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A Great Leap Backward?

Zhongguo de xianjing [China’s Pitfall]

by He Qinglian
Hong Kong: Mingjing chubanshe, 410 pp., HK$107.00

1.

Most of the good news from China during the Deng Xiaoping era concerned the country’s economy. It grew at an average annual rate of 10 percent from 1981 to 1991, and 12 percent from then until 1995. Average personal income more than tripled in the 1980s, and doubled again in the first half of the 1990s.1 Some Westerners were dazzled. In November 1992, The Economist referred to “one of the biggest improvements in human welfare anywhere at any time,”2 and six months later Business Week told of “breathtaking changes…sweeping through the giant nation.”3 Foreign corporations, eager to be part of the China boom, poured investment in at record rates. China’s foreign currency holdings soared.

Yet during the same two decades, especially the 1990s, there was much bad news as well. People died from drinking phony liquor; fake fertilizers killed crops; there were growing markets for illicit drugs, for sweatshop labor, and even for the sale of young women for wives and male infants for sons. Corruption was rampant. Industrial pollution was serious and growing fast. State enterprises were failing, unpaid workers were striking, and banks were mired in bad debt. The gap between rich and poor became much wider. During 1997 and 1998 average personal income growth has fallen off sharply, and for large portions of both urban and rural poor it has reversed.4

No one during the Deng years produced a systematic account of how these two aspects of China’s economy were related. The regime and its defenders argued that so long as the economy surged forward, other problems would eventually take care of themselves. In the US, many business leaders, followed by the Clinton administration, argued that Western commercial engagement with China creates not only more wealth but progress toward democracy as well. Skeptics countered that more wealth, by itself, does not necessarily cure social problems or lead to democracy.

China’s Pitfall, the first systematic study of the social consequences of China’s economic boom, vindicates the skeptics so resoundingly as to force us to reconceive what “reform” has meant. In her book, which was published in Beijing early this year, He Qinglian, an economist trained at Fudan University in Shanghai, shows how Deng’s reforms between 1979 and 1997 did indeed lead China out of the stifling agricultural communes and urban work units of the Mao era. But what resulted, she argues, was not “civil society,” or even a market economy in the normal sense, but a strange way of life that the Chinese people had hardly imagined when they first embraced reform. She compares the Chinese people to the mythical She Gong, who felt a strong attraction to dragons in paintings, only to be terrified when confronted by a real dragon.

The first spurt of growth in the Chinese economy resulted from the release of farmers from the commune system beginning in the late 1970s. Besides growing and marketing their own crops much more efficiently than they had under state planning, farmers created “village enterprises” that were quickly successful in light industries such as foodstuffs (soy sauce, noodles, etc.) and clothing. By the late 1980s, however, the rural economy slowed and in some places even contracted. This happened because the immediate gains from freeing agriculture could not be continued, and because many village enterprises fell victim to extortion, overtaxation, and embezzlement by local officials. During the late 1980s and early 1990s a “floating population” of 120 million rural people migrated to Chinese cities in search of work.

The boom in the 1990s took place mainly in urban China. He Qinglian writes that from the outset the urban “reform” amounted to

a process in which power-holders and their hangers-on plundered public wealth. The primary target of their plunder was state property that had been accumulated from forty years of the people’s sweat, and their primary means of plunder was political power.

He Qinglian shows how this “plunder”—a process that involves only transfer, not production, of wealth—is primarily responsible for the rapid rise in average personal income in Chinese cities. Even the newly produced wealth, she demonstrates, is the result not just of new economic energy and efficiency, but of two additional factors. One is that China receives large foreign investment—in the mid-1990s this ranged between thirty and forty billion US dollars annually, or about one fifth of all investment in China. The other is that China’s state banks support state enterprises with emergency transfusions of funds (called “loans,” but unrecoverable) that are drawn from the personal savings of ordinary citizens. As of early 1997, almost half the money in personal savings accounts (two trillion yuan, or $240 billion) had been lost in this way. Because China’s press is controlled, few ordinary savers are aware of this fact. The practice also represents a subsidy of the cities by the countryside, since many savers are rural.

Notwithstanding the widespread discussion of the effects of the private “market” on China, China’s state enterprises, although they were never very efficient, still dominate the urban economy.5 Steel, cement, and all heavy industry—and all media and telecommunications—still, by law, must be state-owned.6 With few exceptions, only state enterprises receive loans from China’s banks (which themselves are exclusively state-owned) and only state enterprises can have access to foreign currency. Still the state sector’s share of the economy has steadily declined. Twenty years ago it was the only sector, and today it produces about 30 percent of the gross domestic product. But the 70 percent of “non-state” GDP includes all of agriculture and rural industry, which together are 60 percent of GDP. Contrary to the impression given in the Western press, only about 10 percent of GDP comes from urban private enterprise.

