Of particular note in Chapter 5, 'Rehabilitating the Market', are material (largely from the detailed contemporaneous notes of Adrian Wood, the principal economist on the first World Bank mission in 1980 and a significant source) on discussions with a number of Chinese agencies and individuals, and the contributions of invited experts (121-6,135-45), and the account of the content of the lectures Šik gave in 1981, from an unpublished booklet produced at the time, expanding considerably on that in Gewirtz (131-5). Chapter 6, 'Market Creation versus Price Liberalisation', gives an engaging account of the rapid shift away from collective farming to the 'Household Production Contracting Responsibility System', the massive growth in output to which it gave rise, and the 20 October 1984 'Decision on Reform of the Economic Structure'. It profiles the generation of intellectuals (born 1940-1960) whose formative years were spent in the countryside, whether voluntarily or involuntarily, during the cultural revolution, and highlights the contributions of the 'Rural Development Group', the 'System Reform Institute', and the Moganshan Youth Conference of September 1984, weaving together personal biography, institutional history, debate and research to present much broader and richer background than the primary focus on the dual track price system might suggest. The section 'Rural Reform and the Rise of the Young Intellectuals' (154-65) in particular is not only informative, but quite charmingly empathetic too. It is clear throughout where her sympathies lie, and it is not with the Kornais and Friedmans of this world.
The two final chapters then present a story of 'debunking' (Chapter 7) and 'escaping' (Chapter 8) shock therapy. The starting point is that by 1985, 'the dual-track price system regulated the core of the Chinese economy: grain and basic industrial inputs. Opening a market track while keeping state procurement intact, the dual-track price system allowed the possibility of both a return to a greater emphasis on the plan as well as a more radical shift to the market'. She aims, then, to tell 'the widely overlooked story of how ... a big bang [NB] was almost implemented in 1986 [and again in 1988] and how it was debunked and prevented by economists who were fully dedicated to marketisation but subscribed to the alternative approach of "groping for stones to cross the river"' (184). But to me the narrative as a whole tells a different story, crucial to which is the fact that Janos Kornai and his closest Chinese ally Wu Jinglian, who both favoured the freeing of all prices at once, made it no secret that their proposed strategy envisaged and ended logically with system change. Weber comments:
'[Edwin] Lim, who had at the time of the [Bashan Boat] conference been the World Bank's lead economist in China, stressed that Kornai was critical of the World Bank's activities in China in the 1980s due to their focus on economics rather than politics. In fact, it is remarkable that amidst the global neoliberal shift, the World Bank took a relatively balanced approach in China, bringing in a diverse set of views while leaving the judgement to the Chinese side. ... Cairncross, Tobin, Kornai, and Emminger - to name just a few international participants - did not see eye to eye when it came to the question of China's economic system reform. Lim (2016) pointed out that the World Bank was considered naïve by Kornai for their hope to contribute to economic reform in China without promoting a change in the political system. According to Lim, Kornai's view was that economic reform without political change would get stuck' (196).
But who was more naïve? The key here is precisely that the bottom line was that the party would never willingly relinquish power: 'In Deng's view, the sole leadership of the party had to be preserved to guide China to the stage of economic development that would allow the creation of a fuller version of socialism' (228). Weber highlights inconsistencies in Kornai's position that were relevant to the debate between economists (197-200), but the political leadership were more likely swayed by the fact that in post-war West Germany (erroneously presented to them as a case where all prices were freed at once) reform was intended to create a pluralist system dominated by free enterprise, while in Russia and Eastern Europe the 'big bang' recognised and confirmed the collapse of the previous regimes. Things might have been different in China if the policy of gradual reform with partly controlled prices had failed entirely, but there was a clear consensus that overall it had been a great and even startling success, not least in the crucial area of food supply. It is not surprising, then, that the perspective that prevailed was Yi Lining's emphasis on ownership reform and enterprise competitiveness (206-9), backed by the policy of 'seeking truth from facts': in 1986 the research and analysis carried out at the System Reform Institute (showing the highly positive results of the dual-track price system and the general popularity of the reforms overall, and suggesting modifications to it rather than its abandonment), along with the clear findings of a study trip to Hungary and Yugoslavia, proved decisive (209-18) in ruling out a 'big bang'.
