China: The Continuing Revolution

I.    History and Environment

A.  Resources -- About 1.4 billion people, more than one-fifth of the world's population, but only 10 percent of land suitable for cultivation. Average farmer works less than one acre, compared with 2 in India and 100 in U.S.
Maps:
Neighbors
Geomorphological
Cities
Provinces

Shanghai Photos
1930s Colonial
Bund
Pudong

B.  Dynasties and Republics -- Chinese civilization arose between 3000 and 2000 B.C. in Yellow River basin, and adherents to the "hydraulic theory of civilization" (following Karl Wittfogel) suggest that the need for large-scale irrigation required strong central institutions, leading to "oriental despotism."

For an entertaining overview, see "CrashCourse: 2,000 Years of Chinese History!" and "CrashCourse: Communists, Nationalists, and China's Revolutions."

Shanghai Museum Seal Gallery
(Western Zhou through Qing would be more than 2,000 years)

 

1570 - 1045 BC: Shang Dynasty

A network of feudal states

1045 - 256 BC: Zhou Dynasty

Capital was established in Haojing, today's Xi'an, until 907AD
551 BC: Confucius is born.
500 BC: Cast iron invented around this time.
403 - 221 BC: The Warring States period.
342 BC: Crossbow first used
 

221 - 206 BC: Qin Dynasty

221 BC: Qin Shi Huangdi, the first Emperor of China, had the Great Wall built to protect his people from the Mongols.

206 BC - 220 AD: Han Dynasty

The longest and most defining dynasty
105 AD: Paper is invented

222 - 581: Six Dynasties

250: Buddhism introduced to China.

589 - 618: Sui Dynasty

609: The Grand Canal is completed, connecting Beijing in the north with Hangzhou in the south, and connecting the Yellow and Yangtze Rivers. At 1,104 miles, it is the longest and oldest artificial waterway in the world (mostly dig by hand), and is now a UNESCO World Heritage Site.

618 - 907: Tang Dynasty

First for which we have useful economic data, and China seemed to be more prosperous at this time than any part of Europe.
868: Wood block printing first used in China.

907 - 960: Five Dynasties
           

960 - 1279: Song Dynasty

During the Northern Song (960–1127), the capital was in Bianjing (now Kaifeng in Henan province) and it controlled most of what is now Eastern China.
During the Northern Song era, current research shows that China had the highest GDP/capita in the world, and that was probably true for some time.
After the Song lost control of their northern lands to the Jin Dynasty and then too the Mongols, the Southern Song (1127–1279) gathered south of the Yangtze and established their capital at Lin'an (now Hangzhou).
The Song government was the first in world history to issue banknotes as a national currency
1041: Moveable type for printing invented (400 years before Gutenberg).
1044: First mention of gunpowder - part of broader effort to improve defenses.
1200: Genghis Khan unites the Mongol tribes under his leadership.
1271: Marco Polo begins his (supposed) travels to China.
   

1279 - 1368: Yuan Dynasty

Led by the Mongols under Kublai Khan, this was the first non-Han Chinese dynasty to rule all of China - an embarrassment. While the Mongols destroyed much of Russia during this period, it was a time of continued development and cultural diversity in China.

1368 - 1644: Ming Dynasty

China continued to have a high standard of living during this time, but Italy pulled ahead by 1300 and England by 1500.
1406-1420: Forbidden City was built, and Beijing became the new capital, replacing Nanjing. All of this happened before Columbus's first voyage to the Americas (1492), but Beijing is still a relatively new capital in the overall sweep of Chinese history.
High Culture (see the large Ming vases in Armstrong Browning Library)

1644 - 1912: Qing Dynasty

GDP/capita FELL by about 40% between 1700 and 1850, moving it behind all of Europe.

1839-1842: Western colonialism begins after British victory in the first opium war

1912-1949: The "Nationalist Period" or the Republic of China.
 

Initially led by Sun Yat-sen, revered today in both the Mainland and Taiwan as the Father of Modern China. Eventually divided by feuding military officers, and then reunited by General Chiang Kai-shek, but then driven to Taiwan by Communists under Chairman Mao. Also, from 1937-1945, large areas of China were occupied by the Japanese - another embarrassment.

1949-today: People's Republic of China

Led by Mao, Deng Xiaoping, and other leaders, including Xi Jinping today

C.  Technological Achievements - Imperial China was most technologically advanced and literate culture in the world. Had bronze weapons and tools, gunpowder, movable type, hemp-spinning machines, agricultural and medical techniques, algebra, and trigonometry long (often hundreds of years) before the West.

