With total control over resources, all communist totalitarian economies have experienced a period of rapid growth in the early stages of catching up, propelled by extremely high investments. However, none of these economies managed to complete the catching-up process. Before they could evolve into developed economies, their growth rates rapidly declined to levels below those of the advanced capitalist economies. According to Marxist historical materialism, sustained slow growth under a communist totalitarian system is evidence that such a system is inferior to a capitalist system. This not only undermined the Communist Party’s legitimacy to rule but also weakened the Soviet and Eastern bloc’s capacity to confront developed capitalist countries. Consequently, economic reform became a necessary measure to save the communist totalitarian system. However, the principle of eliminating private ownership, inherent in classical communist totalitarianism, hampered the Soviet and Eastern European economies’ ability to undertake effective reforms, ultimately leading to the collapse of the Soviet and Eastern bloc system.
In contrast, post-Mao China embarked on economic reforms to salvage the communist totalitarian system driven by different impetus: a profound crisis that had accumulated through the Great Leap Forward and the Cultural Revolution, leaving China as one of the world’s poorest economies. Yet, under the governance of regionally administered totalitarianism, the CCP succeeded remarkably in cultivating a vast private economy, albeit unintentionally, while adhering to the principles of communist totalitarianism. This led to almost four decades of rapid economic growth in China. Consequently, not only was the communist totalitarian system salvaged but a new superpower was also created. At the same time, the contemporary system of communist China perplexes many observers. The primary source of this confusion lies in the fact that people often overlook that the CCP’s reform, from its inception to this day, has been aimed at rescuing and expanding the communist totalitarian system.
To understand the mechanism of China’s reform, and more importantly, the CCP’s purpose in launching it, one must recognize a basic historical fact: the beginning of China’s reform was the end of the CR. The goal of the reform was to save the totalitarian regime. And the institutional foundation of the reform was the RADT system inherited from the CR. The key point is that this RADT system has enabled the CCP to achieve something that classical communist totalitarian regimes could not.
Any reform within a totalitarian system requires a vast force to push it through. The resistance to and the introspection about the catastrophic CR instigated a tremendous impetus for reform. The GLF and the CR, which killed tens of millions of people and persecuted more than 100 million, not only shook Mao’s image but also undermined the ideology and the legitimacy of the CCP in the eyes of the general public, prompting the CCP to focus on the economy by abandoning the class-struggle line. But those with vested interests in the totalitarian system always tried to protect the system and its institutional genes in various ways. Deployment began at the beginning of the reform to block the creation of new, pro-democracy institutional genes during the reform and to ensure that the reform would not deviate from the totalitarian system. Even before the reform took off, Deng Xiaoping proclaimed four totalitarian cardinal principles that had to be upheld, the core of which was the perpetuation of the dictatorship of the proletariat and the total control of the CCP. Later, Deng made it clear that China’s reform was a re-enactment of Lenin’s New Economic Policy, implying, like Lenin had said, that it was an expediency for preserving the regime. Alongside economic development, the violent repression of dissidents spanned the decades of reform. The terror that developed during the early campaigns against counterrevolutionaries and rightists in China, and later during the GLF and CR movements, not only still grips society but has also evolved further with the support of the internet and digital technology.
13.1 Reforms for the Survival of Totalitarianism
Without reform and opening-up, … we inevitably navigate towards a dead end.
The quote by Deng Xiaoping, made in the wake of the dissolution of the Soviet Union, has a particular resonance. It reflects the consensus of the CCP’s highest ranks during a time of global political upheaval. The fall of the communist regimes across the Eastern bloc left the CCP as the world’s sole significant communist totalitarian regime. Consequently, there was a sense of desperation within the party to preserve its rule.
Indeed, for any communist regime, economic reform in itself constitutes an ideological shift, as it inevitably deviates from the principles of total control and central planning, hallmarks of totalitarian regimes. Moreover, from the perspective of the CCP, what is termed “reform” aligns closely with what it labeled as “revisionism” in the CPSU.
However, in the aftermath of the GLF and the CR, the CCP was faced with an urgent challenge: to restore its credibility and persuade the public to continue submitting to the party and its totalitarian rule. This was a particularly pressing issue following Mao’s death and the incarceration of his followers, the so-called Gang of Four. Yet, so long as ideology and politics continued to follow the CR’s radical lines, no meaningful reform could take place.
It is in this context that the common perception that China underwent only economic reform, neglecting political reform, is incorrect. While this perception holds some truth for the post-1989 period, it overlooks significant transformations that occurred following the end of the CR. The basic fact is that China’s reforms from 1977 onwards began with political restructuring.
However, it is crucial to stress that the political reforms undertaken by the Chinese Communist Party were propelled by its need to restore and consolidate the legitimacy of its rule, rather than to denounce its totalitarian communist regime. The brutal suppression of the pro-democracy movement in 1989 provides evidence of this point. This nuanced understanding is essential for anyone seeking to fully grasp the nature and scope of China’s reform process as well as the underlying characteristics of China’s contemporary political system.
In October 1976, a few weeks after Mao’s death, a coup d’état was staged by CCP Chairman Hua Guofeng, Defense Minister Ye Jianying, and others. They arrested Jiang Qing and other members of the Gang of Four, an event that was met with broad support and helped stabilize the political climate. However, influential figures within the party, including Deng Xiaoping, were left in a state of uncertainty after the purge. Most leaders of the party-state departments of that time, including ideology and the media, had come to power either by seizing power or were installed by the PLA during the CR.
Hu Yaobang, who assumed the leadership of the CCP’s Central Party School in March 1977 and subsequently took charge of the party’s Organization Department, played a crucial role in advocating for reforms. These included revising the party’s ideology and political power structures, particularly those related to personnel control. In response to Hua Guofeng’s rigid adherence to “whatever” Mao had instructed, Hu sparked a debate on the “criterion of truth.” This philosophical debate, seemingly focused on Marxist principles, actually served to trigger a comprehensive questioning of Mao’s political line and initiate a conversation about dismantling the personality cult surrounding Mao. Thus, it laid the groundwork for the abandonment of Mao’s class struggle policies at the 3rd Plenary Session of the CCP’s 11th Central Committee. This meeting marked a significant shift in the party’s priorities towards economic reconstruction and it redefined the party line, solidifying Deng Xiaoping’s leadership.
However, contrary to the CCP’s subsequent official narrative, this session was not a landmark event in launching reforms. In fact, the conference did not discuss reform in any substantial sense. More critically, it explicitly prohibited altering the collective ownership structure of the People’s Communes, reflecting an enduring commitment to some key tenets of Mao’s ideology.
China’s reform agenda in the early 1980s was pioneered by the so-called “Deng-Hu-Zhao” troika, referring to the party’s first generation of reformist leaders. Despite the apparent guise of collective leadership, the troika did not truly embody this notion. Deng Xiaoping was nominally the chairman of the Central Military Commission but in practice, he was the supreme leader of the party, government, and military. The fact that the person who wields military power is the supreme leader highlights the characteristics of a totalitarian system.
Hu Yaobang served as the party’s general secretary, focusing primarily on political and personnel reforms. Zhao Ziyang, in his capacity as premier, was at the forefront of economic reform. However, both Hu and Zhao had to yield to Deng and other elder party statesmen in practice. Throughout the 1980s, until their eventual displacement by Deng, both Hu and Zhao played critical roles in driving political, ideological, personnel, and economic reforms.
This period marked the only time in the history of the PRC that the CCP attempted some level of political reform, albeit limited. Some reformists have documented this phase as the Hu–Zhao Reformation (Hu, Reference Hu2012), in recognition of the significant impact that these two figures had on China’s reform process.
The first significant initiative undertaken by Hu was a massive rehabilitation campaign, which laid the personnel foundation for the reform to be subsequently launched and partially alleviated the legitimacy crisis of the totalitarian regime created by the CR. What set Hu apart in CCP history is that he advocated for the vindication not only of the CCP top-level victims of the CR, including Liu Shaoqi and Bo Yibo but also for a very large number of people purged in various campaigns throughout the decades of CCP history. As the largest rehabilitation campaign in the history of the CCP, it vindicated nearly 550,000 “rightists,” 1.25 million “right-leaning opportunists,” 450,000 “KMT rebels,” and more than 20 million so-called “landlords, rich peasants, counterrevolutionaries, bad elements, and rightists” (Hu, Reference Hu2012).1
By the end of 1982, more than 3 million unjust cases had been vindicated across the country, involving 100 million people (Yang, Reference Yang2010, p. 126). On the other hand, Hu pushed to cleanse the ranks of those who had seized or risen to power during the CR, a process that involved all levels of the party-state organs. After the rehabilitation, by 1977 over 55 percent of the Central Committee members of the previous congress had been replaced (Yang, Reference Yang2010, p. 127). This not only paved the way for the reform during the following decade but also weakened the terror that the CCP had instilled in society since the Suppression of Counterrevolutionaries and Anti-Rightist campaigns of the 1950s, shaking the foundation of totalitarianism and laying the groundwork for “liberalization.”
Dissidents who emerged in the late years of the CR played substantial roles in pushing for liberalization during the post-Mao reform. While the party’s top leaders were debating Mao’s spiritual legacy, big-character posters appeared on the streets of Beijing and other cities in late 1978. These posters criticized Mao and even communist totalitarianism in general. These soon evolved into spontaneous civil rallies, associations, and publications that openly criticized Mao and demanded human rights protections and political reform. Crowds traveled to Beijing from across the country to demonstrate for redress, an end to persecution, human rights, and democracy.
The phenomenon was unprecedented since the Anti-Rightist Campaign of the 1950s. Facing this severe challenge to CCP rule, all factions of the CCP’s top echelon felt threatened. In March 1979, Deng responded firmly by laying down the Four Cardinal Principles, which were to become the bottom line for any operation in China. The summary of these principles is that the socialist road, the dictatorship of the proletariat, the party’s leadership, and Marxism-Leninism and Mao Zedong Thought are inviolable, unassailable, and unshakeable (Deng, Reference Deng1994). Subsequently, the authorities arrested and harshly sentenced the main authors of the big-character posters who had challenged the totalitarian regime. In the following year, the CCP had the NPC amend the constitution to outlaw big-character posters (Yang, Reference Yang2010, pp. 107–114). The Four Cardinal Principles, proclaimed by Deng on the eve of the reform, have since become the basic principles of the reform. They unambiguously signal that the reform was never solely for economic purposes but aimed to salvage, uphold, and consolidate the totalitarian system.
The institutional genes of the CCP exhibit greater resilience in safeguarding the totalitarian system compared to their Soviet and Eastern European counterparts. In 1956, Khrushchev and his followers tried to defend the CPSU and restore the reputation of totalitarianism by blaming Stalin personally for the various crimes of the Soviet system. To a certain extent, Gorbachev’s reform, known as Perestroika, decades later was a continuation. In contrast, Deng supported by his allies made a starkly different decision to sustain CCP rule. Given that Mao’s followers constituted the majority within the CCP, how to terminate Mao’s line to save the CCP was a significant challenge. From November 1979 to June 1981, more than 4,000 senior CCP cadres participated in drafting the “Resolution on Certain Issues in the History of our Party Since the Founding of the State,” presided over by Deng and Hu (Yang, Reference Yang2010, pp. 114–117).
Arguably, the heated debates in the top echelons of the CCP during these months-long meetings were unprecedented, but also the last such debates in CCP history. Many former top CCP leaders denounced the injustices created by Mao over the decades, attributing the CCP’s problems to Mao, and suggested separating the party from Mao and abolishing the reference to Mao Zedong Thought. For a moment, there was a chance for some sort of substantive political reform at the top of the CCP, similar to the changes in the CPSU in the mid-1950s or even in the mid-1980s. However, Deng decisively suppressed this debate, stating that to negate Mao Zedong Thought was to deny the party’s history and shake the legitimacy of the regime (Zhang, Reference Zhang2015, p. 106). Deng prevailed in this matter because he represented the will and interests of a sizable share of the party’s leading figures who were more conservative than he was, such as Hua Guofeng and Chen Yun. If one has to use the terms “reformist” and “conservative” to define a person, Deng was clearly a conservative, politically. In fact, the “reform” that most party members desired was to end class struggle and quickly restore China to the pre-GLF Maoist era. The major forces within the CCP determined that the role of the few political leaders, such as Hu Yaobang and Zhao Ziyang, who attempted a broader reform, was limited to their impact at the early stage of the reform. Thereafter, they were either annihilated or neutralized by the traditional totalitarian forces within the party.
Similar to the internal political debates within the CCP and the limited ideological and political personnel reforms after the CR, China’s economic reform also aimed at preserving totalitarian rule. The first economic reform that took effect in China was the rural land reform, not the reform of state-owned enterprises (SOEs), which concerned the CCP the most. However, the rural land reform was not intentionally designed or initiated by Deng or any CCP leader rather, it was a spontaneous effort by peasants in the poorest regions when they were given a chance to escape the poverty. The role of the so-called reformists was to set aside, or disguise, the socialist principles and partially tolerate the peasants’ spontaneous and daring departure from “collectivism.”
