China Update: Economic Reforms and Political Realities



Jana Sackman Eaton

Even if you are teaching about contemporary China from a relatively current text, the rate at which change is occurring there makes it likely that much of the information is already out-of-date; the rapidity of change in China today is virtually unprecedented. As a veteran teacher of Asian cultures and A.P. comparative government and politics, and an inveterate reader of The Economist and various journals, I thought that I had a fairly good grasp of the subject. Yet, as a 1998 Fulbright-Hays Seminars Abroad participant, I soon realized that I had scant understanding of the enormity and complexity of the transformation that is taking place in China, especially in the economic and political sectors.

Although appearing to have jettisoned all but remnants of its former command economy, China remains full of anomalies. For example, the abject poverty of the street market people exists virtually in the shadow of majestic, glistening skyscrapers that symbolize new wealth. And politically, at least until the recent crackdown on dissidents, China appeared to be taking small steps in the direction of democratization—“democratization by stealth” as Stanford’s Michel Oksenberg puts it.1

During our summer program in China, we were in the constant company of our scholar escort, internationally-known Sinologist Dr. Stanley Rosen. We also attended numerous lectures by Chinese scholars, and participated in discussions and question-answer sessions on a wide range of issues. What particularly struck me was the fact that few of the presenters adhered to the “party line,” as used to be the case. The presentations were refreshingly candid, with many stopping just short of condemning the Chinese Communist Party (CCP) leaders and policies. It soon became apparent that economic issues now eclipse concerns regarding politics and political correctness, Chinese style. The Chinese haven’t forgotten Tiananmen, but they are patient people who have rechanneled their energies into making money through capitalism, guanxi (connections), and rampant corruption.

Under the leadership of Zhu Rongji, who took over as China’s prime minister in 1998, China has been moving rapidly in the direction of “market socialism,” a euphemism for capitalism. In March 1998, Zhu announced a bold plan to cut loose unprofitable state enterprises, reform a failing banking system, and reduce the colossal bureaucracy by half. The government has eliminated or sold to private entrepreneurs or foreigners some insolvent state-owned industries. In others, it has promoted “shareholding,” a new form of ownership in which the state sells “shares” to investors, domestic or foreign.

Because the work unit in modern Chinese society provided not only jobs, but also health care, housing, education, and other benefits, the whole concept of the state as an “iron rice bowl,” or the source of cradle-to-casket government support, is being seriously eroded. It is estimated that more than eleven million workers have been laid off to-date, and that another twenty million workers will lose their jobs by the year 2000. China Daily puts the current figure of unemployed at 13 million, but this figure is probably on the low side.2 And, although the government implores the private sector to absorb the unemployed, this sector often requires skills that many of the unemployed do not possess. Furthermore, the state industries have been dismantled more quickly than private enterprises could be developed to replace them.

In addition to those classified as unemployed, one American observer estimated that there are now over 100 million Chinese who constitute a “floating population.” Although some of these people are ethnic minorities, most are Han Chinese (the ethnic Chinese who constitute 93% of the population) who emigrate to urban areas and peddle wares in street markets or perform work that no one else wants to do. It was shocking to see large numbers of unemployed people—most holding signs and all hoping to be selected as day laborers—congregating early in the morning in areas of Beijing and Xian. Witnessing people sleeping on the streets also brought home the fact that China’s economy may be modernizing, but at great cost to the laboring class. Huang Chaosui, a student at Yunnan University in Kunming, told me that a large state-owned factory in her hometown suddenly closed its doors last year, leaving many people without jobs. In one case, the father was so distraught when he and his wife both lost their jobs that he poisoned his entire family of four.3

It is possible that unemployment could actually reach 20%, creating a volatile political climate that the CCP may have difficulty containing.4 Although the CCP officially denies that unemployment could become a political powder keg, it is clearly concerned, and is trying to reassure an increasingly jittery public that the government is working to accommodate the unemployed in “re-employment centers” and to fund a more extensive system of unemployment compensation and medicare and pension benefits.5 Plans to downsize the health care system and exempt the remaining state-owned enterprises from having to provide comprehensive benefits have been put on the back burner due to the state of the current economy.

