
One of the most intriguing topics in contemporary international relations scholarship is the incredible economic success of China and its implications for the global economy. For the past thirty years, China has witnessed unprecedented levels of growth in its industrial and agricultural sectors. This success can be attributed to a shift in leadership in the 1970s from Mao Zedong to Deng Xiaoping. Under Deng’s leadership, the government put together a package of reforms designed for economic efficiency in a the international market, and these reforms have seemingly brought nothing but good fortune to the nation. However, with all eyes on China, the question that is on everyone’s mind is whether China will be able to maintain its success and economic growth. Especially because most developed nations are democracies and China has stubbornly retained its authoritarian leadership, many scholars believe that China’s success will be short lived and it will face a similar fate as Brazil and the “Asian Tigers,” both of whom experienced rapid growth during the second half of the 20th century only to be struck with major financial crises in the eighties and nineties. While China’s rise to the top has seemed relatively uncomplicated, a closer analysis of the policies put into place in 1978 and their results reveal just how fragile the Chinese economy is. Especially due to the authoritarian regime, the nation faces widespread discontent from its citizens that doesn’t seem to be going away anytime soon. China’s success in the international market has masked the many negative consequences that Deng Xiaoping’s reforms created in 1978, and these problems will lead to a collapse of the Chinese economy if the nation doesn’t democratize.

Deng Xiaoping
The transformation of China’s economy began in 1978 with a series of reforms that were radically different from those of Mao’s era. Rather than an emphasis on equity and the “class struggle,” the new leadership under Deng Xiaoping focused solely on economic efficiency (Wang and Hu 4). The new reforms helped to initiate China’s transition from a state-controlled command economy to a more modern, liberal market economy. The most significant of the reforms was that more autonomy was given to individual firms; that is, businesses were able to make their own decisions regarding production, pricing, inputs, and wages. Another major change that occurred during this period was that liberalization of the labor market. The previous economy had been mostly a system of permanent work with wages tied to seniority, granting workers a great deal of job security (Chen 574). However, the new reforms eliminated the notion of permanent work and instead wages were determined by the performance of the individual firm and its profits (Jian 526). The result of this was the creation of a more competitive market where employees would need to work much harder to ensure they kept their job. Another important reform was the Open Door policy. This policy emphasized that, according to the theory of comparative advantage, China should specialize in “labor-intensive, export-oriented industries, which will bring in foreign exchange for development” (Fan 425), which in essence meant China was ready to enter into the foray of international trade and the global economy. In accordance with the Open Door policy, China chose to invest more in their agricultural sector and light industries, which helped fuel their growth. Finally, as part of the decentralization of state power and the changing nature of employment in the post-1978 period, workers lost access to many of the welfare type benefits that they had enjoyed during the Mao era. This would have enormous effects on the well being of the Chinese labor force, as we will see later.
The 1978 reforms had a drastic effect on the Chinese economy and created an unprecedented level of growth. In the thirty years since the beginning of Deng’s reforms, the economy has averaged between 8-9% real GDP growth every year. That kind of growth over such a long period of time is almost unheard of. In addition to real GDP growth, the change in labor policies has had major impact on worker productivity. During the Mao period, 90% of workers held permanent positions and thus didn’t have to worry about losing their jobs. But as a result of this, no one was accountable for the performance of the enterprise and this meant less hard work (Chen 575). With the implementation of the labor reforms, the IMF estimates that “Chinese productivity increased at an annual rate of 3.9 percent during 1979-94, compared with 1.1 percent during 1953-78…productivity’s share of output growth exceeded 50%” (Hu & Khan 4). By making the labor force more competitive, China was able to harness its workers’ true potential. The decision of China to abandon self-reliance and open its markets up to the rest of the world lead to a rapid increase in foreign direct investment, especially in new technologies, and pushed China’s export to GDP ratio up to nearly 30% in 2000 (Yueh 37). The movement over to market-based economy clearly had a dramatic effect on the size and development of the Chinese economy.
Despite the impressive statistics that China has posted in the post-1978 period, the reforms haven’t been beneficial for everyone. In an effort to create a more efficient economy, China was forced to abandon many of its policies geared towards social equity and this has actually hurt the majority of the population. One such example of this is the restructuring of the labor market. Though these policies succeeded in improving worker productivity, it also meant the demise of permanent employment and the emergence of temporary work as the leading form of employment in the nation, comprising 50.7% of the workforce (Chen 575). Because of this, unemployment levels shot up, and the inequality between Chinese citizens has continuously deepened. Guoguang Wu asserts the top 10% of the population boasts an income 65 times greater than that of the poorest 10% of Chinese citizens, and this gap only continues to grow (23). The fact that China’s per capita GDP is only $7600 and ranked 125th in the world casts further doubt on the claim that the Chinese reforms were successful. Another consequence of the reforms is the loss of workers’ welfare benefits, as mentioned earlier. In an effort to make the economy more competitive, the Chinese government sought to divorce worker benefits from the economic system and thus this became the domain of the firm rather than the state. However, because of the rise in temporary work firms had less of an incentive to provide its workers with social benefits (Chen 577-579). The loss of welfare benefits, combined with rising inequality between classes, has been a huge blow to citizens’ well being.