In 1978, while the CCP’s top echelons were focusing on ideological debates such as the “criterion of truth,” and the power struggle between Deng and Hua was in full swing, the poverty-stricken peasants of Xiaogang Village in Fengyang County, Anhui Province, improvised a “reform,” which was actually a way of surviving, later to be known as the land-contracting system. To save themselves from starvation or begging, they risked imprisonment by contracting the collectively owned land to individual households, transforming collective farming into individual farming. It was a high-stakes gamble because the land, “collectively owned” by them by law, could not, in practice, be disposed of by the collective. Not long before this, allotting land for private use had been condemned and punished with imprisonment in China. However, this venture took place just as the reform was about to begin and it received political protection from Wan Li, the then Anhui Party Secretary, who shielded them so as to avoid famine in an area of extreme poverty. Zhao Ziyang, then Sichuan Provincial Party Secretary, promoted similar agricultural reforms in Sichuan. The land-contracting system, a spontaneous grassroots experiment, proved to provide peasants with strong incentives, leading to a rapid increase in agricultural output in those areas.
After the spontaneously emerged land-contracting system was successfully initiated, it quickly spread throughout Anhui and Sichuan provinces. In 1980, Zhao and Wan, the leaders of these provinces, were respectively appointed as premier and vice-premier, responsible for promoting such a contracting system nationwide. With the full implementation of the land-contracting system, in 1984 the CCP formally abandoned the People’s Commune system nationwide, ending its two-decade-long communist totalitarian experiment. This marked the first breakthrough in China’s economic reform (Xu, Reference Xu2011). The success of the rural reform not only increased agricultural output but also released large amounts of labor for industry and other sectors. The resulting boom of the township and village enterprises (TVEs) a few years later led to a rapid increase in industrial output. The successful development of agriculture and industry in rural China lifted hundreds of millions of people out of the absolute poverty created by the People’s Commune system.
The next major breakthrough in China’s reforms was the establishment of the Special Economic Zones (SEZs) to attract foreign investment and boost exports. This reform emerged not out of a desire for global engagement per se, but rather as a policy response to extreme poverty and political pressure. Since the 1950s, a significant number of people had fled mainland China for Hong Kong, then a British colony, to escape political persecution and poverty. The exodus peaked in the late 1970s when 100,000 people attempted to flee to Hong Kong and in 1979 alone over 30,000 succeeded, placing enormous pressure on the party committee of neighboring Guangdong Province. Xi Zhongxun, then Provincial Party Secretary, received a proposal from his subordinates to lease part of the land in what is now Shenzhen to Hong Kong entrepreneurs. The aim was to attract Hong Kong capital to stimulate local economic development and mitigate the problem of exodus. In April 1979, Xi proposed at the party’s Central Work Conference to pilot this approach, with support from Hua Guofeng and Deng Xiaoping (Yang, Reference Yang2010, pp. 188–192; Wu, Reference Wu2015). However, some party top leaders, such as Chen Yun, branded this as a “national betrayal” and a restoration of semi-colonialism (Zhao, Reference Zhao2009). As a political compromise, Deng proposed limiting it to small-scale local experiments and coined the term “Special Economic Zone,” meaning it generally would not be applicable across China. After the initial success of the first four SEZs, their number and scale continued to increase beginning in 1984, becoming a nationwide phenomenon. This reform turned China from a country with almost no foreign investment or exports into the world’s largest exporter and one of the largest recipients of foreign investment.
As discussed earlier, regional experimentation and competition played important roles in both the GLF and the CR. Inheriting the same institution but arguably for different goals, these mechanisms were deployed again during the reform and at times they played even more significant roles. The two most crucial reforms in the initial stage of China’s economic reform – land-contracting and the SEZ reforms – are good examples. Both were local “experiments,” initiated and implemented at the local level. The role of the central authorities was to either arouse or call for local experimentation without design. Success at the local level was then replicated through regional competition (Xu, Reference Xu2011). This important mechanism is based on and executed by the RADT system. It will be analyzed further in the second half of this chapter.
13.1.1 Totalitarian Principles: The Red Line That Reform Cannot Cross
The Four Cardinal Principles, declared by Deng before economic reform had even commenced,2 define the nature and scope of the reforms. The Principles represented a consensus among CCP’s upper echelons across all factions that the reforms were intended to serve the survival and development of the totalitarian regime. Any person or action that violated the Principles was to be prohibited or suppressed.
Just a few years into the reform, Deng further clarified that China’s reform was Lenin’s “New Economic Policy.” He stated that adhering to the Four Cardinal Principles was to prevent anyone from “correcting” Marxism-Leninism or “correcting” socialism, stressing that the CCP’s “belief and ideal is to promote communism.” He foresaw that “opening-up would be risky and would bring in some of the decadence of capitalism,” but he claimed, “our socialist policies and state apparatus are strong enough to overcome such things” (Deng, Reference Deng1993, vol. 3, pp. 136–140). Regarding the upholding of communist principles, the evidence clearly shows that there is no fundamental difference between Deng and current leader Xi Jinping. Thus, Xi’s apparent change of course in China’s post-Mao reform since 2013 represents much more than merely his personal choice.
Both the “reformists,” represented by Deng, and the “conservatives,” represented by Chen Yun, asserted that reform was necessary for the sake of socialism, that is to say, for the survival of the totalitarian regime. The debates were centered around how to reinterpret Marxist dogma and determine which reform path had socialist legitimacy. In the early years of reform, Chinese economists struggled to reconcile Marxist dogma with China’s new economic policy, often by interpreting or misinterpreting Marxist principles. Intraparty debates over economic reform were similar to the factional disputes within the Catholic Church during the Reformation when Catholic reformers had to reinterpret doctrine to justify their reforms in response to the Protestant movement. Those outside the Church, especially those unfamiliar with Christianity, often found it challenging to understand the true implications of the doctrinal debates within the Church. A similar logic led to many wishful misunderstandings about China’s reforms over the decades, thus leading people to get China wrong (Friedberg, Reference Friedberg2022).
Meanwhile, since the Anti-Rightist Campaign, Chinese economists trained in Western countries had been either purged from academic institutions or marginalized. Those economists who played significant roles within academia and the government were usually Soviet-style Marxists who had been trained in the Soviet Union or indoctrinated with Soviet-style teachings in China. Almost all influential economists were long-standing CCP members, or even senior cadres, or those associated with them.
Deng Xiaoping, much like Lenin in his era, clung to the principles of totalitarianism while searching for practical ways to sustain the system. Having studied in France and the Soviet Union in his youth and having visited the United States and Japan on the eve of the reform, Deng had a profound understanding of China’s backwardness and its implications for the survival of the communist regime. Moreover, he was keen to establish a track record in economic development to consolidate his power. Supported by enthusiastic and capable reformists, such as Hu Yaobang, Zhao Ziyang, and Wan Li, Deng Xiaoping gained the upper hand in the political power struggle due to the great success of the land-contracting system and the establishment of the SEZs. They sought to resolve the problems with the state sector by promoting market exchange and contracting management without altering state ownership. But taboos inherited by the regime, and the Four Cardinal Principles declared by Deng, restricted the reforms to purely economic aspects.
Chen Yun, by contrast, was like Trotsky in his day, adhering to fundamentalist Marxism and ignoring practicality. He adhered to the dogma of a Stalinist political economy that maintains that a socialist economy must follow the law of planning and proportionality, which includes Soviet-style public ownership, allocation of products by plan, and opposition to a commodity economy based on market exchange (Chen, Reference Chen1986, p. 278).
In response to imminent economic challenges and after striking a balance between Deng and Chen, Hu Yaobang and Zhao Ziyang secured adoption of the CCP’s first comprehensive document on reform at the party’s 3rd Plenary Session of the 12th Central Committee. The document emphasized, in Marxist terms, that China’s socialist economy was a planned commodity economy based on public ownership and it must implement plans through the law of value. Chen praised the document for emphasizing the principles of public ownership and the planned economy, saying, “We are the Communist Party, which advocates socialism,” and adding that a socialist economy must “primarily be a planned economy, with market adjustments as a supplementary element” (Chen, Reference Chen1986, p. 304). This was a major breakthrough in the eyes of the Deng-Hu-Zhao faction that legitimized the introduction of market mechanisms as Marxist terms in the document, such as “commodity economy” and “law of value”.
In practice, at that time, the market was only partially legal. Many forms of trading, such as cross-region trading, were banned. Both market prices and government-set planned prices coexisted in the market. This so-called dual-track system was not only a pricing mechanism but also a distinguishing feature of the economy. It existed where planned and market economies operated simultaneously in all aspects of the economy, with state ownership predominating. The dual-track system created countless opportunities for collusion between officials and businesses, leading to widespread corruption. Meanwhile, it created a fissure in a society where the party-state controlled all resources, allowing for the growth of non-state firms, particularly the TVEs. This led to one of the greatest achievements of China’s early economic reform, as during a time when private enterprises had no legal status, 83 to 86 percent of de facto private enterprises registered as TVEs for protection (Zhang, Reference Zhang1996, p. 112). This development was entirely spontaneous and outside the CCP’s reform plan. In fact, on the one hand, Deng admitted that he had “completely failed to anticipate” the “surprising rise” the TVEs (Deng, Reference Deng1993, vol. 3, p. 238). On the other hand, at a time when controlling inflation was critical, he demanded that local party-state cadres vouch for their party membership to suppress the TVEs (Yang, Reference Yang2010, p. 312).
All enterprises in China in the early 1980s were state-owned, including some collective enterprises, which were state-controlled under another name. Economist János Kornai has observed that in all economic reform efforts in the Soviet Union and Central Eastern Europe, whenever state-owned enterprises became insolvent, the government would bail them out to prevent bankruptcy. Anticipating a bailout, SOEs would irresponsibly over-borrow for investment, which would ultimately lead to debt distress for both the SOEs and the economy as a whole. This phenomenon is known as the “soft budget constraint” syndrome. No reform upholding state ownership could remedy this problem, which was one of the institutional reasons for the complete failure of the economic reforms in the Soviet Union and Central Eastern Europe (Kornai, Reference Kornai1992).
Given the unassailable position of state ownership, SOE reform in China during the 1980s was obligated to imitate the land-contracting system by contracting enterprises to managers.3 This approach aimed to escape the issue of state ownership but it ultimately failed. Although it provided incentives for managers when SOEs were profitable, the SOEs would still be rescued by the party-state when incurring losses. The failure to address the SBC issue left SOE reform stymied and the situation continued to deteriorate (Xu, Reference Xu2011). Eventually, the SBCs of the SOEs and the dual-track system caused severe inflation. While the party restricted the scope of reform with the intention of sustaining the totalitarian system, the resulting economic problems ended up seriously threatening the system’s survival.
13.1.2 From the Four Cardinal Principles to Tiananmen
A necessary condition for the post-Mao reform to be pushed forward quickly was the enthusiastic initiatives taken by intellectuals, including CCP cadres. Their enthusiasm was inseparably linked to their awakening by the catastrophic CR and their desire to prevent such a disaster from repeating, which went far beyond mere economic needs. This profound mindset was openly expressed in a spirit of humanism. Many of them questioned the communist ideology and the inhumane totalitarian system, eliciting significant responses in society. However, these trends were perceived as threats to CCP rule and were anticipated and prepared for by the party’s upper echelons, led by Deng Xiaoping.
As the Chinese reform began by following the steps of the communist Eastern bloc, the CCP closely watched the sequence of events in Eastern Europe’s communist regimes, in a manner similar to the situation in 1956 (see Section 12.1). They insisted that it was necessary to deal sternly with dissenters to prevent phenomena akin to Poland’s Solidarity movement while implementing “reform.” At a Central Committee Work Conference in late 1980, Deng reiterated the Four Cardinal Principles and stressed, “Any attempt to weaken … and oppose the leadership of the party … must be fought … as necessary” (Deng, Reference Deng1995, vol. 2, pp. 358–359). In 1981, before economic reform had taken shape, the party and military media in China launched a campaign to criticize the film script of Unrequited Love, perceiving it as a challenge to the CCP by promoting humanitarianism. Deng supported the criticism and reiterated that “the core of upholding the Four Cardinal Principles is to adhere to the leadership of the party” (Deng, Reference Deng1995, vol. 2, p. 391). Eventually, Hu Yaobang had to defuse the situation by downplaying the criticisms against the screenplay (Yang, Reference Yang2010, pp. 203–209). However, this incident was only the prelude to a series of suppressive actions by the CCP.