"The Great Divergence" - When did Europe pull ahead of China and the rest of Asia in economic development?  The "traditional" European view was that this happened quite early - maybe in the 1200s. A more recent "revisionist" view, promoted by scholars such as Kenneth Pomeranz, suggests that living standards were still similar in parts of China and the West until the 19th century. The most recent evidence suggests that the truth was somewhere in-between - China started falling behind in the 1300s-1400s, later than "traditionalists" and earlier than "revisionists."

D.  Causes of Stagnation

1.   Excessive Population Growth --Mark Elvin argued that early development of agricultural and medical technology, limited urbanization, and preference for early marriages and large families caused excessive population growth, strained raw material base, reduced value of labor, and reduced demand for labor-saving technology. Doesn’t explain why stagnation started before 16^th century.

2.   Nature of Discovery and Dissemination of Knowledge - China didn’t develop scientific method (Justin Lin Yifu). European openness, proximity, and guild system contributed spread of knowledge and connection of one idea to another (David de la Croix, Matthias Doepke, Joel Mokyr).

3.   Mongol Domination - Harsh taxation and servitude during 1234-1368, but the economy was temporarily opened to foreign trade and technology.

4.   Opium and Colonialism - Opium addiction reached crisis proportions by 1700s. Efforts to prevent imports from India led to Opium Wars with Britain during 1839-1842.

5.    Bureaucracy - David Landes explained the absence of a Chinese Industrial Revolution in terms of excessive government and market inefficiency: "The Chinese state was always stepping in to interfere with private enterprise..."
On the other hand, Dwight Perkins (Harvard) found that around 1800, there was only one government worker for every 32,000 people in China, compared to one for every 700 people in Europe. 

5.   Isolation - Dobado-Gonzales and others suggest, based on  price  movements and other market data, that long-distance agricultural markets failed to integrate in East Asia, as compared to Europe, and this contributed to the Divergence, from "at least" the 18th century: "Despite the geographical proximity and ease of transportation between China and Japan, no statistical evidence of grain market integration between the two countries is found during the eighteenth and nineteenth centuries." 

Likewise, in my own (Gardner) conversations with Chinese scholars, some have suggested that European societies were open to technologies that flowed from China, but the closed nature of Chinese society made it difficult to benefit from technologies developed in Europe during the Renaissance and Industrial Revolution.

 II. Importing the Soviet Model, 1949-1957

III. The Great Leap Forward, 1958-1960

A.  Communes -- Large collective farms created under the Soviet model were merged into even larger People's Communes, which organized agriculture in teams and brigades and served as local government with schools, clinics. Private plots taken from families.

B.  Ambitious steel production targets -- Exported grain, needed for food, to buy equipment for small inefficient steel mills.

C.  Disastrous results -- Estimates of the number of "excess deaths" during this period range from 18 million to 56 million.

IV. Readjustment and Recovery, 1961-1965

Mao lost some of his authority to President Liu Shaoqi and his deputy, Deng Xiaoping, who introduced moderate reforms in planning, agriculture, education, and other areas that foreshadowed the period after 1978.

V. The Cultural Revolution 1966-1976

A chaotic attempt to replace traditional Chinese culture, rooted in Confucianism and Buddhism, and Western influences with a new "proletarian culture." This changed everything from clothing and music to rejection of Western technology, but also involved a campaign against people who were accused of having capitalist tendencies. Millions were persecuted, sometimes by being sent to the countryside for "re-education," and at tens of thousands were executed. The universities were closed for many years, causing many to lose their chance for higher education. Industrial production fell for the first time since the so-called Great Leap Forward.

VI. Transition of Power: 1976-1978

Death of Mao Zedong and Zhou Enlai in 1976 led to power struggle, eventually won by the reformer, Deng Xiaoping

VII. Socialism with Chinese Characteristics (1979-Present)

A.  Ideology of Pragmatism

1962    Deng Xiaoping proverb: "Yellow cat, black cat, as long as it catches mice, it is a good cat." Deng was known as a pragmatic leader.

1978    Deng restated his philosophy in two compact slogans: "Practice is the sole criterion of truth" and "Seek truth from facts." He visited the U.S., opened the country to trade, travel, and investment, and started the agricultural reforms.

1983 Deng declared that Taiwan (later added Hong Kong) could remain autonomous and capitalist when reunited with China—one country, two systems.

1984  Professor Li Yining of Peking University developed a Marxian rationale for market reforms—China is still operating at the primary stage of socialism.

1986  Negotiations started for China to enter the World Trade Organization.

1989  Reformist Party leader Hu Yaobang died; students held memorial service in Tienanmen Square. Demonstrators remained 6 weeks, until troops entered the square on June 4. Recentralization of authority.

