Reform and opening: the Deng Xiaoping era

After the Gang of Four: Hua Guofeng’s interregnum and the “Two Whatevers”

Hua Guofeng, who had arrested the Gang of Four, held the posts of party chairman, premier and chairman of the Military Commission at once, but his legitimacy came from the note Mao was said to have left him: “With you in charge, I’m at ease.” The joint editorial of People’s Daily, Red Flag and the PLA Daily on 7 February 1977, “Study the Documents Well and Grasp the Key Link”, declared: “We will resolutely uphold whatever policy decisions Chairman Mao made, and unswervingly follow whatever instructions Chairman Mao gave.” These “Two Whatevers” meant keeping the verdicts of the Cultural Revolution, including Deng Xiaoping’s second fall in 1976. In 1978 party meetings were to hang portraits of Mao and Hua side by side. 1 2 3

Yet Hua also broke with the economics of the Cultural Revolution. College entrance examinations returned in 1977 after a ten-year break, and over 4,600 cadres were rehabilitated between October 1976 and December 1978. In February 1978 the Fifth National People’s Congress passed a new constitution and the Outline of the Ten-Year Plan for 1976–1985. Aiming at 60 million tonnes of steel and 800 billion jin of grain by 1985, it proposed 120 large projects, among them ten steel bases, ten large oilfields and thirty large power stations, and by summer 1978 imports of technology and equipment worth 80 billion dollars were planned. The over-ambitious import plan was later attacked as a “foreign leap forward”, but in combining Soviet-style big-push industrialisation with an opening to the capitalist world it also continued Deng Xiaoping’s “consolidation” of 1975. 3 4 5 6

In a letter to the Central Committee of 10 April Deng proposed guiding the party with “genuine Mao Zedong Thought taken as an integral whole”, and on 24 May 1977, before he had been rehabilitated, he told officials of the General Office that the “Two Whatevers” did not accord with Marxism: what Comrade Mao had said on one question could not simply be transferred to another, and Mao Zedong Thought had to be understood “completely and accurately” as an integral whole. Under pressure from veterans such as Ye Jianying, the Third Plenum of the Tenth Central Committee restored all his posts in July, and in August the Eleventh Congress elected Hua Guofeng, Ye Jianying, Deng Xiaoping, Li Xiannian and Wang Dongxing to the Politburo Standing Committee. The congress declared the Cultural Revolution over but did not abandon “taking class struggle as the key link”. 7 1 6

The truth-criterion debate and the Third Plenum

The breakthrough came in a philosophy article. Written by Hu Fuming, a philosophy lecturer at Nanjing University, revised by many hands and vetted by Hu Yaobang as head of the Organization Department, “Practice Is the Sole Criterion for Testing Truth” appeared in an internal Central Party School bulletin on 10 May 1978, on the front page of Guangming Daily the next day under the name of a “special commentator”, and in People’s Daily and the PLA Daily on the 12th. Over seven thousand characters long, it argued from Marx and Mao that every theory must be tested continuously by social practice, and it shook the theoretical basis of the “Two Whatevers”. Hua Guofeng was visiting North Korea at the time. Deng endorsed the view at the All-Army Political Work Conference in June, and provincial and military leaders lined up one after another behind the “criterion of truth”. 8 9 1

The Central Work Conference that opened on 10 November 1978 went far beyond its planned agricultural agenda. Chen Yun raised “six issues”, among them the case of the “sixty-one renegades” including Bo Yibo, the cases of Tao Zhu, Wang Heshou and Peng Dehuai, the 1976 Tiananmen incident and Kang Sheng’s errors, undermining the Maoists. In his closing speech of 13 December, “Emancipate the Mind, Seek Truth from Facts and Unite as One in Looking to the Future”, Deng called emancipating the mind “a vital political task”, and the speech set the tone for the plenum. He was then on the eve of the establishment of Sino-American diplomatic relations on 1 January 1979, and early in 1979 he visited the United States, where American industrial and agricultural productivity left him stunned. 10 11 12

