CHINA ECONOMY

For nearly 30 years after the creation of the People's Republic of China, from the 1950s to the late 70s, the nation had a highly centralized planned economy in keeping with Marxist-Leninist principles and based on the Soviet model. Mao in his time aimed to modernize target industries through a series of Five Year Plans. While the first Five Year Plan was quite successful, Mao's move toward complete socialism-collectivization in the countryside and state-owned enterprises in the city-eventually led to low levels of production and a sluggish economy.

As the People's Republic neared its 30th birthday, however, Deng Xiaoping rose to power and immediately began to implement economic reforms that ran contrary to the socialist vision of his predecessor. Far more concerned with results than ideology (hence his famous quote, "It doesn't matter whether the cat is black or white, so long as it catches mice"), Deng began to steer China toward a more market-oriented system euphemistically called 'socialism with Chinese characteristics." Deng de-collectivized agricultural production in the countryside, shifted the government's focus from heavy to light industry, allowed a private sector to develop, and opened the country to foreign trade and investment.

In 1979, the government established Special Economic Zones (SM) in Shenzhen, Zhuhai, Xiamen, and Shantou, four cities in southeastern coastal China. These zones are designated areas which are allowed to use tax and business incentives to foster economic growth and where local governments can develop their own infrastructure without the approval of the central government. As a result of these liberal reforms, the country's GDP has quadrupled since 1978, growing by as much as 13% in 1993; agricultural output doubled in the 1980s; and the industrial sector realized major gains, especially in the SEZS, where flexible policies and potential for profit have attracted foreign investment. The success of these economic zones has encouraged the government to create new ones, and now SEZs have been establish all along the eastern seaboard and down the Yangzi River.

Increasing privatization has also led to an improved standard of living for many Chinese. The number of rural poor dropped from 200 million to 80 million in under a decade, and the burgeoning middle class now erdoys such luxuries as new DVD players. But the rapid growth of the Chinese economy has not been painless. The govemment's hybrid system of market-socialism means that the country often suffers from the worst problems of both socialism (corruption and a bloated bureaucracy) and capitalism (increased inflation and a growing income gap). The Chinese government must also face the tremendous problem of how to deal with the heavily subsidized, debt-ridden state-owned enterprises. These industrial dinosaurs still employ a large number of Chinese workers but operate appallingly inefficiently: in 1996, state-owned firms swallowed 75% of industrial investments

while producing only 1% of industrial profits. The government can no longer afford to subsidize these money pits, and the days of the iron rice bowl (a life-time guaranteed job which provided housing, education, and a pension) are coming to an end. Many workers are being paid months late, given extended vacations, or simply laid off. The need to streamline inefficient enterprises runs right up against another problem facing the Chinese government: unemployment. There are currently 60 to 100 million surplus workers drifting between villages and cities looking for work.

Despite these potential pitfalls, the economy has continued to grow at a solid rate under the guidance of Prime Minister Zhu Rongli, the economic czar of China. China managed to stand strong without devaluing its currency during the financial crisis that sent most of Asia into a tailspin in late 1997. Ironically, however, China has been unable to gain membership in the World Trade Organization (WFO), despite over a decade of negotiations. The government's unwillingness to reduce its extraordinarily steep tariffs on imports, a step necessary for joining the WTO, suggests that officials are wary about opening Chinese companies up to direct corupetition from abroad.

Whereas the CCP once looked to the Soviet model for economic guidance, the Chinese government now wants to rnimic Singapore's achievement of economic growth without a downturn in social stability. Liberal economic reform, Singapore seems to prove, does not necessarily require liberal social and political reform. Although countries like the tjnited States continue to condemn China for its human rights abuses (see below), threatening to revoke Most Favored Nation (MFN) trade status if the Chinese government does not improve its record, the CCP hopes it can maintain both popular and international support through economic growth and improved standards of living without sacrificing political control.