The state sector of the economy also dominates the concerns of the Chinese leadership—concerns that are, as always, essentially political. The stability of the Chinese government depends on preventing urban unrest, especially in Beijing, Shanghai, and the other major cities. Farmers can protest (and indeed have protested, in the 1990s, much more than the Western press has generally reported), but such actions do not rock the regime as do urban demonstrations or strikes.

And who are the urban citizens whom the government needs to keep content? About 85 percent, in one way or another, work for the state. Workers in state industry make up between 45 and 47 percent of the urban work force; another 18 percent or so work in government offices; between 20 and 22 percent work either in government-sponsored “urban collectives” that were founded in the late 1950s (and do labor-intensive work like pasting together cardboard boxes) or, more recently, in profitable “tertiary”—i.e., service—industries such as retail stores. These are state-affiliated companies that exist within larger state enterprises (whose profits, as we shall see, can be skimmed by private executives).

The 15 percent of the urban population that works in the private economy started to emerge in the early 1980s when “individual entrepreneurs” were allowed to set up one-person enterprises such as bicycle repair shops or sewing services. In the mid-1980s, it became legal for families to run small enterprises such as restaurants, and then to hire as many as seven non-family employees. According to China’s constitution, private enterprises with more than seven employees remain illegal today, but this provision, like the guarantee of free speech and several others, is ignored in practice. During the late 1980s and 1990s government-approved foreign enterprises (e.g., McDonald’s) and Sino-foreign “joint enterprises” (e.g., Beijing Auto and Jeep-Cherokee) could hire larger numbers of employees, and later Chinese companies could do so as well, although very few Chinese private enterprises grew to rival state enterprises in size.

Private enterprises are taxed more heavily than state enterprises. Many have failed (up to one third within the last two years, in some provinces), while others (including Jeep-Cherokee) are only barely surviving. Still, enough have succeeded to produce a good economic record for the urban private sector, which employs 3 percent of the population and produces about 10 percent of GNP. Chinese, foreign, and “joint” enterprises that employ cheap labor to make shoes, toys, and other consumer goods for export have been the most profitable.

Much of He Qinglian’s book describes how the Chinese economy got to where it is today through what Deng called “reform” and what He Qinglian calls “the marketization of power.” During the first decade of reform between 1979 and 1989, Party officials enriched themselves mainly through manipulating the public funds and supplies that were under their control. China at the time had a two-track pricing system for raw materials and industrial commodities: a controlled price for state enterprises within the planned economy, and a much higher market price that applied to all “non-state-owned” enterprises: private, joint-venture, and foreign companies, as well as the village industries. In a process popularly called guandao (“official turnaround”), officials would arrange to procure raw materials or commodities at the fixed price and then “turn around” to reap large illicit profits by selling on the private market.

Popular protests against guandao had a modest effect in the late 1980s, at least until the suppression of the 1989 Tiananmen movement. In the three years after 1989, memories of the government’s violence and a sag in the economy combined to present the regime with the specter of further unrest. During his famous “southern tour” of 1992, Deng gambled that this threat would vanish when he issued his call for everyone in the country to go into business and get rich—“even more boldly,” he said, than in the 1980s, and “even faster.”

His message led virtually every official, government office, and social group or organization in China to “jump into the sea” and try to make money. This was done in a variety of ways, and the most lucrative, He Qinglian shows, were usually exploitative or illicit.

Public funds were used for speculation in real estate or stocks, including foreign stocks. If such investments made a profit, the speculators would take it; if not, they would pass the losses on to state accounts. In “tertiary industries,” the friends or children of powerful officials would take control of the most productive section of a state enterprise (such as a clothing factory’s retail outlet) in order to run it as a semi-independent company. Profits went to the entrepreneurs; losses, if any, to the affiliated state enterprise.

In joint enterprises with foreigners or overseas Chinese, the Chinese partner could arrange for the business to use property and obtain materials and licenses at well below fair prices; in return the foreign partner would deposit foreign currency in overseas accounts, in the personal name of the Chinese partner. This maneuver had the added benefit of allowing the Chinese partner to export capital, which is illegal in China. He Qinglian calculates that in the 1980s the outflow of capital to private foreign accounts was nearly half as much as total foreign investment coming into China; after 1992, the outflow equaled the inflow.