In 1988, however, as inflation began to rise, the whole experiment was seriously thrown into doubt. Weber suggests that 'China once more came within a hair's breadth of a big bang' (225). Once again, I think this is overstated. Rather, an initial step towards a broader freeing of prices brought out the underlying character of the regime, in circumstances where the state retained control, and would use its power ruthlessly to keep it. It is at this point in the narrative that the central focus on price reform and the superimposed image of 'shock therapy' is least helpful. Presumably, a state as prepared to deploy force against dissent as China proved to be could have imposed a general freeing of prices if it was committed above all else to doing so. But the over-riding challenge was not to 'get prices right', but to resolve some of the social tensions and economic imbalances created by the path of reform so far, and allow the party state to continue to promote growth and development. Weber is well informed on the debates between the intellectuals and economists (many of whom ended in prison or exile), but they do not much illuminate the path that emerged, and which she touches on only briefly. This built on experiments in export promotion already under way to place millions of Chinese workers at the disposal of global capital, while the state continued to guide enterprise development. Zhao Ziyang moved to combine enterprise contracting with a 'coastal-development' strategy, following the logic that 'labour-intensive industries always go where labour costs are lowest' (236-7). Weber makes a valiant effort to present this as a development of the 'dual-track' strategy:
'We can think of the coastal development strategy as an as an internationalisation of the gradual dual-track marketisation. The idea was not to integrate all of China at once into global capitalism or to loosen state control over core upstream and technology-intensive industries. Rather, ... coastal development was to be pursued in a way that would not drain China's domestic resources. The slogan "extend both ends abroad" ... meant that raw materials should come from abroad to be processed by cheap Chinese labour for export. This strategy would channel the abundant investments in light industry by township and village enterprises into exports. In Zhao's vision, small enterprises engaging in export industries could be privatised to free up funds that could be invested in technology-intensive upstream industries. The expansion of upstream industries, in turn, would help to overcome the shortages in industrial inputs - one of the key drivers of cost-push inflation. Revenues from light industry exports could also finance the import of industrial inputs and further ease the pressure on prices. Foreign indebtedness should be avoided, according to Zhao. Instead, China's coastal enterprises should attract foreign direct investment. This would not only prevent the risks of being dependent on foreign creditors, but it would also bring the advantage of acquiring new management techniques, thus contributing to enterprise reform. The domestic version of the dual-track system transformed China's socialist production units into market-oriented enterprises. The coastal-development strategy extended this approach to the global market. China's enterprises were to be not just marketized; they were to catch up with global capitalism' (238).
So, the formula here was 'cross the river by groping for the stones' + 'seek truth from facts' + 'extend both ends abroad'. The path taken moves us out of the realm of the dual-track price system and the debates around pricing into broader issues of classical political economy that Weber does not address. A state determined to stay in command whatever the cost and an apparently bottomless reserve army of labour that could be placed at the service of foreign capital were the key determinants of China's escape from the constraints of the 1980s. China's 'peasant' majority would continue to be squeezed, and the key issues arising were the management of the foreign trade system (including the pricing, management and distribution of foreign exchange), and the degree of autonomy to be allowed to provincial leaders. Weber reports one of the architects of the strategy, Wang Xiaoqiang, as declaring later, 'We never guessed that the economy of the coast would become the engine of Chinese economic growth' (238), and this usefully warns us not to apply too much hindsight to analysing the events of the period. But some things were perfectly clear. A contemporary account, written in 1990 and published in the following year, highlights both the shift from 'what we have, we export' to 'what they need, we make and export' and its very wide-ranging policy implications as perceived at the time:
'When Wang Jiang, a researcher in the State Planning Commission, first proposed to peg China's coastal economy to the world economy, he contemplated it in terms of using cheap Chinese rural labour to earn foreign currency in order to support China's industrial modernization. Yet when Wang's idea was reprocessed by Zhao's think tanks, a much more wide-reaching strategy was extracted. That is, through the restructuring of the coastal economy based on 'international practice', a new economic system could be erected first in the coastal areas that would ultimately influence the whole country. In this new system the property rights of the producers would be made clear, factor inputs would be free to float and labourers would be free to circulate through the job market. In order to change an inward-directed coastal economy to one that is internationally oriented, considerable reforms would need to be put in place in the systems of foreign trade, administration of foreign exchange, allocation of raw materials, customs regulations, taxation and tax exemptions, settings of interest rates, preferential credit and bank loans and so on. As the practice of 'what we have, we export' gave way to 'what they need, we make and export', central planning over these provincial economies would gradually lose much of its relevance' (Li 1991: 78).