Also targeted for substantial downsizing is the bloated, ossified, and often corrupt Chinese bureaucracy. Zhu announced last March that almost half of the bureaucrats will lose their jobs. These are people who are usually well educated and have considerable political clout. They tend to be hard-line conservatives who oppose change, even though they are well aware that some type of reform is critical to continued economic growth. Moreover, these bureaucratic positions are the goal to which many college graduates aspire—graduates who will find their rising expectations increasingly frustrated as more positions in the civil service are cut.6 Mounting political backlash from bureaucrats and under- or unemployed college graduates who have prepared for these government jobs appears to have slowed down this reform effort.

Meanwhile, extensive monetary reform was also initiated. The debt-ridden state banks were ordered to stop loaning money to unprofitable state industries, but the recent specter of massive social upheaval from increased levels of unemployment appears to have delayed implementation of this reform for another year.7

Some observers are predicting that China’s vast reform efforts will be derailed if the Asian financial crisis continues its downward spiral and the prime minister’s reforms further depress the Chinese economy. Although the government denies that it is changing course, a recent article in The Economist noted, “As for reforms, there are growing indications that some—perhaps most—may be delayed or even reversed” due to the threat of “social chaos that mass unemployment could bring” and the “Asian financial mess.”8 And they appear to have the support of President Jiang Zemin, who recently indicated his strong backing for constitutional amendments that would make the private sector an “important component” of the “socialist market economy,” while retaining the public sector as the mainstay of the economy.9

Aside from the fact that Asian countries are importing far less from China, the Chinese are socking a lot of yuan10—40% of their income according to one Hong Kong economist—into their saving accounts, fearing lay-offs and higher rents or housing costs, just when the government plans to get out of the subsidized housing business.11 This means that domestic consumption is being depressed at a time when increased domestic spending could take up some of the slack created by shrinking exports. The pressure on China to devalue the yuan is considerable in light of declining exports, but devaluation of the yuan could trigger another round of devaluations in Asia. So far, the Chinese have managed to avoid devaluation by “instituting export subsidies of up to 60% to Chinese companies to keep their products competitive on the world market. In a sense, this is a form of ‘devaluation,’ although the money does come from the Chinese government.”12

China reported a GDP growth rate of 7.8% for 1998, allegedly just missing the official 8% target. Critics contend that there was every incentive for local governments to inflate figures in light of pressures to downsize unprofitable industries by laying off more workers. Likewise, the growth was achieved by the dubious policy of pumping billions of yuan from the debt-ridden state banks into state-owned industries to stimulate production. However, since industrial growth is measured in terms of output rather than sales or profits, and since consumer spending has been depressed, the end result is that there are huge inventories of unsold goods piling up in China’s warehouses.

In other respects, the signs are more auspicious. The free market economy is booming in China’s coastal areas and starting to take off in some interior urban settings. The neon signs that light up Shanghai’s evening skies are in English, German, Japanese, and a host of other languages, reflecting the joint-ventures with multinational corporations: General Motors, Sony, Coca-Cola, Hewlett-Packard, Kodak, and Arco, to name a few. A whole new breed of Chinese entrepreneurs has entered the ring with its own highly competitive, privately owned enterprises, many of which specialize in technology and telecommunications.

In fact, some people in China are growing quite wealthy from the fruits of capitalism. The family that hosted me in Shanghai for a day lives in an affluent compound with elaborate security provisions and well-kept gardens. The housing units are modern, roomy, Western-style condominiums. Their only child, Gu Yihai, attended the prestigious and quite private Nanyang Model High School and is currently in the United States as an exchange student, with hopes of entering college here. His goal? “In America, I can make much money. With an American education, I can also make more money here in China.”13 The point is that well-educated or politically connected people on the East coast are living the good life and making money, often lots of it.