To ensure the CCP’s total control over ideology, Deng Xiaoping officially launched the Anti-Spiritual Pollution Campaign at the 2nd Plenary Session of the 12th CCP Central Committee in October 1983. He claimed that the “essence of spiritual pollution … is the spread of distrust towards socialism, the communist cause, and the leadership of the Communist Party.” The CCP’s Central Discipline Commission, party media, and the so-called “conservatives” immediately embarked on a nationwide campaign that severely challenged the already difficult economic reform process. Hu Yaobang and Zhao Ziyang resisted this challenge, and, arguing on the grounds of economic reform, they persuaded Deng to halt the campaign, thereby preserving the incipient economic reform. Shortly before his death, Hu stated, “Because Ziyang and I resisted, other Secretariat members were not in favor of [the campaign against ‘spiritual pollution’], and … this Cultural Revolution-like campaign lasted only 28 days…. But … [the conservatives] wouldn’t let it go and turned their fire on bourgeois liberalization instead” (Yang, Reference Yang2010, pp. 227–233).
Although Hu and Zhao promoted economic reform for the benefit of the CCP, their relaxation of control for the sake of reform was perceived by the CCP leadership as a challenge to totalitarian rule. Deng’s two campaigns to consolidate the totalitarian system received widespread support among the party’s senior ranks. The CCP leadership could not tolerate any emergent institutional genes that might challenge the totalitarian system under the guise of reform.
Under numerous constraints, economic reform hardly made headway in the early 1980s, except in the rural areas. Facing the thorny problem of the survival of totalitarianism, Deng proposed political system reform in 1986 based on adherence to the Four Cardinal Principles (Zhao, Reference Zhao2009, pp. 273–274). “Without political reform, economic reform is difficult to implement,” said Deng (Deng, Reference Deng1993, vol. 3, p. 177). Regardless of the true intention behind the call for so-called political reform, it sparked a hugely enthusiastic reaction across society, with many hoping to break the shackles of totalitarianism through it. From 1986 to early 1989, debates about political reform unfolded, unintentionally making that period a golden age or the most liberal period of Communist rule in China.
College students were among the most passionate in pushing for political reform. In early December 1986, students from the University of Science and Technology of China, discontented with the fraudulent election of representatives to the Hefei Municipal People’s Congress, rallied on campus. The vice-chancellor, physicist Fang Lizhi, stated at the rally, “Democracy is not granted from top to bottom, but is strived for from bottom to top.” Subsequently, students took to the streets to demand voting rights, igniting a nationwide student movement. University campuses across twenty-eight cities witnessed the rise of big-character posters and marches demanding political reform and democracy. Deng Xiaoping, whose stance represented that of most of the party’s top leaders, ordered Hu Yaobang, Zhao Ziyang, and others to deal resolutely with the protesting students. However, Hu refused a crackdown, hoping to resolve the issue through communication and dialogue. On the other hand, the president of the Central Party School, General Wang Zhen, publicly declared, “You have three million university students; I have three million PLA soldiers. I am going to behead a bunch of them.” The secretary of the Tianjin CCP Committee, Li Ruihuan, asserted, “The leadership of the CCP was traded for the lives of tens of thousands of revolutionary martyrs. Whoever wants our leadership must pay an equal price!” (Yang, Reference Yang2010, pp. 268–270).
With Hu’s refusal to execute the order, Deng summoned Hu, Zhao, and other Politburo Standing Committee members on December 30, blaming the student movement on Hu. He equated anti-bourgeois liberalization and adherence to the Four Cardinal Principles with the Anti-Rightist Movement. Hu was forced to resign. A few days later, Deng appointed a five-person group, led by Zhao, to govern the party and government (Zhao, Reference Zhao2009, pp. 193–194). They immediately launched the Anti-Bourgeois Liberalization Campaign, publicly expelling people like Fang Lizhi and launching criticism against many intellectuals both within and outside the party. Students in China, under suppression, were temporarily unable to express resistance. Chinese students and visiting scholars from more than 100 universities in the United States launched a public-letter initiative, published in Chinese language media in the United States, with over 2,000 signatures, opposing the Anti-Bourgeois Liberalization Campaign and calling for the rehabilitation of Hu, Fang, and others.4
Deng’s political campaign resulted in an immediate impact on the reform. A few months later, Zhao reported to Deng that some people, under the guise of Anti-Bourgeois Liberalization, were opposing economic reform and the reform could be severely damaged. Deng, worried about the impediment to economic reform, instructed, “failing to reform will also encourage bourgeois liberalization.” That allowed Zhao to suspend the campaign in the name of economic reform (Yang, Reference Yang2010, pp. 303–304).
The path to reform in China was fraught with obstacles, particularly with SOE reform being mired in difficulty. The party’s monopoly on power and resources transformed the dual-track system into a mechanism that allowed power to profit in the market, fostering corruption at an unprecedented level. Moreover, the SBCs linked to state ownership led to serious inflation. Political persecution escalated and these factors together ignited widespread societal dissatisfaction.
Numerous renowned intellectuals called for political reform and spoke out against the persecution of dissidents. In the first quarter of 1989, several intellectual groups, including members of the Chinese Academy of Sciences, issued open letters demanding the release of political prisoners. A survey conducted in April at five universities in Beijing, including Peking University and Tsinghua University, found that over 50 percent of students favored a multiparty system, with nearly 22 percent opposing socialism.
The party’s upper echelons broadly agreed that urgent suppression was necessary. Even Hu Yaobang’s follower, Politburo Standing Committee member Hu Qili, warned in March, “The current situation mirrors that of 1957; if we do not suppress now, we will be forced into an Anti-Rightist Movement.” Almost simultaneously, Hu Jintao, then the secretary of the Tibet Autonomous Region and a leader groomed within Hu Yaobang’s Youth League system, led a military crackdown against Tibetans in Lhasa (Yang, Reference Yang2010, pp. 316–319). Deng was impressed by his resolute action and thus later personally designated Hu Jintao as the successor to Jiang Zemin.
On April 15, 1989, Hu Yaobang’s sudden death sent shockwaves throughout China. Many in the public associated his unexpected passing with the persecution he had endured for defending the people’s freedom of speech. Consequently, the student and intellectual communities, which had suffered gravely from the recent suppression, reacted vehemently to Hu’s sudden demise.
As the official funeral was being held in the Great Hall of the People, over 50,000 students and other citizens overcame official obstructions to hold spontaneous memorials in Tiananmen Square. They sought to redress the injustices against Hu and called for democracy and freedom. Large-scale demonstrations also took place in other cities, posing a formidable challenge to the government.
However, Deng Xiaoping labeled these student actions as anti-party and anti-socialist, characterizing them as “turmoil.” He ordered the People’s Daily to publish an editorial on April 26, declaring that the unrest was against the leadership of the party and should be suppressed. Far from quelling the protests, this move incited a massive demonstration of 100,000 students in Beijing. They broke through police blockades, marched several miles to Tiananmen Square, and occupied the area, demanding a dialogue with the government. Their demands included the retraction of the April 26 editorial and assurances that students participating in the demonstrations would not face persecution (Yang, Reference Yang2010, pp. 319–337).
Beginning from the end of April, Zhao Ziyang made attempts to persuade Deng Xiaoping to retract the controversial editorial in an effort to quell the burgeoning student movement. He openly asserted that the students were not opposing the party and its fundamental system. However, his views and strategy were rejected by Deng and most of the party’s top leadership.
Feeling hopeless and backed into a corner, the students escalated their protests by embarking on a hunger strike in Tiananmen Square, with thousands taking part. This coincided with a historic visit by Mikhail Gorbachev to Beijing, the first time a Soviet leader had visited the Chinese capital in over three decades. The timing meant that the eyes of the world were fixed on Tiananmen Square, amplifying the impact of the students’ actions.
Shortly after Gorbachev’s departure, Deng convened an emergency meeting at his home, attended by five top civilian leaders and eight PLA generals. Notably absent were General Secretary Zhao Ziyang and Politburo Standing Committee member Hu Qili. Deng expressed his belief that the unrest stemmed from an alternative center of command within the party that opposed his views. He ordered the mobilization of troops from a dozen divisions to enforce martial law in Beijing. Veteran party leader Chen Yun firmly supported Deng’s decision, declaring that failing to act would risk allowing the socialism achieved through the sacrifices of 20 million revolutionary martyrs to transform into capitalism.
On the evening of the same day, Zhao went to Tiananmen Square to appeal to the students, urging them to evacuate the square as soon as possible. The students on the square insisted that the government respond to their demands, which were widely supported by intellectuals, citizens, and many cadres of the party-state central agencies. They also gained widespread support from Hong Kong and overseas Chinese. The Chairman of the NPC, Wan Li, who was on a trip abroad, made a statement in Canada to protect the students. Upon his return, his plane was forced to land in Shanghai for “medical treatment”. Eight generals, including Zhang Aiping and Xiao Ke, who had not attended the meeting at Deng’s home, co-signed a letter to Deng and the Central Military Commission, requesting that the military not enter the city. The commander of the 38th Group Army refused to execute the order and was sentenced by a military court. The 100,000 martial law troops summoned from all over the country were intercepted by millions of Beijing citizens and their orders could not be executed for over ten days (Yang, Reference Yang2010, pp. 339–388).
The CCP has been known to crush any organized dissidents, regardless of their intention, a pattern repeated countless times since the party’s inception. In the early hours of June 4, hundreds of thousands of soldiers, acting on orders and backed by tanks, armored vehicles, and live ammunition, seized control of Tiananmen Square. This bloodshed event became known as the June 4th or Tiananmen Square Massacre. Officials whose stances were similar to those of Hu and Zhao, including Zhao himself, were sequentially deprived of all official posts. Jiang Zemin, instrumental in suppressing the “turmoil” in Shanghai, was urgently appointed general secretary to replace Zhao. Many reformists and senior CCP officers aligned with Hu and Zhao fled overseas, while many dissidents were arrested, exiled, or put under house arrest, with some, including Zhao, remaining in that state until their deaths. Democratic countries, such as the United States and the members of the then European Economic Commission, imposed severe sanctions on China, marking the end of the post-Mao honeymoon between the United States and China.
13.2 Economic Reform: Urgent Reaction to the Collapse of the USSR
The Tiananmen Square Massacre had a profound impact on both China and the world (Beja, Reference Beja2011). This landmark event was a critical aspect of China’s post-Mao reform, which began by emulating the path of the Soviet Union and Eastern Europe, encountering similar challenges. Deng’s Four Cardinal Principles not only formed a consensus among the CCP’s top echelons in the reform era but also continued the anti-peaceful evolution principles of Mao’s era, principles upheld by the Soviet and Eastern European Communist parties until their demise. Within the CCP, most disagreements between so-called reformists and conservatives focused on how to more effectively safeguard the totalitarian system. The Tiananmen Massacre bore a striking resemblance to the Prague Spring of 1968; however, while the latter event saw Soviet tanks suppress Czech citizens, in Tiananmen it was the PLA troops that suppressed their fellow Chinese citizens.
The two landmark events, the Tiananmen Massacre and the Prague Spring, have been interpreted drastically differently by the majority of Chinese and their counterparts in the Eastern bloc. The Tiananmen Massacre was justified by the CCP and most “reformists” and accepted by the population as a means to provide social stability, allowing China to concentrate on growth. In contrast, the Prague Spring was viewed as one of the critical factors that led to the downfall of communist totalitarian rule in the Eastern bloc. Such a stark difference attests to the power of totalitarian institutional genes in China to sustain the regime, particularly during times of crisis in the communist totalitarian world and the collapse of the Eastern bloc. This divergence warrants further analysis and reflection.
Merely five months after the June 4 Incident, the fall of the Berlin Wall signaled the domino-like fall of the East European totalitarian states, culminating in the dissolution of the Soviet Union. The once dominant Communist Bloc was reduced to China and a few peripheral countries, such as North Korea and Cuba. This was a significant blow to the CCP, which had followed the Eastern bloc’s lead, attempting to salvage the totalitarian regime through economic reform.5 The ousting of Hu and Zhao, the Tiananmen Massacre, and the collapse of the Eastern bloc empowered the hard-liners within the CCP, represented by Chen Yun. Jiang Zemin, who assumed power amidst this crisis, to adhere strictly to this hard line. The accommodative practices adopted for economic reform during the Hu and Zhao era were now criticized from a rigid, fundamentalist Marxist standpoint, and banned as acts of bourgeois liberalization. This shift invited a sharp economic decline that directly endangered the economic and social stability of the totalitarian system itself.
Under the triple blows of international sanctions, regressive reforms, and the collapse of the Eastern bloc, many TVEs failed. The economy shrank, public sentiment became unstable, and Deng’s status as paramount leader was shaken. Faced with domestic and international crises since 1989, along with the devastating threat to totalitarianism posed by the collapse of the Soviet Union, Deng took decisive action to save the CCP regime. In early 1992, he visited several parts of southern China to reinvigorate economic reform and refocus the CCP on economic reconstruction.
To add grandeur to Deng’s efforts, the CCP borrowed the imperial vocabulary used for emperors’ inspection tours, glorifying his inspections as the “Southern Tour.” In the face of a newly disintegrated Soviet Union and a China that was repressed (though propagandized as having attained political stability), Deng identified the failure in economic reform as the most pressing threat to the CCP’s survival. He stated that the Soviet Union’s biggest mistake was “not putting economic construction at the center, not concentrating forces to carry out economic construction.” Confronted with severe challenges from the sanctions following the Tiananmen Massacre and the disintegration of the Soviet Union, Deng proposed the diplomatic strategy called “concealing our strengths and biding our time” (Yang, Reference Yang2010, pp. 431–433).