He Qinglian also shows how the plunder of state resources in the 1990s was several times as frenzied as the guandao of the 1980s had been. In the 1980s a number of millionaires emerged in China; but in just one or two years after 1992, a considerable number of powerful Chinese piled up tens or even hundreds of millions. Deng had opened up vast new fields for speculation, and, writes He Qinglian, China saw “a new high tide in the carving up of state property by China’s power elite.” The net value of China’s state enterprises has been steadily declining, and it is possible that sometime during 1998 or 1999 the aggregate value of such enterprises will reach zero.

Defenders of current policies in China have argued that such costs of reform are the inevitable results of dismantling an inefficient state system, and that China really has no choice but to swallow hard and suffer the pain until reform can work. But this analysis ignores the ways in which reform itself has fed corruption. He Qinglian’s chapter “State Enterprises: The Bottlenecks of Reform” shows how the new flexibility given to managers of state enterprises has in many cases led them not toward market efficiency but instead toward sacrificing efficiency for their own selfish interests and those of the higher officials who protect them. The golden rule of the corrupt manager, in He Qinglian’s analysis, is to have a relationship of utter loyalty and trust with one’s superior. In addition to outright bribes and kickbacks, one can please this person by employing his friends or relatives, by offering him the use of cars, by providing goods that he can “try out,” and in many other ways.

Once a manager can depend on a superior’s loyalty, all else is possible. Since no one within a state enterprise can then effectively challenge a manager’s decisions about allocation of resources, the manager can act with impunity. The manager becomes, in He’s artful phrase, the “semi-owner” of an enterprise in the specific sense that he or she has all the powers of an owner while remaining free of all the responsibilities. He Qinglian argues that what China actually has is not a true market but only a kind of “simulated market” in which “the actual competition is political” and where “power determines the allocation of resources but has no need to see to their efficient use.”

Late payment, partial payment, or nonpayment of wages have become common among state workers of all kinds, including officials and teachers. In spring of 1998 the number of laid-off state workers reached at least twelve million, and another ten million seem headed for layoff by the end of the year. A small city in Guangxi reported that it could pay only 2 percent of the salaries on its payroll. For several years demonstrations, slowdowns, and strikes have been common. The response of the state has been to ban protests where possible and to support state enterprises with emergency loans from the banking system.

Since state enterprises usually cannot repay these loans, they remain on the books as acknowledged or unacknowledged bad debt. China’s banks announce only part of their bad debt publicly, so its full extent is not easy to measure. The official figure is that 20 percent of loans are “nonperforming,” but the actual figure may be between 40 percent and 60 percent. (In the spring of 1998, the state banks in Guangdong announced bad debt of 200 billion yuan, but inspectors sent from Beijing found the actual figure four times that amount.) By international standards China’s banks are bankrupt, and deeply so.7

Despite the country’s financial crisis, opportunistic officials have, during the 1990s, been able to shake loose at least 500 billion yuan—about $60 billion—to use in speculation, especially in real estate. The money has been siphoned from state funds that had been intended for the purchase of state grain, for education, and for disaster relief, and has been supplemented by funds raised through usurious loans. Since 1992 speculation in land has driven housing prices in major Chinese cities to levels that are more appropriate to a modernized society than to a developing one. By World Bank standards, the cost of a family residence should fall somewhere between three and six times the average annual household income.8 In China prices range between ten and thirty times household income. At present 70 percent of new construction, representing 100 billion yuan ($12 billion) in capital, remains empty. Because the construction was financed by overextended state banks, the government will not permit prices to fall.

The people in China’s more modern cities who enjoy rising incomes have recently been spending less of their money on consumer goods like television sets and VCRs. In addition to saving for down payments on housing, they have been spending their money on medical care, children’s schooling, and other expenses that the state once covered but now come out of family budgets. This shift in spending patterns, combined with the fact that buying power has been declining among farmers and state-sector urban workers, has created a serious oversupply in consumer goods. The value of the excessive national inventories has recently reached three trillion yuan—$360 billion—putting strong downward pressure on prices. But for the state there is no easy way out: cutting prices only puts state enterprises further in debt, while cutting production means more layoffs.

In spring of this year the Chinese government stated publicly that the yuan would never be devalued, and observers around the world have noted that China has survived the Asian currency crisis in fairly good shape. But the apparent strength of the yuan comes less from economic strength (China’s export growth has fallen off sharply) than from restrictive laws on currency trading. Since it is illegal for ordinary Chinese—unlike ordinary Indonesians or South Koreans—to convert their money into foreign currencies, they cannot create a run on the yuan. Nor can capital be exported without government permission. The stability of the Chinese currency—indeed of the regime itself, in the view of some Chinese economists—depends on these politically enforced restrictions. Yet the economic pressure to devalue the yuan increases daily, and there are signs that the Chinese government may not be able to keep its word of a few months ago.