The Third Plenum of the Eleventh Central Committee, held at the Jingxi Hotel in Beijing from 18 to 22 December, declared that “large-scale turbulent class struggles of a mass character have in the main come to an end” and moved the party’s focus to socialist modernisation. Liu Shaoqi’s view that mass class struggle had ended under socialism was openly accepted, and Mao’s theory of continuing revolution under the dictatorship of the proletariat was dropped. No personal view of a leading comrade was to be called an “instruction”, and the titles “Chairman Mao” and “Chairman Hua” were avoided. The campaign to “counter the Right-deviationist reversal of verdicts” was repudiated, Peng Dehuai, Tao Zhu, Bo Yibo and Yang Shangkun were rehabilitated, and the 1976 Tiananmen incident was reassessed. Chen Yun became a Standing Committee member, vice-chairman and first secretary of the new Central Commission for Discipline Inspection, and Deng Yingchao, Hu Yaobang and Wang Zhen entered the Politburo. Hua kept his posts but real power passed to Deng, and the so-called “Little Gang of Four”, Wang Dongxing, Ji Dengkui, Wu De and Chen Xilian, lost all their posts in February 1980. 10 13 6 1 5

Boluan Fanzheng: rehabilitation and the Resolution on History

From 1978 Hu Yaobang’s Organization Department reviewed the “unjust, false and erroneous cases” of the Cultural Revolution and earlier. Within a few years the victims of over three million cases were rehabilitated: all but a handful of the 550,000 rightists of the Anti-Rightist Campaign, and those caught up in the cases of the “sixty-one renegades” and the “Inner Mongolian People’s Party” shed their labels. Four million “landlords” and “rich peasants” were rehabilitated, and over twenty million people labelled as the “four black categories” and their families regained their social standing. Liu Shaoqi was rehabilitated at the Fifth Plenum in February 1980 and given a state memorial in May. This Boluan Fanzheng, “bringing order out of chaos”, built the social base that would support reform. 5 14 15 16

How to judge Mao remained. In January 1980 Deng announced that a resolution on historical questions would be drafted, and Hu Qiaomu led the work for fifteen months. Deng rejected total repudiation: “On no account can we discard the banner of Mao Zedong Thought. To do so would, in fact, be to negate the glorious history of our Party”; yet he also said the contradiction in Mao’s own verdict on the Cultural Revolution, 70 per cent achievements and 30 per cent mistakes, had to be criticised unequivocally. In August 1980 he told the Italian journalist Oriana Fallaci that Mao’s mistakes were “secondary”. After discussion by 4,000 cadres in 1980–1981, the Resolution on Certain Questions in the History of Our Party since the Founding of the People’s Republic of China, adopted by the Sixth Plenum on 27 June 1981, defined the Cultural Revolution as an all-round error that Mao had “initiated and led”, while concluding that “his merits are primary and his errors secondary”. The day before, Hua Guofeng had resigned as party chairman; he had already handed the premiership to Zhao Ziyang in September 1980. Hu Yaobang became party chairman, and when the chairmanship was abolished at the Twelfth Congress in September 1982 he became general secretary. 17 18 15 3

The countryside: from Xiaogang to the end of the communes

Reform began with the peasants. Food shortages in the late 1970s were so serious that officials warned of a repeat of “the disaster of 1959”, and drought in the countryside turned into food crises in the cities. On the night of 24 November 1978 eighteen households of Xiaogang village in Fengyang County, Anhui, risking punishment, put their thumbprints on a contract dividing the land among households, each responsible for its own output. In 1979 Xiaogang harvested 66,000 kg of grain, as much as its five years of output for 1966–1970 combined. Anhui first secretary Wan Li tolerated this and backed it with the “six provincial regulations”, and Zhao Ziyang in Sichuan allowed the same experiment. People said, “If you want rice, look for Wan Li; if you want grain, look for Ziyang.” 19 6 20 21

The centre hesitated at first. The Third Plenum allowed responsibility to be devolved to work groups but forbade devolving it to households, and Wang Renzhong of the National Agriculture Council opposed it on the merits of the collective economy. At a meeting in January 1980 Zhou Yueli, director of Anhui’s agricultural committee, reported that by the end of 1979 10% of production teams had adopted household responsibility, provoking a fierce debate. In April–May 1980 Deng said that poor regions such as the northwest, Guizhou and Yunnan should use household contracting and that there was no need to worry about the practice of Fengyang and Feixi counties. The centre allowed it step by step, with Document No. 75 in 1980 and No. 1 Central Document in 1982, and with the separation of government from communes in 1983 the people’s communes were dissolved. Land remained collectively owned and only use rights went to households, which sold their state quota at a low planned price and the rest at higher prices. 19 22 6

