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Even though the Republic of China (ROC, also known as Taiwan) is not a member of the United Nations, it has been economically successful. What is the secret behind the economic success of it then?
One word - manufacturing. Before China was the country of cheap labor it was Taiwan, just as Japan was before Taiwan. Taiwan built up a lot of manufacturing know-how, and still does so in computer chips and some other respects, it also has many companies that manufacture on the mainland. The capability of Taiwan being able to do this also coincides with its economic system, which as differentiated from the Maoist-Communist system on the mainland, allowed entrepreneurship to blossom as Japanese and US investment came into Taiwan.
For a recent economic overview on Taiwan's GDP Growth:
The Gross Domestic Product (GDP) in Taiwan expanded 1.06 percent in the first quarter of 2012 over the previous quarter. Historically, from 1981 until 2012, Taiwan GDP Growth Rate averaged 1.4000 Percent reaching an all time high of 5.6400 Percent in December of 1990 and a record low of -5.0700 Percent in December of 2008. The Gross Domestic Product (GDP) growth rate provides an aggregated measure of changes in value of the goods and services produced by an economy. Taiwan is an industrialized, developed country, just off the coast of China. Taiwan's economy, one of the "Four Asian Tigers", is export-oriented and specialized in production of electronics and machinery. In fact, Taiwan is one of the world's largest suppliers of computer chips, LCD panels, DRAM computer memory, networking equipment, and consumer electronics. Textile production, although already in decline, is another major industrial export sector. This page includes a chart with historical data for Taiwan GDP Growth Rate.
And for a historical review of Industrial Development in Taiwan you can review Digital Taiwan's overview which puts it better than I can to cover their many areas of Production.
Edited: So I guess if you ask for the Why then you can look up the Taiwan Miracle where although land reform moved labor to Urban Centers, providing for a cheap factory worker group you also have increased US Aid which
created a massive industrial infrastructure, communications, and developed the educational system
Without that industrial infrastructure you could not have the manufacturing take off that the country had, in my opinion. Again the economic system plays a very important role, Capitalist markets on Taiwan allowed it to grow and become a manufacturing/exporter with a cheap, educated labor pool. Since many of these reforms, or a cheap manufacturing workforce, never took place on the Mainland until Deng Xiaoping began reforms that set the stage for the China we have today. As noted on Suite 101's Chinese History page Deng began reforms in 1978 called the
gaige kaifang, or “reform and opening up.” These were intended to jumpstart China's economy and caused rapid economic growth in China.
Once the commune system was abolished and the markets began to open then China became a place to invest and manufacture in. There is a good overview of Deng's reforms that note them in detail. But without the market forces that began to operate on the mainland in agriculture and industry, just as they did in Taiwan previously, then China never would have taken over.
Although considering the state of Taiwan for the past 10 years I am not sure you can call them an economic success anymore, considering their marginalization within the UN world body they do pretty well. As to the marginalization in numerous world bodies that is another question in itself that deserves its own answer. And yes I know they still do well as a county, my wife comes from Taiwan so I keep an eye as to what is going on there.
One East Asian economic miracle occurred in Japan. A few years later 4 more occurred in S. Korea, Taiwan, Singapore and Hong Kong.
All of these countries and Hong Kong had a few things in common.
All had spent significant time being governed by Either Japan or England. None were democratic and so were able to avoid the temptations of socialism. All managed to avoid a communist revolution for various reasons. All were cultures that prized education.
As for Taiwan in particular, they were rebuilding their wealth, not just creating it from scratch. The Japanese has built infrastructure and schools while ruling Taiwan. Just before WWII Taiwan was the wealthiest region in Asia outside of the Japanese home islands. After the war the Chinese looted Taiwan, introduced corruption and caused unrest, but the human capital (an educated experienced workforce) and much of the infrastructure survived.
A brief history of China’s economic growth
China’s meteoric rise over the past half century is one of the most striking examples of the impact of opening an economy up to global markets.
Over that period the country has undergone a shift from a largely agrarian society to an industrial powerhouse. In the process it has seen sharp increases in productivity and wages that have allowed China to become the world’s second-largest economy.