Future Chinese generations will have to reckon with another, even larger, debt that the economic boom has both incurred and postponed, and that is the debt to the environment. He Qinglian does not address this issue in detail, but other scholars have done so.9 Air pollution in Chinese cities has been estimated to be five to ten times that of US cities, while new industries, in order to maximize profits, refuse to install pollution control equipment. In north China, where rainfall is scant, diversion of water to agriculture and industry has caused streams and small reservoirs to dry up. During the first six years of the 1990s the Yellow River, China’s second largest river, was dry for a total of 333 days. In the 1950s the water table in Beijing was sixteen feet below the surface; today it is more than 150 feet down.

China supports the world’s largest national population on only about 7 percent of the world’s arable land, but it is losing that arable land at an annual rate of 0.5 percent to erosion, construction of buildings and roads, and the encroachment of deserts. China now has two thirds of the arable land it had four decades ago, and 2.3 times as many people. Specialists estimate that China’s gross domestic product is reduced by about 15 percent annually because of losses caused by environmental damage, and this omits the effects that cannot be measured in money, such as the premature loss of life of people stricken with environmentally induced disease. Zheng Yi, an exiled Chinese writer who is completing a study of the environment in China, 10 calculates that each year China’s economic activity causes environmental damage whose reversal would cost at least eight trillion yuan, an amount that exceeds the country’s annual gross product.

Such damage has been exacerbated by this year’s floods. The Yangtze River has flooded periodically in China’s history, but the record-breaking floods of 1998 are nature’s retribution for decades of environmental devastation and neglect. Beginning with Mao Zedong’s “Great Leap Forward” of 1958- 1959, China’s richest natural forests in Sichuan and Yunnan provinces, at the headwaters of the Yangtze, were cut “more, faster, better, and cheaper.” Since 1958 those forests have shrunk by 45 to 70 percent, and, nationwide, about one third of China’s topsoil has washed into the Pacific Ocean. Small dikes and dams have fallen out of repair because of shoddy work resulting from corruption, and, in recent years, because government spending on irrigation has been dominated by construction of the huge and controversial Three Gorges Dam.

More than 300 million people have been affected in this year’s flooding, and deaths have reached into the tens of thousands (the government acknowledges just over three thousand). In earlier years the government handled floods by blowing up small dikes and dams, deliberately inundating parts of the countryside in order to protect cities. Rural people had no choice but to bear the sacrifice. But in 1998 there are signs of rebellion in the countryside. As of July 31, the Yangtze flooding had led to 130 incidents of violent uprising—attacking and occupying government offices, sacking state warehouses, and burning vehicles and buildings—in the four provinces of Anhui, Jiangxi, Hubei, and Hunan. The longer-term effects of flooding are likely to be grain shortages, another large increase in rural migration to the crowded cities, and, in the countryside, increasing incidence of armed revenge against the cities, the government, and the well-to-do. The great flood is exacerbating nearly all of China’s social tensions, even as government resources for dealing with those tensions and the economic crisis are greatly diminished.

He Qinglian argues that inequality, like corruption, increased through the 1980s and expanded dramatically after 1992. Between 1992 and 1995, when the size of China’s economy was growing at unprecedented rates, the number of what the government calls “poverty counties” was also rising. Between 1987 and 1994, average personal income fell in the provinces of Anhui, Guizhou, Ningxia, and Xinjiang. (By 1994 the disparity between rich and poor was already greater in China than in the United States. In that year the richest 20 percent of the US population owned 44.3 percent of the country’s wealth, whereas in China the richest fifth owned 50.2 percent of the wealth; the poorest fifth in the US owned 4.6 percent of the wealth, in China 4.3 percent.)11 Urban residents (not counting the 120 million rural migrants) are about one fifth of China’s population, produce about two fifths of the wealth, and consume three fifths of it. Rural people (including the migrants, and including residents of small towns) make up four fifths, produce three fifths, and consume two fifths.