Feeling a sense of urgency, Deng asserted that the bourgeois-liberalized upheaval was a rightist attempt to “bury socialism”; whereas, by rejecting market reform, the leftists would lead to the same outcome. He went further by threatening Jiang and other top party leaders, vowing to bring down anyone who refused to implement reform (Deng, Reference Deng1993, vol. 3, pp. 371–375). Deng contended that the Tiananmen Massacre had provided China with decades of stability and this had allowed the CCP an opportunity to shift the focus of the party’s Four Cardinal Principles from political repression to economic reform. Jiang thereafter was closely aligned with Deng’s position. Due to gross misunderstandings of communist totalitarianism both within China and globally, Deng’s justification of repression combined with reform, as well as his deceptive strategy, succeeded in strengthening the regime while concealing the CCP’s true intentions. This veil remained intact until Xi Jinping recently exposed it.
The determination to pursue reform prevailed once again in China. However, having the determination to reform the economy and actually being able to solve economic problems are two distinct matters. Communist leaders, from Khrushchev to Gorbachev, recognized the severity of economic issues and issued numerous orders, particularly since the 1970s, in hopes of addressing these problems through reform. Yet their economic reforms, aimed at rescuing the totalitarian system, were constrained by the system itself, leading to comprehensive failure.
The biggest differences between China and the Eastern bloc regimes lay in the RADT system, which emerged from the GLF and the CR, and an awakening both inside and outside the CCP due to the disaster of the CR. The former aspect led to local experimentation and regional competition that prevailed in China during the reform. The latter gave rise to social forces at the beginning of the reform that sought to break free from the constraints of the totalitarian system, including allowing the establishment of private enterprises.
However, the development of private enterprises implied capitalism, contravening the Four Cardinal Principles and challenging the foundations of totalitarianism. It was these social forces that Deng aimed to target through the Principles. This created a deep contradiction between the reform’s goal and practice, a contradiction that has been overwhelming since the inception of the reform.
There is no evidence that a communist totalitarian regime can save itself by launching reforms. However, China experienced short-term success with reform. The efficacy of using reform to preserve the communist regime in the short run hinges on whether it can alleviate the various constraints hindering economic development, particularly those pertaining to private property and enterprises.
While Deng was preoccupied with combating spiritual pollution and bourgeois liberalization and with deploying troops to suppress students in Beijing, the newly established SEZ in Shenzhen and spontaneously emerging private businesses in areas like Wenzhou began to grow. These entities overcame substantial challenges and risks inherited from the system. Their progress was inseparable from the entrepreneurs’ diligence and the risks taken by local party-state authorities motivated by self-interest.6 Ironically, the incentives for local party-state authorities to actively participate in reform, along with their capacity, resources, and administrative powers, were facilitated by the very system they were trying to reform, the RADT system. This irony not only revealed the inherent contradiction but also intrinsically set the limit of the reform. Meanwhile, Deng’s Four Cardinal Principles served as the explicit declaration of this limit.
Within the SEZs, where special policies were allowed for private business, it was less challenging to develop the private sector. Dealing with the huge challenge, outside of the SEZs, many local authorities, exemplified by those in Wenzhou, clandestinely facilitated the development of private enterprises in their regions. They crafted protections for private firms, even though they were not legal. Even after the Tiananmen Massacre, under the enormous pressure of the anti-bourgeois liberalization movement, these regions covertly supported the growth of private and foreign enterprises. Ironically, it was these developments that provided Deng with an opportunity to witness and support Shenzhen’s rapid growth during his Southern Tour, furnishing the call for economic reform with specific implementation rather than mere rhetoric. But Deng never recognized Wenzhou’s achievements in the private sector due to the intrinsic capitalistic nature of that development.
13.3 Towards Regionally Decentralized Authoritarianism
While both China and the Eastern bloc countries initiated economic reforms in an attempt to salvage their totalitarian systems, the strategies they adopted were different and so were the outcomes. Soviet and Eastern European reforms, which were unable to touch upon the issue of ownership, failed to reverse the economic decline and eventually led to the collapse of the totalitarian system. In contrast, China, which initially had closely followed the Eastern bloc after the CR, managed to reverse the economic downturn through its reforms, aiding the survival of its regime. The “miracle” here lies in China’s relaxation of ownership restrictions, including partially opening up to capital from developed countries and regions and allowing the development of private enterprises in China. However, even partial relaxation of restrictions on private ownership contradicted the ideology of communist totalitarianism and, in effect, at the cost of relinquishing some of the party-state’s power and monopolies.
In contrast to the Eastern bloc regimes, the CCP’s approach was twofold: on the one hand, it suppressed citizens’ demands for human rights more severely and brutally; on the other hand, it unintentionally allowed the development of a private economy and pragmatically relaxed restrictions on property rights, something the Eastern bloc did not do. The former strategy ensured that sufficient fear was instilled to suppress dissenting voices, while the latter facilitated economic growth.
Though at first glance this combination may seem like a perfect strategy to ensure the survival of CCP rule, it presents a self-contradictory approach from both the institutional and ideological perspectives. Developing private enterprises to save communist totalitarianism is an unsustainable paradox in the long run. Eventually, either the communist totalitarian regime will be loosened and shaken as an outcome of such a strategy or the private sector will be crushed. Yet, the CCP’s propaganda machine spun this apparent inconsistency as “socialism with Chinese characteristics,” falsely crediting Deng with inventing market socialism.7 It praised him for his strategic foresight and pragmatism, lauding him as the chief architect of reform.
In fact, the CCP consciously prepared to exert control over the private sector. Any discussion of privatization was strictly forbidden and private enterprises were not even permitted to be labeled as “private”; instead, they were labeled as minqi, people’s enterprises.8 The term minqi, officially used to this day, was an attempt to blur the line between private and collective enterprises to provide ideological cover for the former to develop. Contrary to the CCP propaganda and popular belief, the rapid growth of China’s private economy was neither a strategic design by Deng nor a calculated move by the CCP. Rather, the emergence of this “miracle” – a term that contradicts communist principles – was closely tied to the party’s urgent need for economic revitalization following the catastrophe of the CR. It was also intrinsically linked to the mechanisms stemming from the RADT system, which enabled the totalitarian regime in China to exhibit a greater degree of flexibility and adaptability.
Like any totalitarian system, RADT operates under a strictly top-down party-state bureaucratic structure, governing appointments, supervision, and execution. However, a unique feature of this regime is the control local party-state authorities exert over their self-contained local economies, from the provincial to the county level. This control has established a foundation for regional experimentation and competition. For more than three decades after 1979 – excluding the period from 1989 to 1992 – the CCP adhered to Deng’s Four Cardinal Principles and his declaration that “development is the absolute priority.” This approach was taken as the party’s fundamental strategy, with a primary focus on fostering economic growth as a means to sustain the regime. Accordingly, the career advancement of party-state officials at all subnational levels depends on the growth rates of the areas under their jurisdictions relative to other areas. This mechanism, known as yardstick competition, provides high-powered incentives for local officials (Qian and Xu, Reference Qian and Xu1993; Maskin, Qian, and Xu, Reference Maskin, Qian and Xu2000; Li and Zhou, Reference Li and Zhou2005). Driven by this mechanism, many local governments took the initiative to find ways to facilitate local economic development, even experimenting with risky ways to disguise and protect local private enterprises (Xu, Reference Xu2011).
Prior to the mid-1990s, the CCP’s reform policies were focused mainly on the state sector and they explicitly prohibited private enterprises from employing more than eight people, a restriction derived from Marx’s Capital. This constraint posed serious obstacles to reform, turning the state sector into not only a hindrance to economic growth but also a threat to stability. Meanwhile, the massive expansion of TVEs, which were legally recognized as collective enterprises but mixed with many private firms, became the driving force of the economy. Under the yardstick competition principle, in areas like Wenzhou where collective ownership was less developed, local governments permitted private enterprises to disguise themselves as TVEs, fostering growth in the private sector and stimulating local economic development. Witnessing that such “experiments” spurred economic growth and the career advancement of local leaders, many local governments followed suit, facilitating the disguised development of private enterprises in their regions. Despite the absence of legal recognition, the de facto private economy thrived and became the main driving force for the economy (Huang, Reference Huang2008).
In the first two decades of reform, China’s SOE reform floundered, much like the Soviet and European economic reforms on the eve of the collapse. Heavy loss-making was widespread among SOEs after a series of ineffective reforms, and many cities faced a fiscal crisis due to losses incurred by their local SOEs. In response to these challenges, some municipalities de facto privatized state assets under the banner of “gaizhi,” an official term for the restructuring of SOEs. This maneuver allowed local governments to address financial troubles, mirroring the local shielding of private businesses. With China grappling with precarious economic circumstances and SOE indebtedness causing widespread concern, both local and central governments were desperate for solutions. Driven by this urgency, Premier Zhu Rongji and Jiang Zemin endorsed these locally initiated “experiments” of SOE privatization nationwide, again under the guise of gaizhi.
Significantly, the policy of “grasping the large and letting go of the small” (zhuada fangxiao) was officially introduced at the 15th CCP Congress in 1997. Under this policy, local party-states’ de facto ownership of their SOEs became their de jure rights, empowering local authorities to privatize local SOEs, particularly those of small and medium size. Nevertheless, privatization as an ideological taboo remained unaltered and it had to be framed as gaizhi. The CCP’s focus was on zhuada (grasping the large), with fangxiao (letting go of the small) considered merely as a temporary crisis management measure. However, in reality, it was only the fangxiao that yielded substantial results. Under the impetus of yardstick competition, local governments privatized vast quantities of local state assets within a few years. From 1997 to 2005, the scale of state assets sold under the guise of gaizhi in China surpassed any privatization process ever seen globally (Xu, Reference Xu2011).
As the rapid growth of de novo private firms and privatization gained momentum, by the time China was on the brink of joining the WTO, the majority of its economy had transitioned to private ownership. This transformation in property rights structure alleviated the economic strain created by the state-owned enterprises’ SBC issue, effectively enhancing China’s financial and fiscal foundations and paving the way for subsequent rapid growth.
The widespread presence of private enterprises in China had evolved into a fait accompli and their vital role in the economy had become undeniable. This reality prompted the CCP to modify its regulations and corresponding laws to confer legal status on private businesses. In a significant shift, the CCP constitution formally acknowledged the social status of entrepreneurs in 2002. Two years later, in 2004, the state constitution officially recognized private property rights. These landmark amendments to the party and state constitutions were part of a broader legislative overhaul focusing on property rights protection and contract enforcement. Of particular note was the establishment of civil codes, a first under communist rule.
In addition to the burgeoning private sector, the urgent need to lure foreign investment and cultivate the securities market were two other vital catalysts leading the CCP to recognize private enterprises and endeavor to establish civil codes. When the central government gave a green light to the formation of SEZs in places like Shenzhen in the early 1980s to attract foreign investment, it quickly faced challenges due to China’s fundamental lack of civil codes and legal protections for foreign investments. The push to develop financial markets since the late 1980s stumbled upon similar substantial obstacles. Being a platform for trading property rights, the growth of the securities market is inherently tied to the legal safeguarding of private property rights and the guarantee of contract enforcement.
The formal recognition of private property rights, together with the establishment of civil codes to enforce them, was not only an unprecedented move under CCP rule but also unparalleled in other communist countries. Thus, this marked a de facto institutional evolution toward a more lenient authoritarian regime, allowing limited growth of private property rights and fostering a degree of ideological and social pluralism.
However, it is crucial to note that the CCP never intended to replace communist totalitarianism with capitalist authoritarianism, even though debates on the concept of authoritarianism did indeed emerge during the mid-to-late 1980s. Confronted with the complexities of SOE reform, the failures of the reforms in the Eastern bloc, and Gorbachev’s sweeping political-economic changes, Deng and Zhao broached the topic of political reform in 1986. Although their intent was confined to administrative reform, it sparked heated debates within and outside the CCP between factions advocating for democracy and those endorsing “new authoritarianism,” a view that found favor with Deng and Zhao.9
Constrained by the Four Cardinal Principles, proponents of democracy did not dare to challenge the one-party totalitarian rule or propose a multiparty system. Instead, they explored more conservative possibilities, such as allowing factions within the party and conducting intraparty elections. Deng was open to examining authoritarianism as a means to maintain CCP rule but he never signaled a willingness to relinquish totalitarianism or to ease the party’s core control. These debates came to an abrupt end with the 1989 crackdown and any further discussion on the subject became taboo.
Despite the de facto shift toward a somewhat more relaxed authoritarian system, the CCP never relinquished its ultimate control over power, striving to maintain a totalitarian regime. The party retained unchallenged authority over the legislature, the judiciary, all branches of government, the armed forces, and the police. Additionally, it monopolized the economy’s vital sectors, the so-called commanding heights in the words of Lenin and Deng, including finance, land, energy, and key industries.
