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 16th
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.
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