1992  Deng Xiaoping visited special economic zones in southern China, promoting reform.

1997                Deng Xiaoping died; successors declared allegiance to his pragmatic line.

2000  President Jiang Zemin introduced the 'Three Represents'. “The CPC will remain successful…so long as the Party represents the requirements of developing China's advanced social productive forces, the progressive course of China's advanced culture, and the fundamental interests of the Chinese people.” Party membership open to entrepreneurs, effectively reducing the chance that business leaders would oppose the Party.

Also in 2000 - U.S. Congress granted permanent normal trading relations (PNTR) to China, clearing the way for accession to the WTO at the end of 2001. According to Yeling Tan in Foreign Affairs (March/April 2021), accession initially strengthened the market reformers, and most of the requirements for accession were quickly fulfilled:
Tariff rates on foreign imports were slashed, and a multitude of nontariff barriers were eliminated. The authority to engage in foreign trade, previously restricted to SOEs and foreign firms located in special economic zones, was broadened to all firms, including private Chinese enterprises. Beijing substantially improved legal protections for and reduced administrative burdens on businesses..

2002-2003 - Hu Jintao became President and Communist Party chief and Wen Jiabao became Prime Minister. Relatively little change from the policies of Deng Xiaoping, but, according to Yeling Tan, they were weaker leaders who were not able control opposition to reform within the Beijing bureaucracy or across the country.

November 2012, while the U.S. was focused on the 2nd Obama election, Xi Jinping elected General Secretary of Communist Party and Chairman of Military Commission; March 2013, also elected President of the People's Republic. Started a consolidation of power and a renewed "cult of personality."

2013, China started building new islands in the South China Sea in an area where territorial rights were already causing friction between China and several Southeast Asian countries, and China started building military facilities on those islands, threatening shipping in that area, and damaging China's reputation as a friendly nation. Since 2015 the United States, France, the UK, and other nations have conducted freedom of navigation operations in the region, challenging Chinese claims of sovereignty.

September 2013, During a visit to Kazakhstan, Xi announced the "Belt and Road" initiative, whereby China would engage in infrastructure development and investments in nearly 70 countries and international organizations in Asia, Europe, and Africa. Expanding economic and military power of China over a large area, but at high cost (loan defaults) and with charges of new colonialism.

November 2013, Xi claimed that "deepening reforms" would allow "market forces" to play a "decisive" role in allocating resources. However, as recently as 2018, industrial subsidies increased by 14% to $22 billion. That compares to a total of $3.2 billion during the four years from 2014-2017 in the U.S. These have been a major issue in continuing trade disputes, because subsidies were supposed to fall after Chinese entry into the WTO. 

2015 - Announcement of the "Made in China 2025 Strategy" that calls for government-supported development of technologies and production capabilities in high-priority sectors that include artificial intelligence, advanced robotics, electric cars and other new energy vehicles, 5G information technology, aerospace engineering, emerging bio-medicine, and others. That led to impressive advances, but also international concerns over: (1) compliance with international trade rules, (2) pressure on foreign companies to share their technologies, (3) international technological espionage (for example, Meng Wanzhou, the CFO of Huawei, China's largest private company, was arrested at in Canada in 2018 and accused of financial fraud and theft of trade secrets), (4) security concerns over including Chinese technology in telecommunications and other systems that are critical for national and global security.

2014 -  The government announced that it would start building a social credit system. The announcement explained that the system would encourage honesty, payment of debts, and social trust. It would begin with experimentation in major cities, and the goal was to have a unified national system by 2020, but that goal was not been met. The city systems collect information on individuals and businesses, including their financial health and payment of debts, but also obedience to traffic laws, volunteer work, health, blood donation, etc. People with low scores can be placed on various "black lists." So far, the systems seem to be tracking businesses more than individuals, but, in June 2019, 27 million people already were on the list restricting air travel and 6 million on the one restricting access to high-speed trains. Some people are beginning to object to the growing "surveillance state" with millions of CCTV cameras everywhere, using face-recognition technology. Source

2017 - Internment camps built in Xinjiang province (far West) that have imprisoned about a million people without trials, and subjected them to anti- Islamic behavior modification or "brain washing." At a lower level of violence, Christian and other religious communities have been subject to tighter controls with more house churches closed and foreigners expelled.

