Deng Xiaoping and China’s Need for Economic Retrenchment


By Richard Baum, Ph.D.University of California, Los Angeles

By the end of the ’80s, spiraling inflation, rampant profiteering and speculation, and burgeoning official corruption had contributed mightily to the rise of urban unrest in China. Even Deng Xiaoping acknowledged the need for at least a partial economic retrenchment. Naturally, the conservatives were only too happy to oblige him.

Deng Xiaoping's billboard
The conservatives were happy with the retrenchment program acknowledged by Deng Xiaoping. (Image: Brücke-Osteuropa/Public domain)

Choosing the Party General Secretary

In the summer of 1989, with Zhao Ziyang under house arrest and the party’s liberal wing in near total disarray, China’s hard-liners pressed their advantage. Searching for a more conservative successor to Zhao Ziyang as party general secretary, they nominated Li Peng, the dour, no-nonsense premier who had enacted the martial law decree in May.

But Deng Xiaoping was wary. For one thing, Li Peng was extremely unpopular among city dwellers. For another, Deng was quite reluctant to let conservatives monopolize the party’s top leadership posts—lest they attempt to roll back his precious reforms. 

Deng wanted a more moderate, less partisan pick. After waffling for a while, he settled on Jiang Zemin. Jiang Zemin was the party’s first secretary of Shanghai. A colorless but competent technocrat, Jiang’s pragmatism had helped Shanghai to achieve reasonably good, but not spectacular, rates of economic growth in the 1980s.

This is a transcript from the video series The Fall and Rise of ChinaWatch it now, on Wondrium.

Image of Jiang Zemin
Jiang Zemin was chosen as party general secretary with Deng Xiaoping’s support. (Image: Malacanang Photo/Public domain)

Deng Xiaoping’s Support Behind Jiang Zemin

Jiang had also impressed Deng Xiaoping with his display of grace under fire. In the fall of 1986, for example, Jiang had carefully avoided a direct confrontation with student demonstrators roused by Fang Lizhi’s inflammatory rhetoric. 

And in the spring of 1989, he had remained cool and level-headed, refusing to call PLA troops into Shanghai to crack down on protesters at the height of the “turmoil” in Beijing. Once Deng threw his support behind Jiang Zemin, the issue was settled, and Jiang was duly confirmed as general secretary. 

In assuming his office, Jiang was well aware that each of the three men who immediately preceded him at the head of the Communist Party—Hua Guofeng, Hu Yaobang, and Zhao Ziyang—had been driven from office by the sharp knives of rival factions, so the new party leader knew he was stepping into a potential minefield.

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Deng’s Health Condition

As Jiang took office, Deng Xiaoping began to falter. China’s paramount leader had aged visibly under the stresses of the past few years. Now in his early 80s, Deng had developed a Parkinsonian tremor, and he was unsteady on his feet. 

On one occasion, shortly after June 4, he was filmed clumsily dropping food from his chopsticks at a banquet. As for his public appearances, they became fewer, and his grip on day-to-day policy-making also appeared to wane.

Meanwhile, Jiang Zemin did his best to play it safe. Aware that factional rivalries had undone his three predecessors, Jiang tried to position himself in the “floating center” of the political spectrum. Unwilling to stick his neck out, he bent with the breeze.

China’s Precarious Economic Situation

One thing that urgently required Jiang’s attention was China’s precarious economic situation. For most of the previous five years, Zhao Ziyang had encouraged China’s dynamic market economy to fly freely out of its socialist “birdcage”—with decidedly mixed results.

The economy had grown rapidly, to be sure. However, there had also been a rise in urban unrest due to inflation, rampant profiteering, and growing official corruption. Deng Xiaoping also acknowledged that there was a need for at least a partial economic retrenchment.

In the fall of 1989, the party conservatives proposed a return to Chen Yun’s very cautious socialist “birdcage” approach to economic growth with the central government once again assuming a major role in resource allocation and commercial regulation.

At its annual 1989 plenary session in the fall, the Central Committee issued a sober-minded call for “sustained, stable, and harmonious” development of the national economy. These were code words for restricting market freedom. Calling for stringent new state controls on credit, commercial investment, wages, bonuses, and prices, the Central Committee imposed a stern and comprehensive austerity program.

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Deng’s Concern about the Economic Retrenchment Program

Although Deng reluctantly signed off on the new program, he worried that overzealous conservatives would try to take advantage of the retrenchment to reverse his benchmark policies of “reform and opening up”.

In his infrequent public appearances, Deng stressed that the retrenchment was only temporary and that it by no means implied abandoning economic reform. He insisted on inserting into the Central Committee’s new austerity program a strong defense of China’s “open policy”, in particular the policy of Special Economic Zones. 

Although the bird of market reform was being temporarily confined to a somewhat smaller birdcage, Deng insisted that the door to the cage should remain unlocked.

Common Questions about Deng Xiaoping and China’s Need for Economic Retrenchment

Q: Who was Jiang Zemin?

Jiang Zemin succeeded Zhao Ziyang as party general secretary. He was the party’s first secretary of Shanghai. He had helped Shanghai achieve reasonably good rates of economic growth in the 1980s. He had impressed Deng Xiaoping with his display of grace and level-headedness.

Q: What was the economic retrenchment program?

In the fall of 1989, the Central Committee, at its annual plenary session, issued a sober-minded call for “sustained, stable, and harmonious” development of the national economy. It called for stringent new state controls on credit, commercial investment, wages, bonuses, and prices.

Q: Why was Deng Xiaoping worried about the new retrenchment program?

Although Deng Xiaoping himself signed the new economic retrenchment program, he was concerned that overly fanatical conservatives might use it to change his reform policies. Therefore, in his public appearances, he emphasized that the new retrenchment program was temporary and didn’t mean abandoning economic reforms at all.

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