Some have argued that in any transition from a planned to a market economy, corruption and inequality are necessary, or perhaps even useful. He Qinglian acknowledges that when a society and economy are stultified by political terror, as China’s were during the late Mao years, the unofficial trading of favors can indeed have a part in loosening up the system. But she argues that this stage has long passed in China, and that the effects of the corruption of the 1980s and 1990s have badly hurt the economy. She calculates that in recent years about 130 million yuan in public property has been diverted annually to private use. But she also calculates that only about 30 million of this sum actually reaches the economy as private capital. The other 100 million is spent on bribes, entertainment, and favors that are necessary to divert the money and to cover it up. Corruption thus hardly leads to efficiency.

The argument that inequality is beneficial in a period of transition had the personal blessing of Deng Xiaoping right from the beginning of the reform period. Deng argued that overall wealth will grow in a situation of inequality and that the resulting income will trickle down. He Qinglian accepts neither view. If it is true that accumulating capital is necessary in order to get private enterprise going, it is also plain, she shows, that the structure of privilege in China brought about cronyism more than efficiency. And she refutes the “trickle down” theory with the overwhelming evidence of growing inequality.

When reform began, many Chinese intellectuals hoped that economic growth would erode the authority of the Communist Party and lead to diversification of power under the rule of law. Twenty years later, in He’s account, the Party indeed has lost some of its political power, but has lost it not to the citizens but to a new robber-baron class that now allies itself with the Party in opposing the rule of law.

Chinese readers have received He Qinglian’s book with enthusiasm. When its Beijing edition was published in January 1998, the entire first printing of 100,000 copies sold out in less than two weeks. After that, five different pirated editions put 330,000 more copies into circulation. This extraordinary response can hardly be attributed to the book’s prose, which is laden with statistics and technical terms. It comes rather from the author’s untiring demonstration of a repressed truth: that the strategy of the Deng years—fast economic change and no political change—was a huge and terrible mistake. The symptoms of the mistake surface in the economy, but the root problem is political.

About a quarter of He’s book addresses the effects of rampant money-making on social morality. She finds, first, an “immense public indignation at social unfairness,” as the mocking popular sayings (shunkouliu) that circulate widely in China make clear. One adopts the viewpoint of an elderly state worker:

I worked my whole life for the Party
And had nothing at the time I retired;
Now they tell me to live off my kids,
But my kids one by one have been fired.

He Qinglian observes that “the complaints of most people about inequality are not against inequality per se but about the sordid methods by which wealth is achieved.” When ordinary people hear stories about greed at the top, they come to feel that it is pointless, and even a bit stupid, for the ordinary citizen to stick to moral behavior. If anything “trickles down,” in her view, it is cynicism and the abandonment of responsibility. Many of the shoddy goods that circulate in China come from state enterprises. If the government can cheat farmers with bad seeds or fake fertilizers, who is to blame ordinary people for injecting red coloring into watermelons or mixing water into ground meat? Another popular saying, archly entitled “A Short History of Comradely Sentiment,” runs:

In the 50s we helped people.
In the 60s we criticized people.
In the 70s we deceived people.
In the 80s everybody hired everybody else.
In the 90s we “slaughter” whoever we see.

The word “slaughter” (zai), which corresponds in both sense and tone to “rip off” in American English, is now widely used. Few people in the outside world appreciate how pervasive the attitude and practice of zai have become in China. Probably in no other society today has economic good faith been compromised to the extent it has in China. Contracts are not kept; debts are ignored, whether between individuals or between state enterprises; individuals, families, and sometimes whole towns have gotten rich on deceitful schemes. He Qinglian sees the overall situation as unprecedented. “The championing of money as a value,” she writes, “has never before reached the point of holding all moral rules in such contempt.” She finds the collapse of ethics—not growth of the economy—to be the most dramatic change in China during the Deng Xiaoping era. The challenge facing China is not just “survival” (which the Chinese government lists as the most basic human right) but “how to avoid living in an utterly valueless condition.” She does not hold out much hope.

He Qinglian’s book has much to say about China’s underworld economy—including drug trafficking, smuggling, sale of human beings, counterfeiting, prostitution, and pornography—and on the ways in which it has merged with the legitimate economy. In parts of the countryside, underworld leaders have either assumed political power or made alliances with Communist officials “to form a force that treats farmers almost like slaves.” He Qinglian concludes that

the emergence of the “government- underworld alliance” shows that progress toward a civil society ruled by law is no more likely an outcome for our country than is descent into a “mafia model.”