The results were dramatic. Agricultural output rose 25% between 1975 and 1985, and under household responsibility it grew 8.2% a year against 2.7% before the reforms. Zhao Ziyang wrote in his memoirs that by 1984 farmers had more grain than they could sell and the state granaries were full. Township and village enterprises absorbed surplus rural labour, their employment rising from 28 million in 1978 to 135 million in 1996. After 1984, however, agricultural growth slowed, and with rural public investment under 10% of the budget the gap between town and country began to widen again. 6 23 19

Opening: Shekou, the special economic zones and the coastal cities

The first experiment in opening went through China Merchants, the state shipping company in Hong Kong. Yuan Geng of the Ministry of Communications, who had been held in Qincheng prison during the Cultural Revolution, proposed in October 1978 to use China Merchants to open the mainland economy to the world market, and on 31 January 1979 a meeting in Zhongnanhai attended by Li Xiannian and Gu Mu approved an industrial zone at Shekou in Bao’an County. In April Xi Zhongxun, first secretary of Guangdong, and other officials proposed to the centre that Guangdong and Fujian be given wider autonomy, with special zones at Shenzhen, Zhuhai, Shantou and Xiamen. Deng backed the name “special zone”, telling Xi, in a phrase from their guerrilla days, “You have to find a way, to fight a bloody path out”; to stress that no political experiment was intended, the name “special economic zone” was chosen. The Law on Chinese-Foreign Joint Ventures followed in July 1979, and the four zones were established in 1980–1981. 24 25 26 27 6

With tax exemptions, low duties, cheap land and flexible labour contracts, the zones drew mainly processing investment from ethnic Chinese capital in Hong Kong, Taiwan and Southeast Asia; by the end of 1990 exports to Hong Kong accounted for two-thirds of Guangdong’s industrial output. Yuan Geng’s Shekou experimented with merit-based hiring and pay, housing independent of the work unit, open bidding and even, in 1985, local elections in which 2,000 residents took part, under the slogan “time is money, efficiency is life”. Shenzhen, a town of 30,000 in 1980, grew at what was called “Shenzhen speed” into a city of 18.2 million by 2025. On his first southern inspection in January 1984 Deng praised Shenzhen and Zhuhai, and on 24 February he said he had been impressed by the prosperity of the Shenzhen zone and that the guideline was “to open and not to close”. In May fourteen coastal cities including Dalian, Tianjin, Shanghai and Guangzhou were opened, followed by coastal open economic zones such as the Yangtze and Pearl River deltas in 1985, Hainan province as a special zone in 1988 and Shanghai’s Pudong New Area in 1990. 26 24 28 6 29

The zones were contentious from the start. In 1980 the planning veteran Chen Yun put forward the “birdcage economy”: “the cage is the plan, and it may be large or small. But within the cage the bird is free to fly as he wishes.” He and Li Xiannian never visited Shenzhen. Suspicions that the zones might revive the foreign concessions, the Guangdong smuggling cases of 1982 and the Hainan car-import scandal of 1985 gave the critics their grounds. Gradual experiment was summed up as “crossing the river by feeling for the stones”, Chen Yun’s caution as the “cage” of using the market within the frame of the plan, and the tension between the two lines lasted until Chen’s death in 1995. Some reforms of the early 1980s were in effect a programme Chen had outlined in the mid-1950s. 30 6 31 28

The political limits: Democracy Wall, the Four Cardinal Principles and “spiritual pollution”

From November 1978 to December 1979 thousands of people put up big-character posters on a long brick wall on Xidan Street in Beijing. At first most demanded redress for the Cultural Revolution and a reassessment of the 1976 Tiananmen incident, and Deng, who used them to press Hua Guofeng’s camp, called it “a good thing”. On 5 December the electrician Wei Jingsheng posted “The Fifth Modernisation: Democracy and Others”, arguing that Deng’s Four Modernisations were hollow without democracy and warning that Deng himself could become a dictator. Unofficial journals such as Exploration and April Fifth Forum followed one after another. 32 33 34