Inequality isn’t the only negative outcome associated with economic growth; especially in recent years there has been an increase in corrupt officials running the Chinese government. Christopher Robertson and Andrew Watson explain that the growth of China in the global economy is mostly to blame for this. They state that, “when a country is inundated with a disproportionate level of FDI in a short period of time, a jolt to the moral framework is more likely because of the sheer multitude of trade values that are involved” (387). That is, as a country begins to receive many investments from abroad, officials are more likely to get greed because of how much they seek to gain. What makes China even more vulnerable to corruption is its authoritarian government. In a democracy, there would be more effort put into finding and eliminating corruption because citizens would hold the government accountable if they didn’t do so (Mason 417). In China however, these pressures don’t exist and as a result corruption has persisted.
The presence of corruption in the Chinese government has had an enormous impact on the Chinese economy and its citizens. One potential effect that we have begun to witness recently is a decrease in foreign direct investment. Corruption negatively affects investment because it increases the uncertainty and risk faced by investors (Robertson & Watson 386). Though China has seen enormous growth because of investment, it means nothing when there is so much corruption and will only hurt the Chinese economy in the future. David Mason suggests that an additional consequence of corruption is high levels of inflation in China. When bribes are being extracted from firms at every stage of production, it becomes more costly to produce a good and the price will go up to compensate for the higher costs (418). And indeed, China’s prices just keep going up; total inflation has hit a high of around 7.1%, with food prices inflating nearly 18% (Blecher 75). Inflation, combined with citizens’ notion that the jobs and resources are only allocated to those with “connections,” has created a great deal of dissatisfaction with the Chinese government. Especially recently, Chinese citizens have been taking to the streets to make their frustrations known. While these protests have been small until now, we may see a similar situation to the massive Tiananmen Square demonstrations, which were due to many of the same types of problems mentioned above. This should be a huge concern to government because the citizens are the backbone of the economy; their refusal to work will seriously jeopardize the low-wage advantage the China needs to remain competitive in the global economy (Wu 24).

Citizens Protest in Beijing
Though there is no perfect solution to address all of the problems that have been created in the wake of the 1978 reforms, democratization would go a long way in easing the concerns of the people and creating a more fair and equitable society in China. One reason is that it would create a greater level of transparency and accountability in the government; officials would be subject to greater public scrutiny, which would seriously reduce, if not eliminate, the problem of corruption in the Chinese government (Mason 417). The elimination of corruption would not only reduce inflation and help stimulate investment again, but it would also renew citizens’ faith and trust in the actions of the government. Democracy gives lends every citizen a voice and creates “compromise designed to balance interests among members of a community” (Han & Dong 2). The issues stemming from the reforms that have hurt large numbers of the population-such as inequality, lack of welfare benefits, and unemployment, can be addressed more critically because more members of the lower class can take part in the political process. Minxin Pei makes a great point about what happens when citizens don’t have a democratic voice:
“The CCP…treats societal demands…as direct challenges to party authority. Consequently there are very few channels for the participation and representation of different interest groups. Political tensions and frustrations tend to accumulate over time and explode violently and without warning” (106).
By giving the citizens democracy and a voice, they will have less desire to protest the actions of the government and incidents such as the Tienanmen Square demonstrations are less likely to occur. This 1996 study demonstrates a strong correlation between the presence of democracy/democratic institutions and basic measures of human well being such as education, life expectancy, literacy, and the ability to buy goods to fulfill basic needs (Wickrama & Mulford 387). By implementing more democratic institutions and policies, China would be able to address and solve the problems created by the 1978 reforms.
In the past century, the economy of China has been anything but static. During the Mao period, the nation struggled to catch up to the rest of the developed world while it lagged behind with policies that just didn’t work. When Deng Xiaoping came to power in 1978, he instituted a series of reforms designed to modernize China’s economy, including greater autonomy for businesses, a more competitive labor market, and focusing on labor-intensive, export-driven industries as a means to open up China to a more global market. In terms of raw numbers, the reforms have seemingly been successful, boosting GDP, productivity, and the number of goods it exports every year. However, a closer look at the post-1978 period reveals many key flaws in the reforms. The restructuring of the labor market meant a rise in temporary employment and, along with it, unemployment. In addition, the new market policies meant the reduction and/or elimination of many worker benefits. These two policies have coincided with deepening inequality throughout the nation and have not helped the situation of the struggling Chinese population. Another major problem China has had to deal with in the wake of the reforms is corruption, brought on by the high levels of investment began to receive in the late 20th century. Because of the authoritarian government, there is no mechanism to eliminate corruption and it will only continue to wreak havoc on the nation, causing inflation, a decrease in people willing to invest in China’s growth, and dissatisfaction throughout the Chinese population. While these problems may appear to be systematic and difficult to get rid of, democracy will be enormously beneficial to China and will help to offset many of the negative effects of the 1978 reforms. By granting citizens a greater voice, they will be able to make their needs and concerns known so that the government can implement changes. Studies show a strong correlation between democracy and the well being of the population, and this will be no different in China. By implementing democracy, China can balance both the needs of the economy and the needs of the people and truly achieve economic success.
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