She leaves no doubt that, among many in the Communist elite, the zest for economic reform had little to do with abstract ideals about civil society and everything to do with enriching themselves and assuring that their socially privileged positions would be transferred smoothly from one economic system to another. The Communist Party has varied immensely over its seventy-seven years: from a guerrilla movement in the hills of Shaanxi to a cadre of bureaucratic managers; from “resist Japan” to “resist America” to “oppose the Soviets”; and from slogans like “fight selfishness” (late 1960s) to ones like “getting rich is glorious” (early 1980s). But essentially the same elite has remained dominant. This remarkable group, like a seal on a rolling ball, may not be graceful but it stays on top.

2.

He Qinglian was born in Hunan Province in 1956. She was part of a generation of Chinese youth who were shaped by Mao’s Cultural Revolution. In 1966, He’s school, like all others in China, was closed down so that students could “make revolution.” When she was twelve she was shaken by the sight of human corpses floating in a local stream. At seventeen, after she went to work at a railroad construction site in the remote hills of West Hunan, she found a circle of friends whose social idealism became all the stronger as they became disillusioned with Mao. Most books were banned during the Cultural Revolution, but an unusual number of books circulated informally; she and her friends became devotees of works of the Russian literary and social critic Vissarion Belinsky (1811-1848), who commented that Russia must draw on the intellectual resources of Europe. In an afterword to her book, He writes that she owes to her friends in those years “my basic outlook on life as well as a sense of moral responsibility that has stayed with me ever since.” Wei Jingsheng, Xu Wenli, Zheng Yi, and many others in this generation also illustrate the paradox that Mao Zedong’s misguided moral crusade had beneficial consequences for China that Mao never imagined.12

With the changes following Mao’s death, He studied history at Hunan Normal University in Changsha beginning in 1978, and in 1985 began graduate work in economics at Fudan University. In 1988 she went to Shenzhen, the boom town just north of Hong Kong, to work as a newspaper reporter. She was irritated to see newspaper advertisements such as “Our company urgently seeks high level staff…. Preference will go to those with good connections in government,” and soon began collecting material for her book.

In passing, she makes telling comments on the state of academic economics as practiced in China today. She finds that the field is dominated either by “toady writing” that provides academic backing for the favorite ideas of politicians or by “techniques for dragon slaying”—a Chinese cliché for technically brilliant skills that have little practical use. She refers here to the field of “pure” economics, primarily an import from the West, that tends to ignore the ways in which politics and morality impinge upon economic questions. In a preface to He’s book, Zhu Xueqin, a professor of history at Shanghai University, writes:

In China, ever since the arrival of the planned economy in the 1950s, every cell of economic life has in fact been saturated with politics. Such a condition does not change just because “reform” is announced. What can it mean to study “pure” economic questions in such a context?… To talk about reform while ignoring the political content of Chinese economic structures is to weave a set of emperor’s new clothes.

After finishing her manuscript in August 1996, He Qinglian sent it to nine publishers in different parts of China. Editors were impressed but none would accept the risk of publishing her book. Eventually she settled for publication in Hong Kong, knowing that circulation into China would be limited. After the book was published there, she found an ally in Liu Ji, vice president of the Chinese Academy of Social Sciences in Beijing, who read the book, discussed it with He Qinglian for five hours, and backed its publication in Beijing. It appeared in January 1998 from China Today Publishers in nearly complete form, although some of He’s more provocative language—and two prefaces (including the one by Zhu Xueqin, quoted above)—were deleted. The title was revised from China’s Pitfall to the more euphemistic A Pitfall of Modernization.

Publication in China led to book reviews and interviews with He in the Chinese press, and she used her new celebrity to press her ideas further. In a recent article she notes that 1998 is the hundredth anniversary of the 1898 reforms that were aimed at saving the moribund Qing dynasty. She identifies five major problems that held China back in 1898—population size, agricultural stagnation, inequality, corruption, and low standards in education—and argues that all five are at least as severe now.13

Her emphasis on this anniversary was not arbitrary. Anniversaries are taken seriously in China, and “anniversary momentum” is now gathering there. Next year will be the eightieth year since the “Chinese enlightenment” of May Fourth, the fiftieth year since the founding of the People’s Republic, the twentieth of the “reform era,” and the tenth since the Beijing massacre. Chinese people tend to see in such anniversaries an opportunity to “take stock.” The fiftieth year of the People’s Republic, for example, will lead to comparisons between the Communists and the Nationalists whom they displaced. The corruption of the Nationalists was ugly in the late 1940s, but many say it is far worse now. Problems of inequality, vice, and crime, which the revolution swept away in the 1950s, have returned. A popular saying goes:

For forty-some years, ever more perspiration,
And we just circle back to before Liberation;
And speaking again of that big revolution,
Who, after all, was it for?