The CCP’s continued efforts to control every facet of society were still far-reaching, implementing mandatory censorship in all fields. The kinds of political and ideological debates that existed in the 1980s were no longer tolerated. Even purely academic discussions were strictly confined within the bounds of the Four Cardinal Principles, while relatively pluralistic discourse was mainly limited to technical fields.
The suppression of dissent was routine, with arrests and house arrests of political dissidents becoming commonplace. Notably, Liu Xiaobo, who was imprisoned for advocating constitutional rule, became the only Nobel laureate to die in prison without receiving his prize (Link and Wu, Reference Link and Wu2023). The CCP also cracked down on various religious groups and beliefs, suppressing Falun Gong practitioners and communities in all provinces, including Tibet and Xinjiang, without regard to ethnicity or region.
Nonetheless, reform and opening-up led to a massive influx of foreign capital, a surge in private enterprises, and rapid establishment and expansion of markets. Most economic activities in China turned into market-based (or semi-market based), private-enterprise activities. The vast majority of the national workforce was employed in the private sector, including NGOs. For a period of time, the absence of party cells in most private businesses and NGOs meant that the party did not have direct control over most organizations in China, an unprecedented challenge since the establishment of the totalitarian regime.
This limited pluralism in the economic field simultaneously fostered limited pluralism in other areas, such as education, media, and civil society. Economics, law, political science, sociology, and other social sciences and humanities, which are closely connected with business and the economy, developed significantly amidst careful self-censorship. Many of these disciplines were developed virtually from scratch, as they had been banned generations earlier. Ideas once criticized as bourgeois became mainstream in universities and academic circles.
The period also saw the emergence of private universities and business schools that attracted senior professors from prestigious overseas institutions with competitive salaries. These institutions provided high-quality teaching and research independent of the CCP’s education system. The party’s direct control over content in academia and higher education also shrank for a time, with its focus shifting to personnel decisions and the censorship system. Meanwhile, commercial media independent of the CCP’s propaganda system thrived, transitioning from mere commercial news providers to mainstream media outlets covering a wide range of fields.
In the wake of the significant growth of private enterprises, NGOs emerged and developed rapidly. The proliferation of NGOs in society allowed Chinese citizens to organize openly and voluntarily to safeguard their interests or to aid others for the first time since the founding of the PRC, albeit with self-censorship so as not to offend the CCP, as they were all monitored by the party. Such organizations were found, for a while, in various fields, including education, scientific research, and even in the sphere of promoting township and village elections. Increasingly, many overseas NGOs entered China as well, serving the Chinese and collaborating with Chinese NGOs. The population not only began to experience some characteristics of civil society but the term “civil society” also became widespread for a time.
However, regardless of how careful the NGOs had been in imposing self-censorship, the very existence of NGOs was a fundamental challenge to the totalitarian rule over society. Through the Ministry of Civil Affairs, the United Front Work Department, the Ministry of Public Security, and other departments, the CCP maintained close scrutiny and control over the operation and development of NGOs to prevent the formation of a civil society truly independent of the CCP. It mandated that all NGOs, and their activities and donations, must be non-political. At the 5th Plenary Session of the 16th CCP’s Central Committee in 2005, it reiterated the policy to “strengthen the supervision of NGOs.”
The CCP mandated that all NGOs must register with the Ministry of Civil Affairs. This ministry combined non-state bodies with some peripheral official agencies, such as those responsible for social welfare and religion, and labeled them as “social organizations,” or shehui zuzhi. Part of the motivation for doing this was because the name NGO sent a signal of independence from party-state control. As of 2017, there were 762,000 registered social organizations nationwide, with recorded social donations amounting to 152.6 billion RMB (Zhu, Reference Zhu2020). The vast majority of these social organizations were NGOs and most of the donations came from private enterprises. In fact, there was a much larger number of unregistered but functioning community-based spontaneous organizations, such as homeowners’ associations.
Control over NGOs has been significantly further tightened since 2017. This led to a substantial decrease in donations and a significant slowdown in the growth of NGOs (Zhu, Reference Zhu2020). Under these strict restrictions, most NGOs operating outside the realm of charity either transitioned into solely charitable operations or ceased activities altogether, with many being disbanded. The CCP intentionally confined NGOs to charitable roles, turning them into social welfare auxiliaries of the Ministry of Civil Affairs. These restrictions were aimed at downgrading the NGOs’ roles in defending citizens’ interests and weakening most NGOs’ functions in representing citizens’ pursuits. In short, the limited pluralism that emerged during the reform period was for a time conditionally tolerated as a last resort to save the totalitarian system through economic development. Simultaneously, the CCP has always been highly vigilant against pluralism in areas such as property rights, private enterprises, NGOs, ideologies, and so on, ensuring that all of these areas remain under its control. The party has taken steps to contain pluralism, preventing it from ever threatening its monopolistic total power.
13.4 Succession in Totalitarian Parties
From the CCP’s standpoint, being able to maintain its total control over society determines its survival. Xi Jinping’s numerous repetitions of Mao’s famous phrase, “the party leads everything,” is a warning to the party and society in the context that the CCP was loosening its grip on society. But the more imminent challenging issue facing the totalitarian party’s sustaining of power is its succession, which is created by the nature of the regime.
A totalitarian party controls all aspects of society, including all resources. Its supreme leader, or the Leader, relies on his personality cult and violence to control the party and society. However, a personality cult is not something that can be easily passed from one leader to another to facilitate succession. Given the complete eradication of checks and balances both within and outside the party, the Leader possesses absolute power. In the history of the CCP, only Mao Zedong and Deng Xiaoping have been recognized as such Leaders. Mao aspired to be worshipped enduringly so that his spirit would forever rule China and influence the world. Deng Xiaoping, a long-time close follower of Mao (each step of his rise in the CCP was facilitated by Mao’s promotion), was perceived as saving the CCP through reform and opening-up. At the same time, he maintained Mao’s spiritual status and established a different type of personality cult for himself, one that set him apart as a unique figure within the party’s history.
Personality cults are a joint product of the system and of a leader’s personal characteristics. From Lenin–Stalin to Mao–Deng, the personality cult was constructed by the totalitarian party’s inner circle at the pinnacle of power, using myths and terror. On the one hand, this group acquired power by following the leader; on the other hand, the charismatic leader controlled the party and society through them. The leader’s power is inextricably linked to theirs, and vice versa. For a party that controls everything, it is not difficult to pass on nominal rulership from one generation to the next. However, it is challenging to bequeath a personality cult by decree and by granting power to a chosen successor. Therefore, all totalitarian states suffer from succession crises upon the death of a leader who rules with a personality cult. Deng designated Jiang Zemin and Hu Jintao as his successors after the purge of Hu Yaobang and Zhao Ziyang. Deng’s well-established personality cult cemented their legitimacy and they continued the Deng line after he was gone. However, a succession crisis can only temporarily be averted in this way.
Aware of the challenge posed by the succession crisis, Deng tried to preserve the party by establishing a system of collective leadership, along with a mechanism for limiting the tenure of leaders based on age, by leveraging his personality cult and paramount leadership position. However, in a totalitarian system without checks and balances of power, the implementation of any mechanistic rule must rely on the paramount leader’s self-restraint. The latter condition was violated by Deng himself as he did not exert self-constraint after his nominal retirement (Zhao, Reference Zhao2009).
Fundamentally, both limited tenure and collective leadership are incompatible with totalitarian rule and therefore unsustainable. A totalitarian party is stable only if it has established a personality cult around its leader. When this type of party is controlled by several oligarchs under the guise of collective leadership, internal power struggles always destabilize it. This is because, although the power of any top leader is nominally assigned by the totalitarian party, real power is acquired through power struggles. This was true for Stalin, Mao, Deng, and their followers. Without checks on power, the internal power struggle becomes never-ending and ruthless. At the very top, anyone who gains control can dominate the party and society, even controlling the life and death of everyone. In a life-and-death struggle for power, the more power the top leader holds, the greater his incentive and capability to dismantle the so-called collective leadership and tenure system to seize even more power.
With the personality cult and absolute power that he enjoyed both within and outside the party, the limited tenure and collective leadership systems under Deng’s rule were merely decorative (Zhao, Reference Zhao2009). In reality, the top leadership positions of Jiang and Hu were only nominal for an extended period. When it came to major decisions, Jiang had to defer to Deng and Hu had to defer to Jiang. Their de facto powers were more focused on implementation, so they never had a chance to establish a personality cult of their own. Thus, on the surface, it appeared as though the party was practicing limited tenure and collective leadership. However, the power struggle inherent in the regime eroded the relative stability of the system that the CCP had re-established in the post-Mao era.
Xi Jinping, who does not have a direct connection to Deng’s power but was cultivated and promoted within the CCP system due to his father’s position in the party, ascended to power by forming alliances with various political forces. Upon reaching the top, he quickly and openly abolished the decorative collective leadership system, using the Bo Xilai-Zhou Yongkang affair as a cover. Then, imitating Mao’s Yan’an Rectification and Four Cleanups campaigns, he launched an anti-corruption initiative to purge all those whom he perceived as political rivals, including many who had supported him in his rise to power.
According to an official source, in Xi’s first term, that is, between 2012 and 2017, hundreds of thousands of party-state bureaucrats were purged, including one at the state level, six at the vice-state level, two central military commissioners, and several dozen ministerial-rank cadres. A total of 440 cadres at the vice-provincial and vice-army-corps-commander military level or above were placed under investigation, including 43 at or above the level of alternate members of the 18th Central Committee and 9 members of the Central Commission for Discipline Inspection. More than 8,900 cadres at prefecture-and-bureau levels, 63,000 at county-and-division levels, and 278,000 other grassroots cadres were investigated.10
In addition to purging political rivals, Xi and his followers repeatedly attempted to establish his personality cult through propaganda and by intimidating leading cadres at all levels. In a totalitarian party with no checks on power, it is easy to dismantle collective leadership and limited tenure. However, establishing a new leadership with a personality cult is another matter. Lacking achievements and relying only on terror, intimidation, and empty-worded propaganda, charisma cannot be demonstrated even within the small circle at the top of power. For several years, efforts by Xi and his aides to create a personality cult for him have proved ineffective and often counterproductive. Every clumsy attempt to mimic the Cultural Revolution has been met with strong backlash both inside and outside the party. A totalitarian regime incapable of building a personality cult will become a degenerating regime. Similar to the Soviet Union during the Brezhnev era, the party-state bureaucrats in such a system are generally alienated, afraid to raise issues and to solve problems, thus further destabilizing the degenerating totalitarian system.
13.5 The Evolution of Opposing Institutional Genes during the Reform Process
The party exercises leadership in everything, in every area of endeavor and every corner of the country.
“The party exercises leadership over everything” reflects the most fundamental part of the institutional genes of communist totalitarianism. These institutional genes manifest as a trinity structure (see Chapter 1, Figure 1.1). Its core component is the party bureaucracy, which rules the whole society with no separation between the party and all branches of the government, including the legislature and judiciary. Supporting this core component are the base and control components. As the base component, complete state ownership of the means of production serves as the property rights and jurisprudential foundation for the party-state.12 The control component ensures that the party controls the entire society, including the bureaucracy’s personnel and ideology.
Although the fundamental institutional nature of the RADT system is no different from the classic communist totalitarian system, its governing mechanism is different. Concretely, regional decentralization is the key difference. In the RADT regime, within each of the core components of the trinity structure of the totalitarian institutional genes, there are similar administrative functions at each regional level of the structure, from the central to every local level. This self-contained structure, complemented by decentralized resources, enables the superiors to control their subordinates primarily through their control over personnel, party line, and ideology, instead of issuing concrete, quantified orders directly, like their counterparts in the Soviet Union.
13.5.1 The Evolving RADT/RDA Institutional Genes
In the early stages of the reform, as China’s system unintentionally and gradually evolved towards relatively looser authoritarianism, each component underwent some changes, although the basic structure of the institutional genes remained intact. The most significant change was in the base component, where private enterprises became the main pillar of the national economy albeit still being controlled by the party-state. Even without looking at the political and legal aspects, the state ownership of land, banking, and upstream sectors ensured that the party-state at all levels could maintain control over the economic commanding heights, thus controlling the economy and obtaining ample resources to support the operation of the party-state bureaucracy. That is, this part of the institutional genes of communist totalitarianism was not fundamentally shaken, although on the surface the change was significant.
As for the core component, there was a time when hundreds of millions of people working in non-SOEs and NGOs were without party organizations and the party-state could not directly exert control over such social organizations. However, the one-party system’s bureaucracy still controlled the entire society through its complete monopoly of the armed forces and the judicial system.
In terms of the control component, for a while the party could no longer directly control most personnel of non-SOEs or NGOs through appointment and promotion, let alone the ideology within those entities. During that period, newly emerged non-state media were not entirely under the party’s direct control, although they were subject to the party’s strict censorship requirements. Nevertheless, in addition to maintaining direct control over the personnel and the main body of the ideology of the party-state bureaucracy, the judiciary, and the armed forces, the party-state retained many other means, such as the police, the secret police, and censorship, to ensure its control over society.
