Back in 1962, with China still suffering from the excesses of the Great Leap Forward, Deng Xiaoping had deeply offended Mao by arguing that economic performance was more important than ideological purity. Now after twenty years, Mao was dead, his economic policies had collapsed, and Deng’s willingness to experiment with new forms of economic activity was in evidence everywhere.
Introduction of Small-scale Private Commerce
One of Deng’s experiments involved the introduction of small-scale private commerce in China’s cities.
Until the early 1980s, all private commercial activity was strictly prohibited in urban China. It was openly derided as a “vestige of capitalism”. But now, with as many as 10 million “rusticated” youths flooding back into Chinese cities from a decade of enforced exile in the countryside, massive numbers of young people had little or nothing to do. In this situation, government leaders decided that small-scale private commerce could help relieve the pressures of burgeoning unemployment.
Thus were born the China’s getihu—self-employed individuals and households.
China’s Centrally Planned Economy
Under socialist ownership, the prices of all goods and services in the urban economy were set by the state plan. Sales clerks were state employees: their jobs, wages and benefits were guaranteed for life under the iron rice bowl policy. Their firms didn’t need to turn a profit or provide high-quality goods and services. And since all sales revenues were remitted directly back to the state, there was no incentive for enterprise managers to improve the quality of their product or their service. Staff employees didn’t care, because they didn’t have to. They put in their time and picked up their paychecks.
That, in a nutshell, was the story of China’s centrally planned economy, as it was played out daily in hundreds of thousands of state enterprises, large and small.
This is a transcript from the video series The Fall and Rise of China. Watch it now, on Wondrium.
Challenge to State Monopolies
However, now the getihu had begun to expose the endemic weaknesses of the planned economy. And it did not take long for enterprising young men and women to begin to challenge state monopolies throughout the service sector, from photography and fast food to haircutting and taxicabs.
Wherever private challengers arose, either to contest existing state monopolies or to fill visible gaps in the service sector, consumers were the winners.
To give just one example, between 1982 and 1986, the quality of food served in many Beijing restaurants improved noticeably, as enterprising getihu began setting up fast-food stalls and sidewalk cafes around the city, drawing customers away from established state restaurants by offering better service and better food at competitive prices.
By the middle of the decade, state restaurants that were losing out in competition with self-employed providers were warned that the government would no longer automatically cover their losses. If they couldn’t turn a profit, they’d face the consequences—including the possibility of closing their doors.
Slowly, state restaurants began paying more attention to customer satisfaction, and their food began to improve.
Urban Economic Innovations
After 30 years of heavy-handed state socialism, China reformers were gradually introducing a broad range of urban economic innovations.
In addition to permitting small-scale private commerce, the fiscal system was now decentralized to encourage provinces and localities to display greater entrepreneurial initiative by allowing them to retain a significant share of their own revenues as income, as profit.
In the countryside, of course, agriculture had been decollectivized several years earlier. By the end of 1979, farmland was being routinely divided up and leased out to individual households, and free markets were thriving. By 1982, decollectivization was virtually complete, and the people’s communes were officially disbanded.
Learn more about the effects of globalization on the Chinese society.
Resistance to Change
Reform took longer in China’s cities. Unlike rural areas, where there were no basic income guarantees or state welfare benefits for peasants, in cities the iron rice bowl policy provided every state employee with a guaranteed lifetime job, as well as major food and housing subsidies and free health care, education, and welfare benefits.
Understandably, many state employees were reluctant to exchange these familiar, tangible benefits for the vague and unknown world of market competition, profit-motivation, and the attendant risks of unemployment.
Resistance to change was widespread among urban state workers. But it was even more intense among Communist Party traditionalists who continued to believe in a modicum of centralized state planning. To them, Deng’s economic reforms smacked of the dreaded “C-word”: “capitalism”. And despite the many failures of socialism under Mao, most Chinese remained highly resistant to the very idea of capitalism.
Socialism with Chinese Characteristics
Recognizing that the word “capitalism” produced intensely negative responses in China, Deng Xiaoping cleverly coined a new and more neutral term to describe his reform program. He called it “Socialism with Chinese characteristics”.
To put a more appealing face on urban economic reform, and to provide new incentives to induce people to work harder in order to earn (and keep) more money for themselves, the new Chinese Premier, Zhao Ziyang, shifted the traditional function of many state-owned factories away from concentration on heavy industrial manufacturing to the production of consumer durables and luxury goods.
Gradually, a new culture of personal consumption was taking root in China, first in coastal cities and then spreading to the interior. “Liberate the productive forces”, was the reformers’ frequently repeated mantra. “Let some people to get rich before others,” exhorted Deng Xiaoping in 1984, in so doing, implicitly repudiating the Maoist ethos of egalitarian austerity.
By the middle of the decade, a generation of newly affluent entrepreneurs, known as wanyuan hu or “10,000 yuan households”, had made their appearance in China. These were China’s first millionaires.
Common Questions about China’s Centrally Planned Economy and “Socialism with Chinese Characteristics”
China’s getihu were the self-employed individuals and households in China. They came into existence when the government leaders decided that small-scale private commerce could help relieve the pressures of burgeoning unemployment.
China’s fiscal system was decentralized to encourage provinces and localities to display greater entrepreneurial initiative by allowing them to retain a significant share of their own revenues as income, as profit.
Recognizing that the word “capitalism” produced intensely negative responses in China, Deng cleverly coined a new and more neutral term to describe his reform program, calling it “Socialism with Chinese characteristics”.