Each year since June 4, 1989, the police have taken steps to repress memorials of the Tiananmen massacre; next year the tenth anniversary will raise the stakes for both sides. Recently the government dealt with the hundredth anniversary of Peking University—a perennial source of democratic thought in China—by smothering open discussion under elaborate official ceremonies, which included a presidential visit to the campus and rigidly organized dances by uniformed children in Tiananmen Square.

Under the rule of a government as wary as China’s, how can conspicuously critical work such as He Qinglian’s be published at all? It helped that she had the backing of an important official like Liu Ji, and it helped as well that for the last twenty years economists have had more freedom to express themselves than others because the government views them as essential to the country’s modernization. It is significant, moreover, that He’s book was published in early 1998, when the government was more tolerant of critical commentary than it had been in the preceding year. In December 1997, Premier Li Peng, one of the more authoritarian of China’s leaders, had praised the popular television show Focus, which sometimes exposes official wrongdoing, especially in the provinces. In March, Li Peng also called for “criticism of problems and corruption in the Party” while Xiao Yang, chief of China’s Supreme Court, ordered an inquiry into corruption in the justice system. Such events, together with a relaxation of restrictions in book publishing, seem to amount to a coordinated policy.

This spring there was considerable speculation in the Chinese-language press in Hong Kong and Taiwan that the show of liberalization was designed to bamboozle Clinton, who was preparing to visit China in late June. But this explanation cannot account for Li Peng’s approval of an audacious television show or the appearance of a book like He Qinglian’s.

It seems more likely that the leadership felt it needed to calm popular unrest. With layoffs accelerating and the perception spreading that the rich are corruptly getting richer, the top leaders feel pressure to dissociate themselves from such trends. Since the Mao years, control of private speech has loosened to a point where the Party leaders can no longer suppress widespread informal complaints. The thousands of sardonic popular sayings that pass along the oral grapevine make this plain. When Li Peng praises Focus, he probably does so because he recognizes that he and others in the ruling group are better off when they seem to be siding, at least to some extent, with the critics.

There may be more to the question of why the authorities allowed publication of He’s book. Liu Ji, the official who sponsored it, is known to have some sympathy for He Qinglian’s humanist values, but he is also a member of President Jiang Zemin’s brain trust. It is hard to imagine him sponsoring a controversial book unless he thought that doing so would serve Jiang’s political interests.

He’s book can be useful to Jiang in the same way that “scar literature,” which exposed the painful history of the late-Mao years, was useful to Deng Xiaoping twenty years ago. In 1978 Deng wanted to inherit Mao’s mantle even as he distanced himself from the “catastrophe” of Mao’s Cultural Revolution. Scar literature was useful to him because it denounced the “Gang of Four,” who stood for Mao’s rule, without naming Mao himself. It thus helped to turn popular resentment of Maoism into popular support for Deng.

Jiang Zemin now inherits from Deng a Chinese economy that, along with rapid growth, has produced terrible problems and rising popular resentment. Jiang does not want to take personal responsibility for the mess, and in this he has a point. Deng Xiaoping, in his own words, was the “chief architect” of reform. Anyone who reads He’s book will understand that the problems of the reform period were deeply entrenched by the time Jiang took over. But even if Jiang Zemin succeeds in dissociating himself from the problems created by Deng, it does not follow that Jiang will lead China (as Deng did) in a fundamentally new direction. Jiang Zemin’s program for China remains largely a mystery. Indeed he may not have one.

If Jiang is unsure about where China is headed, he is not alone. The political thinking of Chinese intellectuals is more bewildered than it has been for a long time. Ten years ago there were two fairly clear camps in Chinese political thought: the conservatives, or “old leftists,” who defended the Maoist establishment, and the reformers or liberals who favored change—the camp that included most intellectuals. Today there is a third camp, one that is by nature conservative but that seeks to preserve not Mao’s China but Deng’s, arguing that the troubles discussed in He Qinglian’s book are the growing pains of a basically healthy process, which must be pursued. Many others dissent from this view, but disagree about what to do instead.

In order to get her book published at all, He Qinglian had to soften some of her criticisms of the Deng-era reforms. She could not name names, but still issued a daring challenge:

If the preponderance of new wealth we see today was gained illegally or through means that are inconsistent with fairness and justice, then we should launch a moral inquiry and an analytical crusade.

Her book itself begins this “crusade.” Beneath its surface, packed as it is with facts, numbers, and technical terms, the reader senses a deep anger. She raises fundamental questions about twenty years of reform: “China,” she writes, “is headed toward joint rule by the government and a mafia.” She asks: “When you have development that is built on the premise that people will pursue their interests at the cost of the…property and lives of others, is it really worth it?”