Unfortunately, opportunity does not abound for the vast majority of China’s almost 1.3 billion people. There is a growing disparity in income between the increasingly impoverished rural interior areas and China’s new “gold coast” areas in which the market economy has flourished. As the rural peasants become more aware of the regional income disparities, they are increasingly leaving the hinterland and flocking to urban areas where their dreams of sharing the new wealth are seldom realized. Those left with little hope to improve their lot often become disillusioned. Income inequality and regional polarization are both issues that the government must address before discontent escalates to turmoil.

China’s political system is also changing, but the changes are more subtle and coming from the top down. Evidence of the loosening of state control was ubiquitous when we were there during the summer. Dr. Rosen pointed out books on the Dalai Lama and Tibet that are officially “banned” in Mainland China, but could be purchased from private book vendors in Beijing. According to Rosen, the attitude if caught seems to be, “Go ahead and arrest me. I don’t have any money, so what are you going to do with me?”14

English language newspapers in China are reporting on the nation’s problems more truthfully and with less propaganda. (Surprisingly, the Chinese newspapers treated the Clinton sex scandal much more kindly than did their American counterparts.) I read daily about various problems associated with the government reforms, and was only skeptical of the optimism with which proposed or attempted solutions were reported. Yet there is news that does not reach the Chinese people. For example, during a question-answer session at Nanyang Model High School in Shanghai, one student complained that the United States interferes with China’s internal affairs. Dr. Rosen pointed out that some Americans also feel that China has attempted to influence U.S. politics, as in the case of funds being channeled to American political candidates known to favor pro-China policies. No one in the room full of faculty members or students had any knowledge of these charges, widely publicized in the United States.

Meanwhile, many of the books sold near Beijing University are translations of books printed in the United States on finance, investment, and conservative economics. For example, the late Friedrich von Hayek’s right-wing Chicago School of Economics book, Road to Serfdom, is very popular in China. According to one well-placed American intellectual at a confidential briefing:

China is much more open with the press now, as long as you don’t question the primacy of the CCP. The coverage of Clinton’s visit to China was unprecedented, for example, as was the live debate and discussion of controversial issues.

You can even watch CNN news from your hotel room in China. Occasional banned reports or topics just experience some “technical difficulties.” The Internet invasion is causing the government more difficulty as it attempts to filter pornographic material and banned political topics, such as independence movements in Taiwan and Tibet.

Dissidence is tolerated to a much greater degree today, as long as CCP dominance is not openly and directly challenged. The scholars who spoke with us were often candidly critical of government policies and information, something that could not have occurred without severe consequences in the past. This trend toward greater toleration recently emboldened political activists to forge ahead in their quest to register the fledgling China Democratic Party in various cities—a move perceived by CCP leaders as an open challenge to the Party’s hegemony and one that triggered a massive crackdown on the dissidents resulting in harsh jail sentences for “subverting State power.”

Yet the hard-line approach taken with the founders of the China Democratic Party does not necessarily mean the end of speech that is critical of the CCP or government policies. It is likely that Chinese officials will concentrate on high-profile cases in which transgressions have been clear-cut violations of the law or unambiguous threats to CCP supremacy, as opposed to engaging in the massive, arbitrary arrests that took place during the tumultuous Mao period.15

China is also moving toward a more transparent legal and political system based on the “rule of law,” at least in so far as the movement promotes economic development. In fact, the Central Committee of the CPC has proposed that a new sentence affirming the principle of “rule by law” be added to Article 5 of the constitution. It is expected that this amendment will be approved by the National People’s Congress (NPC) this spring.16 It follows that where the rule of law becomes institutionalized, the lawyers will follow. According to Shanghai attorney “Kitty” Yang, the number of law firms in Shanghai has increased dramatically in the past decade, with most doing contract and corporate work.17

The Chinese seem to recognize that developing a viable modern economy requires codification of law and consistent application of the laws once developed. With Hong Kong now officially part of the People’s Republic of China, there will be even more pressure on China to become a fully law-governed state. Hong Kong, which has long been law-governed, was viewed as “the goose that lays the golden egg” for the mainland, at least until the bottom fell out of the real estate market this past year and catapulted the economy into a downward spin. The Chinese are acutely aware of the connections between rule-of-law and prosperity. One must not conclude, however, that there is a corollary move to develop “rule-of-law” in the political sector, as demonstrated by the lack of due process in the recent trials of the China Democratic Party leaders, at least as viewed from a Western perspective.