13.5.2 Emerging New Institutional Genes
Along with the development of private enterprises, private property rights have become widespread in Chinese society. Most of China’s employment is in the private sector, 96 percent of urban households live in owner-occupied housing, and real estate accounts for 59 percent of urban household assets (Chowdhury, Reference Chowdhury2022). Although entrepreneurs and real estate owners do not own the property rights to the land they use, they do own the property rights to the enterprises and houses. Awareness of property rights and the importance of protecting one’s rights have been initially formed in the minds of many Chinese.
Many private companies and property owners have sought to protect their rights and seek social influence, leading to a boom in chambers of commerce, charities, media, and private schools. When the government infringes upon the rights and interests of the public, an increasing number of property owners, entrepreneurs, and farmers, backed by lawyers and public opinion, defend their basic rights based on newly enacted civil codes. In intellectual and business circles, the appeal of the rule of law and constitutionalism is on the rise.
Although political repression has increased since 1989, with most people choosing not to involve themselves in politics, and with the arrest of dissident figures like Liu Xiaobo making constitutional governance a forbidden topic of discussion, the substantive changes are significant. A large number of non-SOEs and NGOs have started to claim their rights under the law and pluralism has been rapidly developing. New institutional genes have arisen and grown in various ways, reflecting a shift in societal values and expectations that may have far-reaching implications for China’s governance and social fabric.
Had private property rights been extended to the land, banking, and upstream sectors so that their resources were no longer monopolized by the party, the base component of the totalitarian institutional genes would have been shaken. If the majority of businesses and organizations had been allowed to become independent, citizen-run entities, so that most Chinese were no longer directly controlled by the party, the core component of the totalitarian institutional genes would have changed. Had most of the personnel and ideological matters been removed from party control, the control component of totalitarian institutional genes would have been substantially weakened. Had all these changes been allowed to evolve naturally, new institutional genes would have flourished, driving China away from totalitarianism or even from one-party-rule authoritarianism. Such a transformation would potentially have set the country on a path towards constitutional democracy.
Modernization theory, once popular in academia and Western political circles, posits that the growth of the middle class and economic development will eventually lead to constitutional democracy. The evolution of China’s totalitarian system towards an authoritarian regime at one point seemed to validate that theory. However, the development and survival of any new institutional genes inevitably face resistance from the old ones, driven by the vested interests of the old regime. Thus, establishing a constitutional democracy is never an automatic outcome of economic development; instead, it depends on the strength of the new institutional genes supporting such a system and on their ability to overcome the old institutional genes’ resistance to change. The power of the old institutional genes and their capacity to protect the old regime are often deeply rooted and should not be overlooked. This is particularly true in a totalitarian regime.
13.5.3 Endeavors to Control and Contain Emerging New Institutional Genes
Given the fundamental purpose of the CCP’s economic reform has always been to preserve totalitarianism, the party has consistently been highly vigilant against anything that might undermine its system. It has never allowed new institutional genes conducive to an evolution towards the rule of law and constitutionalism to develop, always prioritizing prevention of what they call “peaceful evolution” and “color revolutions” over economic concerns. The principles upheld by Deng Xiaoping both before and after the Tiananmen Massacre, as well as during his Southern Tour, remain unchanged. Nor was there any alteration in Jiang Zemin’s principles before and after Deng’s Southern Tour. All the changes or seemingly contradictory measures and the presence of the so-called reformists or conservatives within the CCP were merely different strategies adopted to ensure the same goal: the survival of totalitarianism.
As previously mentioned, China’s large-scale privatization occurred under the CCP policy of zhuada fangxiao, implemented in response to the failure of SOE reform. However, the emphasis of this policy was on developing large-scale SOEs, not on privatization. For this purpose, the CCP specifically established the State-owned Assets Supervision and Administration Commission. Representing the interests of state-owned assets, SASAC has always been a staunch force resisting the privatization of SOEs, working to consolidate and enhance the status of SOEs. Since private enterprises have been allowed to develop, the Commission has spared no effort in emphasizing the fundamental principle that state assets are the foundation of CCP rule. This statement became an important component of Xi Jinping’s ideology.
While the surge in the private sector has saved the communist regime by revitalizing the Chinese economy and keeping it on track for rapid economic growth, CCP vigilance has increased dramatically. Apart from worrying that the private sector would overtake the state sector in the economy, the party leaders were particularly concerned about the lack of a party presence in the non-SOEs and NGOs, which were springing up like mushrooms after a spring rain, and where the majority of entrepreneurs were not party members. The fact that businesses and organizations employing hundreds of millions of people across the country were not under the direct control of the party constituted a challenge the CCP had never encountered since taking power.
The continuous recruitment of new members and establishment of new party branches, which Lenin referred to as “party-building,” are the lifeblood of a Leninist party. Faced with the decline of party-building and the party’s “loss of control” over the private sector and the dilemma between the critical role of the private sector in saving the CCP regime and the fundamental anti-capitalist principle of the communist regime, Jiang Zemin proposed the Three Represents theory.13 This theory legitimized the recruitment of entrepreneurs into the CCP and their participation in the NPC and the CPPCC, helping to reassert the party’s control over the burgeoning private sector.
As a reward to those entrepreneurs who joined the party, they were granted preferential treatment in many areas, such as policy, protection, access to land, financing, and other matters. Under this strategy, founders and executives of almost all the largest non-SOEs in China acquiesced to CCP control by demonstrating their loyalty to the party. This “ransom” approach once played a significant role in reversing the decline of party-building in the private sector, ensuring the CCP maintained its influence in a rapidly growing private sector.
However, as the number and importance of private businesses continued to soar, the ever-increasing “ransom” cost made this approach unsustainable. Moreover, as party-member entrepreneurs began to exert their influence within the party and the party-state apparatus, questions arose about who was truly controlling whom. Furthermore, this approach proved ineffective in controlling the pluralism that had developed on many fronts, such as in media, academia, and civil society. One of the key issues was the growing discussions, voices, and actions related to the rule of law and constitutionalism. During the Hu Jintao era (2002–2012), the CCP was already becoming alert to these developments.
An example of such alertness is a stark warning issued by the Chinese Academy of Social Sciences (CASS), a subordinate of the CCP’s Propaganda Department, in its Global Security Report in 2006, about the danger that “color revolutions” could pose to the CCP regime. The report argued that the democratic electoral system with a separation of powers was the basic condition for the occurrence of a color revolution (Li and Wang, Reference Acemoglu, Aghion and Zilibotti2006).
Such warnings were swiftly translated into official actions. At the 2nd Session of the 11th NPC, Wu Bangguo, the chairman of the Standing Committee, proposed five “no-go” measures. These prohibitions effectively banned discussions on multiparty systems, ideological pluralism, separation of powers, bicameralism, federalism, and privatization within the party and the broader public sphere. A few years later, these prohibitions were embraced by Xi Jinping as part of his broader political philosophy, officially referred to as “Xi Jinping Thought.”
With the strengthening of party-state power, the old institutional genes have been revitalized. After the global financial crisis of 2008, the CCP’s confidence surged, dramatically strengthening its control in every sphere. From 2012 onwards, these old institutional genes struck back with renewed ferocity, eventually suppressing growth of new system genes in all areas.
13.5.4 Reverse the Course: Reinstate Totalitarian Control
Transforming from a communist totalitarian regime towards an authoritarian regime was never intentional; in fact, the CCP was deeply worried when it realized this evolutionary trend. Over the years, frustration and vigilance towards “bourgeois liberalization” had accumulated among the upper echelons of the CCP and they found a representative in Xi Jinping. Shortly after becoming general secretary of the CCP in late 2012, Xi mimicked Deng Xiaoping’s Southern Tour by visiting Shenzhen. Like Deng twenty years earlier, Xi’s main concern was to prevent China from experiencing a collapse similar to that of the Soviet Union.
However, the difference between Xi and Deng lies in the timing, and their perceptions, diagnoses, and strategies. In Deng’s time, China was in the wake of the Tiananmen crackdown and was desperately poor. Deng believed that the CCP had adequately controlled society through force and terror and that the failure of economic reform or collapse of the economy posed the greatest threat to the party’s fate. To address this, he strived to repair relationships with the United States and other developed countries.
By the time Xi took power, China had become the second-largest economy in the world, driven by the private sector and exports to the advanced economies. Xi believed that China’s economy was incredibly strong and would soon surpass the United States to become the largest in the world. However, he was concerned about the prevailing influence of private businesses and NGOs in society. Unlike post-Tiananmen-Massacre Deng, who focused on economic considerations, Xi saw ideological heresy and disloyalty within the party and the military as the critical factors that had led to the Soviet Union’s fall.
With deep concerns about the direction in which China had been evolving, Xi claimed that the Soviet Union collapsed because there was “not a single real man” among its leaders and called for the CCP to return to traditional Leninism (Buckley, Reference Buckley2013). A few months later, Xi made a speech stating, “The collapse of a regime often starts in the realm of ideology … regime can change overnight … Once the ideological front is breached, other defenses will be hard to hold. We must firmly grasp the leadership of ideological work … or we will commit irreversible historical mistakes.”14 Xi emphasized that China’s reform “must not make subversive mistakes on fundamental issues, and once they occur, they are irretrievable and irreparable” (Xi, Reference Xi2013b).
Over a year later, Xi specifically pointed out, “Western countries plotting color revolutions often start from attacking the political system, particularly the party systems, of their targeted countries” (Xi, Reference Xi2022). The official CCP interpretation of Xi’s thoughts stated that the Soviet Union’s collapse was a “subversive mistake” in which the country was sacrificed for the sake of the economy.
From 2013 onwards, step by step and surely, the CCP reversed the evolving trend of the past decades, fully reinstating its totalitarian control in all sectors of mainland China. This reversal was a daunting task, as it ran against China’s main growth engine, the private sector, hurt employment, and destabilized the economy. The reason it was possible to accomplish this under Xi’s leadership is that he represents a force in the party and society at large and he controls the RADT machine. This institutional foundation in China has never been shaken.
The CCP thus systematically suppressed private enterprises and NGOs and clamped down on ideological pluralism in media, education, and academia. By 2022, new textbooks guided by CCP ideology were rolled out across all social science areas and new journals were published to fully supplant their Western counterparts. Even academic conferences in purely technical fields like econometrics were turned into fronts for propagating Xi’s thinking.
Mao’s famous statement during the CR, “The party exercises leadership in everything, in every area of endeavor and every corner of the country,” is now at the core of Xi’s ideology, forming the basis of the CCP’s constitution. More importantly, it has once again become China’s reality. The communist totalitarian institutional genes, now evolved with Chinese characteristics, have prevailed across the board. They have crushed the already limited pluralism that had only recently developed to the point where it could only survive underground, wrenching China back into a totalitarian system.
13.5.5 Reversing the Course: From “One Country, Two Systems” to Totalitarian Rule
The great reversal goes beyond reinstating totalitarian rule within mainland China. In 2020, the CCP directly legislated for the control of Hong Kong, effectively abolishing the “one country, two systems” policy. Courts and the police force in Hong Kong must now follow the commands of the CCP. Dissidents have been arrested, demonstrations have been banned, tough censorship has been imposed, media outlets have been forced to close, and NGOs have been dissolved. This is the first time in the history of Hong Kong that totalitarian rule is in the process of being established.
As a former British colony, Hong Kong enjoyed the rule of law, secure private property rights, and a highly developed civil society.15 These were the institutional foundations that made Hong Kong a world-leading international financial center. In addition to the unique role it played in the greater Chinese economy, particularly in international trade and finance, Hong Kong also made indispensable contributions to China in areas such as corporate management, institutions, capital, and technology during the first three decades of reform. In 1984, the United Kingdom and China signed the Sino-British Joint Declaration, accepting Deng Xiaoping’s promise of “one country, two systems.” Under the premise that the CCP would guarantee Hong Kong’s capitalist system, including an independent judiciary and police force, for fifty years, the United Kingdom returned sovereignty over Hong Kong to China in 1997.
Many anticipated that, given Hong Kong’s immense influence on mainland China, China would become like Hong Kong after fifty years. Deng himself had made similar comments. Associated with the policy of attracting investments from Hong Kong, since the post-Mao reform Hong Kong investors, corporations, NGOs, and media outlets have entered and impacted mainland China considerably. Many of China’s regulations, particularly those concerning the financial market and regulatory systems, were deeply influenced by or even directly based on Hong Kong’s regulations.
However, since the party’s primary concern is sustaining the totalitarian system, it has carefully designed a firewall to prevent “harmful” elements such as an independent judiciary, NGOs, and publications and speeches covering a broad range of facts and ideas from impacting the mainland. Activities by Hong Kong NGOs in the mainland have been heavily restricted. Most Hong Kong publications on the humanities and politics are deemed illegal and journalists and booksellers from Hong Kong are frequently detained in China. As a result, Hong Kong’s institutional genes have not had much chance to take root in the mainland.