Even if one answers “yes,” He Qinglian argues, such a system will eventually destroy itself. “The systemic corruption in which pursuit of private interest undermines society’s legal system and public morality will inevitably kill [China’s] reform before it matures.” Today, eleven months after the appearance of He’s book, events in China are confirming her prediction. In March 1998 China’s top leaders announced emergency measures to address the current crisis: a plan to transform state enterprises and to pay their debts within three years; a plan to cut government employees by 50 percent, also within three years; and plans to reform the financial system, to rid it of corruption, and so on. In June, however, reliable sources in direct contact with the top leadership revealed that these plans were meeting stiff, and perhaps fatal, opposition. They had been proposed too late, the sources said. Had they been carried out in the early 1990s, there might have been hope for success.

What happened in China in the 1990s is thus becoming clear. Reform was aborted when Deng Xiaoping strangled China’s democratic forces in 1989 and when—as He Qinglian shows in detail—he decided in 1992 to buy stability for his regime by pursuing a rapid economic growth whose price was sharply increased corruption, financial deception, and the erosion of the moral basis of society.

September 9, 1998

  1. 1

    Adjusted for inflation, personal income during the 1980s rose 329 percent in cities and 355 percent in the countryside. For 1990-1995, it rose 226 percent in cities and 196 percent in the countryside. (Cheng Xiaonong, “Fanrong cong he er lai? Zhongguo jingji xianzhuang he qushi de fenxi,” Dangdai Zhongguo Yanjiu, No. 54 (1996), p. 59.)

  2. 2

    November 28, 1992, “China Survey” supplement, p. 3.

  3. 3

    May 17, 1993, p. 4.

  4. 4

    Chinese government statistics for the first quarter of 1998 show an overall annual increase of only 0.5 percent over the same quarter last year in rural areas (Shijie ribao [New York], July 15, 1998). In cities, for 1997 as a whole, about 40 percent of residents saw a clear decline in personal income. The downturn was sharpest in the smallest cities (Pinguo ribao [Hong Kong], April 1, 1998).

  5. 5

    The far-reaching implications of the crisis of China’s state enterprises are well analyzed in Edward S. Steinfeld, Forging Reform in China: The Fate of State-Owned Industry (Cambridge University Press, 1998).

  6. 6

    There are a few carefully controlled exceptions for new industry, such as aircraft, where “joint enterprises” with foreign companies are allowed.

  7. 7

    Modern international banks try to observe a bad debt ratio of under 3 percent, compared to China’s 20 percent (or much more). They also maintain “capital adequacy ratios” ensuring that at least 6 percent of the capital they hold is their own, so that bad debt can be covered by a safe margin. The capital adequacy ratio of China’s state banks is about 3 percent. See Peter Chan and Mark O’Neill, “Asia Woes Spur Beijing to Act,” South China Morning Post, May 14, 1998.

  8. 8

    Zhonguo gaige bao [China Reform News], February 18, 1998. He Qinglian also notes the irony that artificially high housing prices hamper the government’s policy that “commercial housing” should be a key to bringing the economy out of its current decline.

  9. 9

    See André Dua and Daniel C. Esty, Sustaining the Asia Pacific Miracle: Environmental Protection and Economic Integration (Washington, D.C.: Institute for International Economics, 1997); He Bochuan, Shan’aoshang de Zhongguo China on the Brink; and Vaclav Smil, China’s Environmental Crisis (M.E. Sharpe, 1993).

  10. 10

    Two of Zheng’s earlier books, on politically induced cannibalism during Mao’s Cultural Revolution, have been reviewed in these pages. See Liu Binyan, “An Unnatural Disaster,” April 8, 1993.

  11. 11

    He Qinglian also uses the “Gini coefficient,” a standard measure of income disparity, to place China within a world setting. A coefficient of 0.3 or less indicates substantial equality; 0.3 to 0.4 indicates acceptable normality; and 0.4 or higher is considered too large. 0.6 or higher is predictive of social unrest. In one 1994 survey, China measured 0.45; in another, 0.59.

  12. 12

    See Laifong Leung, Morning Sun: Interviews with Chinese Writers of the Lost Generation (M.E. Sharpe, 1994).

  13. 13

    Yige jingji xuejia yanzhong de wuxu bainian” [The Hundred Years Since 1898 as Seen by an Economist], Nanfang Zhoumo [Southern Weekend], April 17, 1998.

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