There are even some choices in provincial and local elections now, as the people’s congresses are allowed to nominate candidates to run against those selected by the CCP leadership. Voting is now by secret ballot. Even more significantly, the National People’s Congress, a body that once did little more than rubber-stamp CCP initiatives, is becoming more assertive and can “now sponsor their own bills, actively debate and amend proposed legislation, and occasionally hold up or vote against important bills.”18 Although the NPC hasn’t issued a direct challenge to the CCP’s hegemony, it is gaining legitimacy as a governing body.

In other respects, Chinese citizens are experiencing a more tolerant and less intrusive political culture. There is more freedom of movement from one part of the country to another and from one job to another. There is more choice in terms of reading materials, entertainment, and television channels. There are now even term limits and mandatory retirement age requirements for most government and party positions. The overall effect is that conservative octogenarians have had to step aside to make room for the more reform-minded younger generation.

Dr. Rosen thinks it likely that people will demand even more freedom as they continue to experience greater prosperity and fewer restrictions in the market place. Although he contends that China’s future is far from being predictable, he concludes:

The images from 1989, with Tiananmen and the military, are no longer realistic because people today are most interested in the good life—not politics. Today, interest in Party membership is more for upward mobility and material well being.19



1. Michel C. Oksenberg, Ph.D., Senior Fellow at the Asia Pacific Research Center, Stanford University, lecture, San Francisco, China Fulbright Orientation (June 27, 1998).

2. Dong Furen, “Employment Reforms Set Out,” China Daily (July 22, 1998): 4.

3. Huang Chaosui, student at Yunnan University, interview (July 17, 1998).

4. Eden Woon, Director, Hong Kong Chamber of Commerce, lecture, Hong Kong General Chamber of Commerce, July 28, 1998.

5. Huang Ying, “Laid-off Workers Ensured of Expenses,” China Daily (July 25, 1998): 1.

6. Tang Zhonghua, Assistant Director-General, Department of Foreign Affairs, State Education Commission of China, lecture, Beijing Normal University (July 1, 1998).

7. “Reforms on Ice,” The Economist (July 18, 1998): 37-38.

8. Ibid.

9. Sun Shangwu, “Private Sector’s Role Grows,” China Daily (February 12, 1999): 2.

10. A yuan is the basic unit of the Renminbi (RMB), or People’s Money; money on mainland China is referred to either as yuan or RMB.

11. Alan K. F. Sui, School of Economics and Finance, University of Hong Kong, lecture (July 27, 1998).

12. Stanley Rosen, Ph.D., China specialist, Political Science Department, University of Southern California, e-mail letter (August 9, 1998).

13. Gu Yihai, high school student, interview (July 22, 1998).

14. Stanley Rosen, comments at U.S. Embassy briefing, Beijing (June 10, 1998).

15. Stanley Rosen, “To Influence China Now, Study Changes Since Mao,” Los Angeles Times (February 9, 1998): 5.

16. Xu Yang, “Amendments Wait fior NPC Approval,” China Daily (February 24, 1999): 1.

17. Kitty Yang, Attorney, Tian Ren Law Firm, Shanghai, conversation (July 21, 1998).

18. Minxin Pei, “Is China Democratizing?” Foreign Affairs 77, no. 1 (1998).

19. Stanley Rosen, comments (July 19, 1998).


Jana Sackman Eaton teaches cultural studies and A.P. comparative government and politics at Unionville High School in Kennett Square, PA. She was 1998 Pennsylvania Social Studies Teacher of the Year and recipient of a 1998 Fulbright-Hays Seminar Abroad Fellowship to China.

©1999 National Council for the Social Studies. All rights reserved.