October 2017 - In his speech to the 19th Party Congress, Xi included a section, Thought on Socialism with Chinese Characteristics for a New Era, reaffirming some of the ideas from Deng Xiaoping and Jiang Zemin, but also holding out the Chinese system as a model for other countries, and giving a stronger reaffirmation of the relevance of Marxism:
"The banner of socialism with Chinese characteristics is now flying high and proud for all to see. It means that the path, the theory, the system, and the culture of socialism with Chinese characteristics have kept developing, blazing a new trail for other developing countries to achieve modernization. It offers a new option for other countries and nations who want to speed up their development while preserving their independence; and it offers Chinese wisdom and a Chinese approach to solving the problems facing mankind."

After the Party Congress, dozens of Chinese universities established new academic programs and research institutes dedicated to Xi Jinping and Marxism, heightening the new cult of personality around Xi. Also, see the videos by Zhang Weiwei of Fudan University (here and here), making claims for the superiority of the "Chinese Model."

March 2018 - Removal of term limits for Party leader, raising the possibility that Xi will be a "leader for life." Apparent move away from the "primary stage of socialism" model to "China as a model for other countries."

B.  Agriculture

Before World War II, traditional system—small-scale subsistence farming on private land.

During 1953-1957, small farms merged into Soviet-style collectives with average of 160 families.

In 1958, collectives merged into people's communes with 3,000-5,000 families, organized in production brigades and production teams. The commune served as the basic unit of local government, running schools, clinics, etc.

During 1961-1965, policy of "Agriculture First."

a.   Communes reduced in size to about 1,700 families.

b.   Incomes linked to performance of production teams and individuals according to work-point system.

c.   Families allowed to operate small private plots.

During 1966-1978, progress prevented by Cultural Revolution and the post-Mao succession crisis.

Late 1978 - return to reforms of early 1960s, and experimentation with system of contracting land and output quotas to individual households.

1981 - Household Responsibility System (HRS) actively promoted by government, Covered 98% of rural population within 3 years.

a.   Communal fields were divided into small family plots. Note: In some ways, this was a return to family farming that was practiced before 1949.

b.   Households contracted with production team to cultivate a tract of land in exchange for fixed quotas of certain agricultural products to the team at fixed prices.

c.   System modified in 1984-1985: communes abolished; land ownership transferred local villages and townships; allowable terms of the contracts extended to 15 years (30 years after 1995); household could transfer its contracted land to another household.

d.   System was big initial success, based on stronger incentives and more even distribution of labor effort over the land. 

e.   By 1985, grain production returned to lower trend growth and then  declined from 1998-2003. Largely caused by diversion of land from agriculture and from grain  acreage to fruit and high-value crops (same happened in Japan and other heavily populated countries during industrialization). Since 2003, recovery of grain production explained largely by heavy investments in agriculture -- 6 trillion yuan ($930 billion) during 2003-2012, the highest level in China's history.

f.   Recent research by Chinese scholars at Zhejiang University and Stanford University suggests that inflexibility of the Chinese system of land tenure has kept farm sizes very small (about 0.1 hectares or .25 acres), which limits their productivity and causes overuse of agricultural chemicals, causing "enormous damages to environmental quality and human health in China." Recent reforms have made it easier for farmers to transfer the use rights of their land, aimed at creating larger, more efficient, farms

g.   On the positive side, the HRS raised productivity, allowing excess workers to move to industrial jobs in the cities.  On the negative side, that left an aging population in charge of the farms, and rural incomes have fallen behind urban. To remedy that situation, in 2006 the government abolished the agricultural tax that had been collected for more than 2,000 years.

China Cereals Area, Production, and Yield (production/hectare)

Source: https://www.fao.org/faostat/en/#country/351

C.  Population Policy

Under Mao - 1949-1970 - large families encouraged, except that Liu Shaoqi encouraged 2-child families during the 1961-1965 pause.

1971-1978 - "Later, Longer, Fewer" policy encouraged couples to have fewer children, aimed at 2-child families. Fertility rates dropped rapidly from 5.8 births per woman in 1970 to 2.7 in 1978.

1979-2015 - The "One-Child Family" policy, which initially was enforced strictly and pretty horribly (forced abortions, etc, etc). There were loopholes for ethnic minorities, agricultural families, and pairs of only-children, so about half of households could eventually have 2-children.

Beginning in 2015, two children were allowed for all; raised to three in May 2021; and then all limits and penalties removed in July 2021.

Now the government is pushing a return to "traditional family values" and larger families. According to an interesting 2022 article in Foreign Affairs, based on the experience in Japan and other Asian countries, this policy is likely to fail: "Beijing should change course, halt its ideological pivot against women, accept China’s grayer future, and address the consequences of aging by raising retirement ages, cutting unsustainable pension promises, and devising better care systems for the elderly, particularly those among China’s poor, rural population."

