What Does China Think?. Mark Leonard
village, would harangue anyone who questioned their claim. Over time, however, the elders realized that the neighbouring zebras were, in fact, superior to the idle and greedy horses which they had so actively promoted. So, after years of hailing the virtues of the horse, they decided to embrace the zebra. The only obstacle was converting the villagers who had been brainwashed over decades into worshipping the horse. The elders developed an ingenious plan. Every night, while the villagers slept, they painted black stripes on a few horses. When the villagers awoke – shocked at the presence of evil beasts in their midst – the leaders reassured them that the animals were not really zebras, just the same old horses adorned with a few harmless stripes. The villagers gradually became accustomed to the presence of the strangely decorated animals in their midst. After a long interval the village leaders began to replace the painted horses with real zebras. These prodigious animals transformed the village’s fortunes, increasing productivity and creating wealth all around. Only many years later – long after all the horses had been replaced with zebras and the village had benefited from many years of prosperity – did the elders summon the citizenry to proclaim that their community was a village of zebras, and that zebras were good and horses bad.
Zhang Weiying’s allegory is an explanation of his most famous idea, the theory of ‘dual-track pricing’ which he first put forward in 1984. He argued that ‘dual-track pricing’ would allow the government to move from an economy where prices were set by government officials to one where they were set by the market, without having to publicly abandon its commitment to socialism or run into the opposition of local governments with a vested interest in central planning. Under Zhang Weiying’s approach some goods and services continued to be sold at state controlled prices while others were sold at market prices. Over time, the proportion of goods sold at market prices was steadily increased until by the early 1990s almost all products were sold at market prices. The ‘dual-track’ approach embodies the combination of pragmatism and incrementalism that has allowed China’s reformers to work around obstacles rather than confronting them head on. Rather than closing down the old central planning system, they first created an alternative reality alongside it. And when things went well, they reformed the old system to give it the best features of the new reforms.
Pearl River Capitalism: from permanent revolution to permanent innovation
Zhang Weiying was not the only person to call for ‘dual-track pricing’, but he was the first to do it publicly. He was soon given a plum job working for the Commission for State Institutional Reform which he held down from 1984 until 1990. Zhang Weiying was part of a group of young officials who found ways of making market ideas palatable to the older Communist elite. Their goal was to paint as many zebras as possible – to create a parallel market in the shell of socialist China.
China’s economic reforms had begun in the countryside with the dissolution of the ‘people’s communes’ and the end of collective farms in 1979. For over two decades before then, life in the countryside had been organized around collective ‘work units’ which lived together, worked together and ate together. The work unit was meant to replace the family as the primary unit of economic activity and social life. With the ‘opening and reform era’, these collective farms were closed down and replaced with smallholdings that were controlled by individual families who could decide what they wanted to grow, and more importantly kept the profits generated by their labour. This led to a huge surge in agricultural productivity which freed thousands of labourers from the fields. These workers were soon employed by a new crop of privately run factories – known as ‘Town and Village Enterprises’ – which sprang up all over the countryside. The wealth generated by China’s rural revolution allowed the local governments to benefit from the revenue generated by private industry. But these primitive trysts with the market were not what excited Zhang Weiying and his colleagues. This was just the beginning.
In their quest for a new China they looked beyond the landlocked rural plains where economic reform had begun to the outward-facing coastal provinces of the east. At the beginning of the 1980s, Shenzhen was an unremarkable fishing village, providing a meagre living for its few thousand inhabitants. Over the next three decades it has become an emblem of the Chinese capitalism that Zhang Weiying and his colleagues were building. Because of its proximity to Hong Kong, Deng Xiaoping chose Shenzhen as the first ‘Special Economic Zone’, offering its leaders tax-breaks, freedom from government regulation and a licence to pioneer new market ideas. The architects of reform in Shenzhen were not interested in replicating the low-tech industrial revolution that had taken place in the countryside at the beginning of the era of ‘opening and reform’. They wanted to build high-tech, capital intensive plants that could mass-produce the sort of high-value-added goods that could compete directly with the West. In order to get their hands on the technology and capital to turn their dreams into reality, the authorities set about attracting investment from abroad. Shenzhen alone succeeded in pulling in over $30 billion of foreign money to build factories and roads and develop its ports. The secret of Shenzhen’s success was its reliance on exports, rather than domestic consumption to fuel its growth. The decision to open the ‘Special Economic Zones’ up to the outside world provided a booster for the development of a non-state sector because foreign companies would set up joint ventures and shareholding companies. As a result, by 1992 half of China’s industrial output was generated by the non-state sector.
This pattern of building zones of radical experimentation to gradually produce more valuable goods and services was the key to China’s success. It was very capital intensive, and needed to be financed by drawing on the country’s massive savings and the revenues from exports rather than domestic consumption. It was based on the commodification of labour, as the coastal regions could suck in endless numbers of workers from the countryside in order to depress urban salaries. And it was laissez-faire – allowing wealth to trickle down from the rich to the poor organically rather than consciously redistributing it. Deng Xiaoping pointedly declared that ‘some must get rich first’, arguing that the different regions should ‘eat in separate kitchens’ rather than putting their resources into a ‘common pot’. As a result, the reformers of the eastern provinces were allowed to cut free from the impoverished inland areas and steam ahead.
The take-off of the coastal regions seemed to back up the claims of generations of Chinese reformers that their country had been held back by the conservatism of its inland provinces, which prevented China from competing with maritime civilizations such as Britain, France, Japan and the USA which had embraced the market, trade and innovation. The reforms of the 1980s unleashed a process of social change that went far beyond economics. The Chinese called it a ‘cultural fever’. It reached a cresc-endo in June 1988 with the showing of a six-part documentary called River Elegy in prime-time on the main state television channel. The series used the story of the Yellow River – often referred to as ‘mother river’ because it is considered to be the cradle of Chinese civilization – to launch a full-frontal attack on China’s traditions.
Rather than accepting the romantic ideal of the Yellow River as the embodiment of Chinese greatness, the series presented it – with its countless victims from flooding and drought – as an enemy of the Chinese people; the ultimate symbol of their irrational, erratic and earth-oriented character. Each episode targeted a Chinese tradition that was holding the country back. For example, the Great Wall was treated as a symbol of meaningless isolation, while the Ming dynasty was attacked for its ban on maritime activity. The pungent style of the narrator drove this point home in the very first episode: ‘There is a blind spot in our national psyche: it is a vague belief that all of the shame of the past century is the result of a break in our glorious history. Ever since 1840, there have been people who have used the splendours and greatness of the past to conceal the feebleness and backwardness of our present state … Yet the fact remains, our civilization is moribund.’ The narrators pleaded with China to break the bonds of traditional society that had prevented the country’s modernization. China, they argued, must now turn away from the countryside, focusing not on the Yellow River, but rather on the blue world of the ocean and the world beyond. The final images of the series show the Yellow River dissolving into the powerful sea which symbolizes the might of the Western world which has embraced modernity. In China’s universities and colleges, students spontaneously discussed