Yang (1991), who picks up on the tightening of foreign trade regulation after the fall of Zhao, and the ups and downs of the 'coastal development strategy' to the end of 1990, sets the strategy in the context of previous export promotion initiatives: 'The State Council ... issued a directive in early 1979 entitled "Provisional Measures on Using Imports to Support Exports". ... Among its provisions, the directive called for processing imported raw and semifinished materials and parts and then reselling the finished products on the world market. However, the same directive also included the initiative-stifling stipulation that the foreign currency for using imports to support exports was to be administered by the Foreign Trade Ministry' (Yang 1991: 44). Now Wang Jiang called for China to join 'guoji daxunhuan (the big international circle)' (ibid: 46, cf. elsewhere 'beneficial international cycle'), or the world market:
'Wang believed it would take twenty to thirty years to form the linkages that would make the circle from agriculture to industry and then back to agriculture. At the same time, it was hoped competition on the world market would help "streamline industrial and agricultural production," improve industrial productivity, and contribute to China's economic reform. With one imaginative stroke, the big international circle promised a solution for two crucial challenges confronting China: employment of China's vast agricultural surplus labor and a significant improvement in China's industrial competitiveness' (ibid: citing a Foreign Broadcast Information Service report from 30 December 1987).
Weber touches on these developments, and while they provoked debates that connect to those she profiles, they raised other issues beyond that of managing the foreign trade system, among them the dangers that regional disparities might be exacerbated, the dealings of provincial authorities with foreign investors might be hard to control, there would be an insufficient supply of skilled workers, and Chinese firms would prove unable to compete in the the world market or to bargain effectively with potential investors (cf. Tzeng 1991: 279-80). 'When one Foreign Trade Bureau chief was asked how many of his staff "have the eloquence to 'quarrel' and bargain with foreign businessmen",' Yang reports, 'his answer was, "Not even one' (Yang 1991: 54). Tzeng (1991: 281) was not alone in suggesting that: 'Confronting threats from both the competition of emerging NICs and the neoprotectionism prevailing in the West, prospects for the CDS do not look promising'. In this broader context, Weber's focus on debates between economists over price reform and their framing in terms of gradualism versus shock therapy misses and even distorts the political economy of the period. Her account finishes, appropriately in view of her topic, with study tours to Latin America (243-7) and West Germany (250-51), while the focus of the Chinese leadership was elsewhere, and on the lessons of export success among the 'Asian tigers' in particular. In West Germany, Chen Yizi and Wang Xiaoqiang consulted with Herbert Giersch, a former president of the Mont Pelerin Society and a prominent ordoliberal: 'When Chen cautiously raised the possibility of combining tight macroeconomic control with price liberalisation in China, following Ludwig Erhard's example, Giersch replied the action would induce a catastrophe equivalent to suicide. The West German currency and price reform had relied on market-oriented enterprises and a legal system designed to sustain a market economy, Giersch argued. Neither was in place in China' (251).
In the end, then, as Weber reports:
'To Deng Xiaoping ... the leadership of the CPC was a cardinal principle that he considered essential for China in its pursuit of catching up. After listening to Li Peng's and Zhao Ziyang's report on the explosive reactions across the country to the announcements of the price-reform plans on September 12 [1988], Deng said that the Central Committee had to assert its authority. There was no way to govern without authority; both economic and political controls were now needed. When the push toward radical price reform shook the political and social stability, the government rolled back the programme, called for recentralisation of power, reintroduced price controls over important commodities, and imposed a strict retrenchment policy to regain control' (253).
Shock therapy, to be sure, but to adapt The Firm's immortal ditty of 1987, 'It's shock therapy, Jim, but not as we know it'.
References
Ji, You. 1991. 'Zhao Ziyang and the Politics of Inflation', Australian Journal of Chinese Affairs, 25, pp. 69-91.
Tzeng, Duh-wen. 1991. 'The Political Economy of China's Coastal Development Strategy: A Preliminary Analysis', Asian Survey, 31, 3, pp. 270-284.
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