The One Child policy probably supported poverty reduction, but has caused many distortions of the age and gender structure of the population and has created a culture of "little emperors and empresses." A socialism of only-children?
China now has one of the most rapidly aging populations in the world, following the example of Japan, so India is expected to serve as a stronger engine of growth in the global economy in the medium term.

Source: https://www.weforum.org/agenda/2017/10/china-will-grow-old-before-it-gets-rich/

C.  GDP Growth

After tumultuous swings during 1950-1979, the average rate of GDP growth during 1980-2015 was nearly 10%. During 2016-2021, that slowed to 6%. During 2022-2027, that's expected to slow again to 5% or lower. What explains all of that?

Source: Yan Wang & Yudong Yao, "Sources of China's Economic Growth, 1952-1999,"
World Bank Policy Research Working Paper 2650, July 2001.

During the Maoist pre-reform era (1953-1977), economic growth was explained mainly by growth of physical capital and (before the disruption of the Cultural Revolution) by rising educational levels. The contribution from growth in the labor force was small and TFP growth was negative.
NOTE: TFP = Total Factor Productivity = growth of GDP that is NOT explained by growth of the labor force, educational levels ("human capital"), or growth of the physical capital stock. Growth that arises from more efficient use of labor and capital resources. Extensive research suggests that maintenance of TFP growth is important for avoiding the Middle Income Trap and making progress toward a higher standard of living.

Source: John Whalley and Xiliang Zhao, "The Contribution of Human Capital to China’s Economic Growth,"
NBER Working Paper No. 16592 December 2010

According to Whalley and Zhao (above), during the early reform era (1978-1999), economic growth was derived about equally from growth in the capital stock and improvements in TFP. Growth in labor and human capital made smaller, but significant contributions. During that period:
a.  Agricultural reform (family responsibility) that raised productivity and generated savings for a high investment rate and allowed release of workers to higher productivity industrial jobs in cities.
b. Opening the country allowed inflow of overseas capital and technology, sources of industrial raw materials, markets for industrial goods, and improved educational opportunities
c.  The working-age share of the population was rising.

Source: World Bank Group and Development Research Center of the State Council, the People’s Republic of China,
"Innovative China: New Drivers of Growth," World Bank Publications, 2019.
https://openknowledge.worldbank.org/handle/10986/32351

During the years since 1998, both of the studies cited above indicate that a rising share of growth has been derived from growth of the physical capital stock, which may be unsustainable. The contribution from growth of the labor force has declined (and will become negative with a declining working-age population, and the contribution of TFP has also declined. Causes of growth slowdown and future challenges.
a.  Share of working-age population is falling.
b.  China’s labor productivity has converged from 15% of the global frontier to about 30%, so it's still a low-productivity economy, but additional gains are more difficult.
c.  Attempt to give more workers from manufacturing into the service sector is likely to reduce productivity growth.
d.  Rising trade protectionism.
e. Zero-tolerance COVID policy - Chinese traditional vaccines provide less protection than Western mRNA vaccines, and that's especially true for Omicron.

VIII.    How Far Can One Leg Go?

A.  Chinese advantages in the coming century:

1.   Long and stable cultural heritage.

2.   Relatively well educated population and very high levels of investment in R&D .

3.   Untapped natural resources.

B.  Challenges:

1.   Slowing economic growth, even before COVID-19 and rising debt levels

2.   Necessity of transitioning from export-based development to a more internally-based system and capital dependent growth to higher productivity.

3.   Need to strengthen the independence of financial institutions and access of the private sector to financing. According to a World Bank survey, many Chinese firms say this is their most significant constraint. Private firms are almost twice as likely to be turned down for a loan than state-owned enterprises.

4.   Rising authoritarianism, ideology over pragmatism, and cult of personality under Xi Jinping. Is continued economic growth possible without political reform?

5.   Declining international approval, driven by backsliding on "one country, two systems" in Hong Kong; alleged COVID-19 cover-up; treatment of Uyghur Muslims in Xinjiang and other religious groups; South China Sea islands and shipping disputes; large trade imbalances; technological espionage and other tech-based security concerns, etc, etc. Opinions were already growing more negative before the COVID crisis, and have taken another dive afterward. Many countries are growing more protectionist generally, and especially so with China.

Editorial Comment: While our relationship with China will be more complicated going forward, it will be impossible to address the big global problems, such as pandemics, climate change, cyber-terrorism, etc, etc, without some level of dialogue and cooperation. Also, if we are going to influence Chinese behavior, we will do that more effectively in cooperation with our allies who share many of our democratic values.