At the theoretical work conference on 30 March 1979 Deng proclaimed the Four Cardinal Principles: upholding the socialist road, the dictatorship of the proletariat (later the people’s democratic dictatorship), the leadership of the Communist Party, and Marxism-Leninism and Mao Zedong Thought. “Socialism and socialism alone can save China,” he said, making scepticism and opposition from the Right the target of criticism. Wei Jingsheng was arrested with fifteen other activists and sentenced in October to fifteen years. Democracy Wall was closed in December, and in September 1980 the third session of the Fifth National People’s Congress deleted from the constitution the “four bigs”: speaking out freely, airing views fully, holding great debates and writing big-character posters. The Four Cardinal Principles became the “red line” of the emancipation of the mind. 35 36 33 34 37

In the early 1980s intellectuals debated “alienation” under socialism and Marxist humanism. Wang Ruoshui, deputy editor of People’s Daily, wrote that “man is the starting point of Marxism”, and Zhou Yang also advanced a theory of alienation. On 4 June 1983 propaganda chief Deng Liqun first spoke at the Central Party School of “eliminating spiritual pollution”, and when Deng Xiaoping told the Second Plenum of the Twelfth Central Committee on 12 October that those on the ideological front must not spread spiritual pollution, the campaign began. Local rules even banned perms and make-up; Zhou Yang apologised publicly, and on 30 October People’s Daily editor Hu Jiwei and Wang Ruoshui were removed. Worried about foreign investors, Hu Yaobang, Zhao Ziyang and Wan Li kept the economy and the countryside out of it, and by January 1984, two months after it began, the campaign had in effect ended. 38 39 40 41 42

Urban reform, dual-track prices and the turbulence of 1986–1988

The Decision on the Reform of the Economic System adopted by the Third Plenum of the Twelfth Central Committee in October 1984 acknowledged that a planned economy was not the only way to develop socialism, set the goal of a “planned commodity economy” and moved reform into the cities. State enterprises gained profit retention, managerial autonomy and contract management, and individual and private businesses multiplied. Under State Council rules of May 1984 and measures of March 1985 the “dual-track” system, selling goods within the plan at state prices and goods outside it at market prices, became basic policy. It eased shortages and opened a market in materials to township and village enterprises, but it bred guandao, officials using their power to divert planned-price goods and resell them on the market. 6 43 23

In 1986 Deng said that economic reform could not succeed without reform of the political structure, and in September a study group on political reform was formed with Zhao Ziyang and others. That same September the Sixth Plenum, at Deng’s insistence, kept the phrase “opposing bourgeois liberalisation” in its resolution on spiritual civilisation. On 5 December students at the University of Science and Technology of China in Hefei began demonstrating for the right to nominate their own candidates for the people’s congress, and the protests spread to 150 universities in 17 cities including Shanghai, Nanjing, Tianjin and Beijing, against a background of lectures by vice-president Fang Lizhi and 16% inflation. On 27 December Hu Qiaomu, Wang Zhen, Deng Liqun and Bo Yibo went to Deng’s home to blame Hu Yaobang’s “weakness”, and at a “life meeting” chaired by Bo Yibo on 10–15 January 1987 Hu was denounced; only Xi Zhongxun defended him. On 16 January he resigned as general secretary and Zhao became acting general secretary, while Fang Lizhi, Liu Binyan and Wang Ruowang, and then Wang Ruoshui, were expelled from the party. 37 44 15 45 41

In the ensuing campaign against bourgeois liberalisation Deng Liqun claimed that over 70% of people resisted it and spoke of three or four years of struggle, but Zhao Ziyang persuaded Deng that it was being used to negate reform and opening, and it subsided by mid-1987. At the Thirteenth Congress, 25 October to 1 November, Zhao advanced the theory that China was in the “primary stage of socialism”, held that markets and planning were neutral means that did not determine a society’s basic economic system, and called for separating party from government. Deng kept only the chairmanship of the Military Commission, over ninety elders including Chen Yun, Li Xiannian, Peng Zhen and Hu Qiaomu stepped back from the front line, and Deng Liqun failed to win election to the Central Committee. Yet the elders kept their influence through the Central Advisory Commission and Li Peng’s appointment as premier. 37 46 47 40