Moreover, since taking over Hong Kong, the CCP has attempted to change the region’s institutions and its institutional genes. Beijing has constantly sought to control elections at all levels in Hong Kong through various methods and has endeavored to alter Hong Kong’s basic laws. These actions have triggered several large-scale protests, including the Occupy Central movement in 2014. From 2013 to 2015, several Hong Kong booksellers were kidnapped by mainland police within Hong Kong or lured into traps on the mainland because of what they had published, causing widespread fear among Hong Kong citizens.
In early 2019, the Hong Kong government introduced the Fugitive Offenders Bill, allowing mainland China to demand the arrest of suspects in Hong Kong for extradition to the mainland. Fearing losing their freedom and judicial independence, people in Hong Kong spontaneously organized the globally shocking anti-extradition bill protests. Several mass demonstrations involving millions of people were held in the following months. Many believed that Beijing would handle the situation rationally as Hong Kong was China’s only international financial center.
However, the CCP not only required the Hong Kong police force to suppress the protests violently but also issued and imposed the Hong Kong National Security Law in 2020, granting Beijing the power to directly control the Hong Kong government and even to dismiss Hong Kong judges. The British government objected, citing a violation of the 1984 Joint Declaration, while the Chinese dismissed it, arguing that the Declaration was an irrelevant historical document. With direct rule from Beijing, Hong Kong steadily adopted the mainland system, most often involuntarily. Many legislators, journalists, media personnel, and dissidents were arrested, and many media and NGOs (including student associations) were forced to shut down or disband. The foundation of Hong Kong as an international financial center was fundamentally shaken. Since then, the institutional genes of Hong Kong have been moving towards those of China.
13.6 Totalitarian Institutional Constraints on Economic Growth
The collapse of the Eastern bloc totalitarian regimes was caused by political and economic factors, chronic slow growth, and failure in international competition. The question now arises: Can China continue to reform, sustain its high economic growth, and simultaneously retain its totalitarian system? This question is as critical for the future of China as it is for the world. With nearly four times the population of the United States and more than three times that of the EU, the answer has far-reaching global implications.
The Soviet Union, under its totalitarian regime, also experienced rapid growth for three decades following the Second World War. However, once the Soviet Union’s per capita GDP reached a third of that of the United States, growth slowed markedly and the nation lost its ability to catch up with the advanced capitalist countries. The failure of the Soviet economic reforms, which strictly forbade private enterprise, became a crucial factor in the downfall of the totalitarian system. The very nature of totalitarianism eventually suffocated the Soviet regime. Can China, which permits limited development of private business, fundamentally differentiate itself from the Soviet Union at that time?
Since the first Industrial Revolution, some backward countries have caught up with the advanced countries mainly by learning from and imitating their practices and technologies (Gerschenkron, Reference Gerschenkron1962). According to this logic, the wider the per capita GDP gap, the more opportunities there are for latecomers to catch up, provided that institutional conditions are comparable (Acemoglu et al., Reference Acemoglu, Aghion and Zilibotti2006, pp. 37–74).
In the early stages of reform, China, as one of the world’s poorest nations, allowed the development of private ownership and emulated the advanced nations, opening the door for over three decades of rapid economic growth. Per capita GDP grew from roughly one-sixteenth that of the United States (and one-sixth that of the Soviet Union) at the onset of reform (Maddison, Reference Maddison2003) to about one-fourth that of the United States by the 2020s (IMF, 2022b). This gap is equivalent to that between Japan and the United States in the late 1960s (Maddison, Reference Maddison2003).
Had China’s system allowed and protected the comprehensive development of private enterprises, as Japan did in those days, China might have continued its rapid development, with a possibility of approaching the Japanese level of per capita GDP. However, the Chinese system, transplanted from the Soviet Union and similar in nature, intrinsically limits how far its reform can go. The CCP’s intention is to preserve the totalitarian system, and it is unwilling to tolerate further growth of the private sector, even if that growth is vital to the economy. The very survival of the totalitarian system takes precedence over economic considerations, a stance that has profound implications for China’s future economic trajectory.
13.6.1 Change of Incentive Mechanisms within the party-state Bureaucracy
Why would China, which relies on the private sector for growth, want to curb private enterprises? To understand the rationale, it is necessary to know the mechanism by which private firms arise under the RADT system. In a totalitarian system, the society is governed in every respect by the party-state bureaucracy. Within the hierarchy of the largest bureaucratic machine in human history, serious problems with incentives exist. Tackling these problems is of paramount importance and must be addressed by any totalitarian regime undergoing reform. The Soviet Union relied on the bureaucracy to design comprehensive top-down targets and assessments to motivate party apparatchiks, yet the ineffectiveness of this approach resulted in a vicious cycle.
Unlike the Soviet system, China’s RADT, which is based on the local party-state’s control over local administration and resources, can unleash interregional yardstick competition to tackle the incentive problem. Furthermore, the catastrophes of the GLF and CR, along with the resulting extreme poverty, made the CCP more desperate for economic development as a basis for the legitimacy of its rule. When economic development was seen as the key to salvaging totalitarianism and it became the primary indicator for determining career advancement, regional yardstick competition incited considerable motivation among local officials, propelling economic development. Under such high-powered incentives, some officials risked sheltering private enterprises to promote local economic growth, and regional competition drove others to follow suit. The extremely fast growth of the private sector under these unique conditions saved the Chinese economy and the CCP regime at the turn of the twentieth and twenty-first centuries (Xu, Reference Xu2011).
Yet, after three decades of rapid growth, when China became the world’s second-largest economy, and given that its ultimate goal of economic reform has been to salvage the totalitarian system, the CCP’s greatest concerns inevitably shifted to preventing peaceful evolution or a color revolution when feeling safe or even powerful economically. Moreover, the incentives of the party-state bureaucracy have shifted as well. The loyalty of party-state bureaucrats at all levels has taken on greater importance and become more critical. Since the first decade of the twenty-first century, the CCP has gradually downplayed, if not abandoned altogether, regional yardstick competition, the incentive mechanism that led to the “China miracle.” Instead, it has introduced a series of evaluation targets, including party loyalty, social stability, and environmental protection, among others, in addition to economic development. The intrinsic problem with regional yardstick competition is that it only works when there is a single competing objective. When local officials are evaluated by multiple targets, regional competition is no longer effective (Xu, Reference Xu2019). This change in incentive mechanisms turned the incentive problem faced by China’s party-state bureaucracy back to the similar but grave problems once faced by Eastern bloc totalitarian systems. As a result, since the 2010s local officials at all levels have gradually lost their drive for economic development, not to mention the devastating impact of the anti-corruption campaign since 2013.
13.6.2 The Fate of the Private Sector
If private enterprises, relatively independent of party-state bureaucracy in business decisions and operations, had continued to grow significantly and become the true mainstay of the economy, the bureaucratic incentive problem would not have significantly impacted China’s economy. However, the CCP has always feared that the ever-enlarging private sector would eventually shake up the foundations of totalitarian rule and it has always kept a tight rein on private enterprises. As early as private enterprises first gained legal status, the phenomenon of guojin mintui (“the state sector advances, the private sector retreats”) was already in place. At that time, this phenomenon was driven not only by the discrimination of private enterprises by both party-state authorities at all levels and SOEs (especially state-owned banks) out of their own interests but also by the central authority’s policy of “grasping the large” that systematically excluded private enterprises from the commanding heights of the economy. In fact, the “grasping the large” policy was simply a new expression of “occupying the commanding heights of the economy” in the Lenin–Deng New Economic Policy. When some private enterprises grew into the world’s largest multinational corporations with a significant impact both domestically and internationally, the CCP became even more concerned about the challenge they posed. To alleviate the party’s concerns, the founding entrepreneurs of several large private firms publicly declared that their “property and their lives belong to the party” (Liang, Reference Liang2012).
What has happened to China’s e-commerce companies since 2020 testifies to the CCP’s priority: controlling big private businesses at the expense of the economy. This priority is fully consistent with the Lenin–Deng prescription for occupying the “commanding heights of the economy.” E-commerce, being at the core of the new economy, was completely dominated by private entrepreneurs due to the CCP’s failure to predict its importance during its emergence.
When e-commerce entities like Amazon and Google first emerged in the United States, nobody could have predicted the scale and impact of this new economy. The CCP could neither predict nor strategically place state-owned enterprises to occupy these future commanding heights in advance. Coincidentally, the emergence of e-commerce occurred at a time when private enterprises in China were just beginning to have an opportunity to develop quickly. At that time, the party-state authority considered the emerging e-commerce as an inconsequential downstream and service-oriented industry, so the development of private enterprises in these areas was not restricted. Private enterprises like Alibaba and Tencent16 took this opportunity to grow very rapidly, quickly building a huge new economy in China, capturing its commanding heights, and becoming some of the biggest e-commerce corporations in the world.
Entrepreneurs who understand the demands and pressures of the CCP regime voluntarily submit to the party’s leadership and proactively serve the party, and many have even established party cells within their firms. However, this is far from sufficient. From the CCP’s perspective, a particularly pressing issue is that e-commerce has created commanding heights in the new economy, which are completely in the hands of private entrepreneurs. The party’s first step towards total control over these sectors has been to contain the largest non-state firms in this sector.
Among the commanding heights of the new economy, the foremost area is e-finance, as it has deeply eroded the traditional finance sector, which was firmly controlled by the party-state. Following the international trend of e-finance, companies like Ant Finance-Alibaba and Tencent developed e-finance services in China. These services overcame many drawbacks of the state-monopolized banking sector, transforming some retail financial services into a rapidly expanding part of the new economy. While the CCP still maintains a firm grip on the national financial sector, it is concerned that non-state-owned e-commerce could encroach on, and even undermine, the traditional commanding heights of finance.
In order to control and weaken non-state-owned e-commerce enterprises, from 2020 onwards, regulatory authorities such as the Cyber Administration of China (CAC), the State Administration for Market Regulation (SAMR), and the Securities Regulatory Commission have collaborated with state media to launch a comprehensive campaign to promote rectification against private companies in the e-commerce sector.17
On November 20, 2021, SAMR filed cases against almost all the big non-state-owned e-commerce platforms in China, including Alibaba, Tencent, Meituan, Didi, JD.com, Baidu, and Tiktok.18 In early 2022, the CAC issued a document claiming that they handled 166 million online violations nationwide in 2021. Two incidents in the campaign shook the global financial world. One is the CCP’s calling-off of what would have been the largest IPO (initial public offering) in world history by Ant Group; the other is the harsh penalties imposed on Didi Global shortly after its IPO on the New York Stock Exchange.
The systematic punishment and massive smear campaign against private e-commerce companies have shaken investor confidence, leading to significant losses in both growth and global competitiveness for China. In 2017, Alibaba and Tencent were in the same bracket as Amazon by capitalization, with the total Chinese e-commerce sector once approaching the value of its US counterpart. However, by 2022, the market value of e-commerce in China was lagging far behind that in the United States, with the combined market value of Alibaba and Tencent amounting to only half that of Amazon and the total market value of all Chinese e-commerce companies together dropping to less than that of Apple alone (Data source: Wind, July 29, 2022).
13.6.3 Major Constraints on China’s Economy Imposed by Communist Totalitarianism
The issues discussed in the preceding subsection primarily concern the private sector. However, communist totalitarianism is fundamentally a system aimed at eradicating private property. Therefore, it should come as no surprise if the CCP begins to curb and ultimately eradicate private firms entirely. The crux of the matter is that, even when issues related to the private sector are completely set aside, the constraints that the regime imposes on Chinese society render the country’s economy unsustainable.
The first of such constraints is the fundamental system of state ownership, including the total state ownership of the land, as a basic principle shared by all communist totalitarian regimes. From day one of its reform, the CCP emphasized state assets as the foundation of its rule (for thorough discussions on the fundamental importance of state ownership, see Chapters 8 and 11). Although the private sector was later unintentionally permitted to develop, the party stressed completely controlling the economy’s commanding heights by SOEs, such as finance, banking, energy, mining, and upstream sectors. But SOEs are bound to create SBC problems (Kornai, Reference Kornai1992). The collapse of the Eastern bloc’s totalitarian economies was directly related to inefficiencies and deteriorating debts caused by such problems. China was no exception. Although massive privatization of medium and small SOEs eased the state sector’s problems for a time, the policy of “grasping the large” has brought back serious SBC problems among large SOEs and local governments. This has resulted in a rapid and sustained increase in China’s economic leverage since 2008, with an irrepressible trend towards deterioration over the past decade. By 2023, China’s total debt-to-GDP ratio had exceeded 286 percent (Cho, Reference Cho2024).