As output grew by over 10% in 1987, prices began to rise; the monthly consumer price index passed 5% in January 1987 and peaked at 28.4% in February 1989. Deng urged price reform, saying it was “better to pass the gate early than late”, and in May 1988 Zhao proposed to straighten out prices over five years at the cost of a set rate of inflation. When the Politburo meeting at Beidaihe on 15–17 August decided to free most prices, word spread and bank runs and panic buying broke out across the country: woollens sold out in midsummer Hangzhou, and one buyer in Wuhan took 200 kg of salt. In September Zhao postponed the “price breakthrough” and turned to the austerity of “rectification and consolidation”, later saying the responsibility was his. Austerity brought recession, and 1989 began with reformers and conservatives more deeply divided than ever. 48 6 49

1989: protest, crackdown and the campaign against “peaceful evolution”

When Hu Yaobang died on 15 April 1989, students gathered in Tiananmen Square to mourn him, and 100,000 marched on the eve of his funeral. Anger at inflation and guandao combined with demands for political reform, and the protest spread into a hunger strike and demonstrations in cities across the country. Zhao Ziyang fell after arguing for concessions to the students; martial law was declared in May, and on 3–4 June the army entered central Beijing and crushed the protests by force. The course of events and the toll are treated in the entry on the 1989 Tiananmen protests and the June Fourth crackdown. Jiang Zemin became general secretary with the backing of elders such as Chen Yun and Li Xiannian, and in November Deng gave up the chairmanship of the Military Commission as well. 15 50 6 51

In November 1989 the Fifth Plenum of the Thirteenth Central Committee, holding that reform had gone too fast, adopted a Decision on Further Rectification and Deepening Reform and called for unifying the dual price tracks. The upheavals in Eastern Europe and the dissolution of the Soviet Union in December 1991 heightened conservative alarm. Warning against the West’s “peaceful evolution”, the peaceful subversion of the system that US Secretary of State Dulles was said to have formulated, they began to ask whether policies were “surnamed socialist or capitalist”. When Shanghai’s Liberation Daily published a series of articles urging reform under the pen name “Huangfu Ping” in spring 1991, Qiushi and Guangming Daily in Beijing attacked them. Deng saw the Soviet collapse as a reason to open further. 43 51 52

From the southern tour to the WTO: the “socialist market economy”

At 87 and with no formal post, Deng travelled from 18 January to 21 February 1992 through Wuchang and Changsha to Shenzhen, Zhuhai, Guangzhou and Shanghai. In Shenzhen he urged bolder experiment, saying “we must not act like women with bound feet”, and declared: “The proportion of planning to market forces is not the essential difference between socialism and capitalism. A planned economy is not equivalent to socialism, because there is planning under capitalism too; a market economy is not capitalism, because there are markets under socialism too.” The essence of socialism, he said, was the liberation and development of the productive forces, the elimination of exploitation and polarisation, and prosperity for all; the basic line must be upheld for a hundred years, for without socialism, reform and opening, economic development and better living standards “we would find ourselves in a blind alley”. China should watch out for the Right, he added, but mainly guard against the “Left”. 51 53 54

The southern tour was at first ignored by the central media in Beijing; Hong Kong papers reported it first, and on 26 March Shenzhen Special Zone Daily published a detailed account without central approval. In Zhuhai Deng told military leaders including Yang Shangkun, Liu Huaqing and Yang Baibing that “those who do not promote reform should be brought down”, and the army declared that it would “escort and protect” reform. Jiang Zemin’s leadership changed course. The Fourteenth Congress of 12–18 October 1992 set the “socialist market economic system” as the goal of economic reform, wrote Deng’s theory of building socialism with Chinese characteristics into the party constitution and abolished the Central Advisory Commission. The Shanghai and Shenzhen stock exchanges had opened in 1990; the Company Law of 1993 defined the state as investor in state enterprises; and the tax-sharing reform of 1994 led by Zhu Rongji restored central finances around a 17% value-added tax. 51 55 56 6 57