The danger that debt may pose to financial stability is not only related to the leverage ratio but also to the nature of the debt, as a large proportion of debts, including local government debts, are collateralized mortgage loans. Long-term bonds, common in market economies, can support higher leverage. Collateralized mortgage loans, however, are pro-cyclical and pro-crisis, as they create a vicious cycle when an economy is in a downturn since the collateral value drops automatically. China’s deep trouble is caused by its RADT institution. As the central authority worried about moral hazard issues caused by local authorities’ SBCs, they forbade local governments from issuing bonds. At the same time, all land in China is state-owned and the local government is the only landlord in its jurisdiction.19 Thus, instead, local governments borrow mortgage loans from state-owned banks using land as collateral. As a result, much of China’s public debt consists of bank loans secured by land, which will inevitably cause leverage to skyrocket if the real estate market bubble bursts. But under the SBC, anticipating bailouts by the central authorities in the event of insolvency, local authorities and SOEs do not factor in these kinds of risks in their borrowing decisions.
The driving force behind local authorities’ extensive borrowing is rooted in the RADT system. In this system, they are the landlords of all the land within their jurisdictions and they also bear responsibility for local public finance, including infrastructure. Since 1998, most local authorities have relied on the sale or lease of land for a substantial portion of their revenue. Driven by yardstick competition and fiscal pressures, local governments, acting as monopolistic land suppliers, have catalyzed fast development in the real estate market and unprecedented growth in land prices (Xu, Reference Xu2011). Approximately 30 percent of China’s GDP is derived from real estate and related sectors (Chowdhury, Reference Chowdhury2022). China’s property market value soared to 62.6 trillion USD in 2020 (Ren, Reference Ren2021), more than four times China’s GDP. SBCs have encouraged local governments to accrue massive debt without the fear of bankruptcy. After more than a decade of accumulation, 40–50 percent of the country’s bank loans are tied to land and real estate mortgages. The debt burden of real estate developers approached 84.6 percent of GDP by 2020 (Chowdhury, Reference Chowdhury2022). In 2022, the colossal real estate bubble showed signs of an imminent burst. If real estate prices plummet and the value of the vast amount of land-backed assets collapses, it could lead many banks and the entire financial system to insolvency. This scenario raises a significant risk of igniting a financial and fiscal crisis.
The second major factor that impedes the sustainability of China’s growth is its chronically low domestic demand. Again, this is a common feature of communist totalitarian economies and stems from the totalitarian control over every facet of society. With the state controlling most resources, the government continues to allocate an overwhelming amount of resources to investment and maintaining the bureaucracy. This leaves the total household disposable income as a small share of the economy, thus suppressing household demand. China’s domestic demand, measured by its ratio to GDP, ranks among the world’s lowest. In the first two or three decades of reform, the lack of domestic demand did not hinder China’s economic growth, as the rapid increase in China’s exports compensated for it. However, once China became the world’s largest exporter and second-largest economy, relying solely on global demand for China’s exports to support its growth became unsustainable. This made domestic demand a necessary condition for maintaining China’s economic growth. China’s residents’ disposable income as a percentage of GDP has long been less than 40 percent, far lower than the 60 percent level found in most countries. In fact, the pressure of insufficient domestic demand on China’s economic growth rate began to appear as early as 2008, but it was overshadowed by the global financial crisis. The extraordinarily large fiscal stimulus package at that time created a short-lived high growth rate, creating an illusion that led to further neglect of the domestic demand issue.
Another significant factor accounting for sluggish domestic demand in China is the vast population living in poverty. According to a survey cited in 2019 by Premier Li Keqiang, 964 million of China’s 1.4 billion people live in households with a per capita monthly disposable income of less than 2,000 RMB (300 USD), and this includes 547 million with a monthly income of less than 1,000 RMB, that is, below the absolute poverty line of 5 USD per person per day (Cheng and Hu, Reference Cheng and Hu2022). The majority of this large impoverished population is officially defined as peasants with rural hukou (household registration).
Under China’s hukou system, those officially categorized as “peasants” have been trapped at the bottom of China’s social class (akin to a caste system) for generations under CCP rule. Deprived of land titles (as detailed in Chapters 11 and 12), these individuals lack the means to capitalize on the land they collectively “own,” nor can they share in the benefits of their land’s significant appreciation. Whether they are employed in agriculture or other sectors, these so-called peasants, who move to the cities for work, are permanently referred to as migrant workers. They are not entitled to public health care or other social benefits, their children are not allowed to attend public schools in the cities, and in larger urban areas, they are not permitted to purchase housing. Furthermore, their descendants continue to be classified as peasants. Thus, it is impossible to effectively increase China’s domestic demand without addressing the institutional causes of extreme poverty on such a large scale.
The third factor affecting China’s long-term growth is its population decline. The CCP’s one-child policy, initiated in 1979 and enforced stringently throughout the post-reform period, has led to a steady reduction in China’s population. This policy is inseparable from the reforms, reflecting the party’s belief that China’s large population was a burden on the economy. However, it was the totalitarian party-state, with its complete control over individual and family life, that made this policy implementable. Through the heavy use of punitive measures and coercion, countless women were forced to undergo sterilization or abort their unborn children. Hundreds of millions of families were forced to raise no more than one child over several generations, resulting in disastrous consequences.
Finally, in 2022, China officially admitted to its population decline (Li et al., Reference Li2023). Demographers predict that by 2025, the elderly will make up over 20 percent of the total Chinese population and the share of working-age people will decrease steadily. This reduction will impact both domestic demand and labor supply, increasing the burden on families and society at large (Mao et al., Reference Mao, Lu, Fan, Wu, Poot and Roskruge2020). One immediate consequence is a decline in housing demand, which is fueling the burst of the real estate market bubble. Furthermore, with hundreds of millions of people living in extreme poverty and possessing only moderate levels of labor productivity, the combination of hindered growth and an aging population will exacerbate the impact on the impoverished, leading to significant social problems.
The fourth constraint imposed on China’s growth by its institutions is inefficiency, encompassing constraints on labor productivity and technological progress. Chinese party-state authorities have heavily invested in science and technology, hoping to sustain economic growth by boosting Total Factor Productivity (TFP) through technological innovation mirroring the strategy used by the Soviet Union during its last two decades. However, TFP is not just about technological progress. For China, the most crucial elements of TFP are institutional, managerial, and allocational factors.
With respect to the “pure efficiency” issue, the most significant challenge affecting China’s long-run growth is its low labor productivity. China’s manufacturing labor productivity is only about a tenth of that of the United States. Dictated by its low labor productivity and other institutional burdens, China’s labor costs per manufacturing unit have been higher than those in many developed countries (CBNRI, 2016). Therefore, improving labor productivity and reducing unit labor costs are prerequisites for sustaining China’s growth. However, given China’s very low labor productivity, the urgent need for accomplishing these goals practically and cost-effectively lies in improving general human capital, easing the excessive costs incurred from institutional obstacles, and improving general technology, rather than overly focusing on frontier technology.
One of the most prominent challenges in China’s human capital development is the inferior education available to hundreds of millions of poor peasants. As a result, China has the lowest high school enrolment rate among all middle-income countries in the world (Hell and Rozelle, Reference Hell and Rozelle2021). Moreover, the institutional costs for doing business are high, including various taxes and fees imposed on companies by all levels of government, as well as extremely high land prices. In addition, the survival and employment of these second-class citizens in the city are faced with significant additional costs, both direct and indirect, caused by this system. Without addressing these issues, labor productivity cannot be improved and economic growth cannot be sustained by relying solely on investing in technology and attempting breakthroughs in a few cutting-edge tech areas.
Lastly, when it comes to frontier science and technology and their contributions to TFP, historical cross-country evidence from the past century indicates that disruptive inventions applicable to economic development have seldom originated from communist totalitarian regimes, including China (Kornai, Reference Kornai2013; Xu, Reference Xu2017). The underlying reason is that the majority of breakthroughs in disruptive technology have been the result of independent, free scientists, engineers, and entrepreneurs, stemming from unrestricted exploration and market-driven selection. Such innovations neither spring from overarching national strategies nor can they be orchestrated by the state. In a totalitarian system, assets, research, and higher education are all state-owned, with primary decisions largely tethered to blueprints set by party-state bureaucrats. Additionally, the inescapable SBC problem of SOEs dictates that in the face of the high uncertainty of disruptive innovation, state institutions cannot weed out insolvent projects in the same timely manner as the market, relying instead mainly on bureaucratic selection, that is to say, plans. The few exceptions can be found in national key projects that have clearly delineated imitation objectives. By marshalling national resources and crafting plans rooted in imitation, often incurring exorbitant costs, remarkable progress can be realized. China’s nuclear missile satellite project from the 1960s serves as a notable example.
However, even when marshalling national resources, SOEs struggle to compete in uncertain frontiers that cannot be anticipated and planned for. The lag of the Soviet Union in the past and China’s current shortfall in cutting-edge sectors like semiconductors and biomedicine serve as glaring examples (Qian and Xu, Reference Qian and Xu1998; Guo et al., Reference Guo, Huang, Jiang and Xu2021). To quickly bridge the gaps with leading nations in fields like semiconductors and biomedicine, the Chinese government attempted to emulate the market by setting up numerous state-owned venture capital institutions. However, inherent SBCs hindered these institutions from truly mimicking the market’s survival-of-the-fittest selection mechanism.
The plight of China’s chip industry is a case in point. In the decade-long process of China’s national efforts to develop chips, not only has it been difficult to close the substantial technological gap but hundreds of billions of RMB in fraudulent cases have emerged. In late July 2022, the Central Commission for Discipline Inspection announced a high-profile investigation into five senior officials responsible for the chip industry, including the Minister for Industry and Information Technology (Caixin, July 28, 2022). The “Big Funds” implicated in the case had a capital scale of several hundred billion RMB, which was just one of many major scandals in China’s semiconductor industry.
Another significant factor influencing China’s science and technology development is its international relations. Since the post-Mao reform, virtually all pivotal, cutting-edge technologies that have left a mark on China’s economy have been sourced from the developed nations. The majority of China’s leading scientists and engineers received their training in these advanced countries. All of China’s scientific and technological advancements have built upon the achievements of the developed countries, often in collaboration with them. However, the CCP’s challenges to the international order have severely strained China’s global relations, thus jeopardizing its access to science and technology from these developed nations and making its technological progress unsustainable.
13.7 Summary
While the CCP’s underlying totalitarian principles and motivations for initiating reforms align with those of the CPSU, the specific operations of their reforms differ. In China’s RADT system, much of the administrative power and resources influencing local economies and societies are delegated to local party-state agencies, rather than centralized in national party-state authorities. Such institutional configurations paved the way for the post-Mao reform policies. As a result, the Chinese system, in its efforts to preserve the communist regime, gradually transitioned towards a more lenient authoritarian model, which was somewhat open to limited pluralism. This shift led to a relaxation in controls over ideology, ownership, and NGOs, fostering the emergence of new institutional genes like private property rights, entrepreneurial communities, civil society organizations, and a broader diversity in ideas and associations.
However, the fate of these emergent institutional genes, akin to saplings sprouting from rock, hinged on their resilience against a hostile backdrop. Their evolutionary direction and development were significantly shaped and restricted by the prevailing system. The CCP never tolerated any independent organization, including religious groups, especially those hinting at political inclinations. As the new institutional genes took root, the call for constitutional rule and law, borne out of self-preservation, grew louder. It was echoed by a wider segment of the population, encompassing those within and outside the party as well as voices from Hong Kong. This so-called “peaceful evolution” was flagged by Deng at the onset of the reforms and has remained under the CCP’s vigilant scrutiny. To halt this drift, the CCP ceased its gradual transition towards a more liberal authoritarian system, prioritizing the prevention of this evolution and potential “color revolutions” even if it meant economic compromises. Under Xi’s leadership, the party took a definitive stance, striving to revert to a totalitarian system while pro-actively suppressing these emerging pro-constitutionalist institutional genes.
Measured by per capita GDP relative to that in United States, China’s current development level still lags behind the Soviet Union of the early 1970s. This positions China to have a significant “backwardness advantage” following Gerschenkron’s argument, meaning that it is easier to catch up. Even more beneficial for China is its vast private sector and its ties with advanced nations, both cultivated during the post-Mao reform era.
Excluding institutional factors, the majority of economists and Wall Street analysts once believed that, based on growth models or by comparing China’s trajectory with that of Japan and Taiwan, China’s rapid growth would continue. Thus, they predicted China’s future by extrapolating its past growth. A popular expectation was that China’s per capita GDP would eventually match that of Japan or Taiwan, or roughly 80 percent of the US level. With such an illusion, the Soviet Union was out of the picture as in its peak years it was only 35 percent of the US level.
However, China has been firmly controlled by the CCP, whose objective for reform has always been to sustain its power. Whenever the party perceives the ongoing evolving trajectory as a potential threat to its dominance, a reversion to tighter control is inevitable, even when such a trajectory is a result of the party’s previous reform policies. Such institutional back-pedaling, which includes bolstering the state sector, restraining the private sector, and harming foreign investments, pushes China’s institutions backward towards the pre-reform era. As a result, much like the Soviet Union in the mid-1970s, China’s era of high-speed growth has ended. The nation is now witnessing not only a declining growth rate but also escalating financial and fiscal vulnerabilities.