After Deng’s death in 1997, Jiang Zemin and Zhu Rongji, premier from 1998, restructured the state sector under the slogan “grasp the large, let go of the small”. Apart from a few large monopolies, many state enterprises were sold, merged or liquidated, and between 2001 and 2004 their number fell by 48%. The workers paid the price. Some 35 million state-enterprise workers, nearly 30% of the total, lost their jobs between 1995 and 2001, and by the end of 1999 there were 24.4 million xiagang workers, nominally kept on their work units’ books on small allowances. The losses were concentrated in the old industrial regions of the northeast and north, and sold factories often passed cheaply to their former directors and party secretaries. Thousands of protests broke out. China, which had sought to rejoin the General Agreement on Tariffs and Trade from 1986, joined the World Trade Organization on 11 December 2001; its average tariff fell from 56% to 15% over the reform period. 6 58 59 60

Assessment: growth, poverty, inequality and the “Chinese road”

The growth was unprecedented. China’s economy grew by an average of 9.5% a year from 1978 to 2013, and GDP rose from 150 billion dollars in 1978 to 18.7 trillion in 2024. Between 1978 and 2005 GDP per head rose from 2.7% to 15.7% of the American level. By the World Bank’s measure the share of the population in extreme poverty fell from 88% in 1981 to under 1%, and over 800 million people left extreme poverty between 1978 and 2018. The state sector’s share of industrial output fell from 81% in 1980 to 15% in 2005, and the private sector passed half of GDP in 2005. Productivity growth was the largest single factor, and the contrast often drawn is with Eastern Europe’s “shock therapy”, whose output collapse and hyperinflation China avoided. 6 61

Inequality grew as well. Before the reforms China’s income distribution was, in the words of the Asian Development Bank Institute, “egalitarian in all aspects”, but one study estimates that the Gini coefficient rose from 0.30 in 1980 to 0.55 in 2002. The official Gini peaked at 0.491 in 2008 and stood at 0.465 in 2019; Southwestern University of Finance and Economics estimated 0.61 for 2012, and the World Bank, allowing for lower rural prices, calculated 0.385 for 2016. In 2009 urban incomes were 3.33 times rural ones, the widest gap in more than three decades. The retreat of the welfare system, the coastal-inland divide and the xiagang layoffs are cited as causes. In the 1990s the intellectual world split between liberals demanding political reform and the rule of law and a New Left that saw corruption and inequality as products of marketisation and called for social justice. 62 6 59

Explanations of the success diverge. Some stress decentralisation and gradualism, letting localities experiment and spreading what worked, and incentive structures that promoted officials for growth. Lin Chun, by contrast, argues that legacies of the pre-reform period were at least as important: the human capital built by decades of state investment in health and public education, state and collective ownership of land, and public ownership of strategic industries. Mancur Olson even argued that the Cultural Revolution, by destroying entrenched interest groups, reduced resistance to reform. Maurice Meisner, in The Deng Xiaoping Era: An Inquiry into the Fate of Chinese Socialism (1996), traced the rise of “bureaucratic capitalism” under the banner of building “socialism with Chinese characteristics”. Deng’s road, summed up as “reform the economy, hold the politics”, has been contrasted with Gorbachev’s perestroika. The Four Cardinal Principles excluded reform of the political system, and the fall of Hu Yaobang and Zhao Ziyang marked the boundary. 6 63 64 36

The questions reform and opening leave the socialist movement are twofold. On the one hand a state led by a communist party drew in markets and foreign capital, lifted hundreds of millions out of poverty and built the world’s largest manufacturing country, explaining it as “socialism with Chinese characteristics” and the “primary stage of socialism”. On the other, the process dismantled the socialist-era guarantees of lifetime employment and welfare for state workers and revived the gaps between employer and worker, coast and interior, town and country. Since Deng himself in 1992 made common prosperity part of the essence of socialism and said that “if the rich keep getting richer and the poor poorer, polarization will emerge. The socialist system must and can avoid polarization”, how far that promise has been kept remains the yardstick by which reform-era China is judged. 53 6 59 47