While the pace of growth over recent decades has been remarkable, it is also important to look at what the future might hold now that a large chunk of the gains from urbanization have been exhausted. A new paper published by the NBER attempts to do just that, looking back over China’s growth story between 1953-2012 and using the data to model plausible scenarios for the country up to 2050.
Here are some of the key charts that help explain China’s rise:
Lessons from history
The first two decades following the founding of the People’s Republic of China in 1949 was marked by periods of substantial growth in per capita GDP growth, the growth of output per person, followed by sharp reversals.
The authors of the NBER paper suggest this represented the success of the First Five-Year Plan, during which Soviet advisers helped establish and operate the 156 large-scale capital intensive Soviet-assisted projects”, significantly increasing the pace and quality (productivity) of industrialization in the country. However, it was followed by the Great Leap Forward (1958-1962), which undid many of the gains through worsening of incentives by banning material incentives and restricting markets.
These reforms were then unwound between 1962 and 1966, leading to another period of productivity and per capita GDP growth, before the events of the Cultural Revolution (where strikers clashed with the authorities) set the economy back once again.
According to the authors, the Third Plenary Session of the 11th Central Committee of the Communist Party in December 1978 was the defining moment in shifting the country from its unsteady early economic trajectory on to a more sustainable path. It laid the groundwork for future growth by introducing reforms that allowed farmers to sell their produce in local markets and began the shift from collective farming to the household responsibility system.
A year later the Law on Chinese Foreign Equity Joint Ventures was introduced, allowing foreign capital to enter China helping to boost regional economies although it took until the mid-1980s for the government to gradually ease pricing restrictions and allow companies to retain profits and set up their own wage structures. This not only helped to boost GDP from an annual average of 6% between 1953-1978 to 9.4% between 1978-2012 but also increased the pace of urbanization as workers were drawn from the countryside into higher-paying jobs in cities.
This process of market liberalization led to the establishment of China as a major global exporter. It eventually allowed for the reopening of the Shanghai stock exchange in December 1990 for the first time in over 40 years and, ultimately, to China’s accession to the World Trade Organisation
These reforms had a significant impact both on per capita GDP and the pace of the falling share of the labour force working in agriculture.
What the future holds
The good news for the global economy is that the authors of the NBER paper claim that the Chinese economy can continue to see relatively robust levels of growth, albeit significantly lower than we have seen over recent decades.
While the average growth rate of real GDP between 1978-2012 has been an impressive 9.4%, that figure could decline to between 7-8% between 2012-2024 in the authors’ base case. This is significantly higher than most commentators believe is likely given clear signs of a slowing economy in China’s recent economic data.
Here are their projections:
Of course, such long-range projections should be treated with a great deal of caution but the trajectory of travel is already clear – growth is slowing.
This is to be expected for an economy of China’s size, as compounding makes it harder and harder to deliver the same rate of growth from a higher level of GDP.
Moreover, the factors that have driven the country’s expansion over recent decades will also have to shift in their relative importance. For example, the numbers of people making the shift from agricultural jobs into higher value add city jobs are likely to decrease and the process of urbanization will therefore not be able to add as much to output per worker as it has done in the recent past.
Also, the catch-up process that has delivered significant productivity growth in the country is also likely to slow as Chinese industry gets closer to the technological sophistication of its Western counterparts, while the initial gains of adding hundreds of millions of workers to the global labour supply are also quickly fading.
Instead of allowing low-cost exports to drive growth, China will increasingly have to rely on expanding its own domestic demand to meet the government’s ambitious growth targets. Achieving this, however, will require further reforms to release Chinese consumers’ spending power and build the foundations of a more balanced economy.
Author: Tomas Hirst is editorial director and co-founder of Pieria magazine and was previously commissioning editor, digital content at the World Economic Forum.
Image: A Chinese national flag flutters at the headquarters of a commercial bank on a financial street near the headquarters of the People’s Bank of China, China’s central bank, in central Beijing November 24, 2014. REUTERS/Kim Kyung-Hoon
The Chinese Civil War between Chiang Kai-shek’s KMT forces and Mao Zedong's Chinese Communist Party (CCP) entered its final stage in 1945, following the surrender of Japan. Both sides sought to control and unify China. While Chiang heavily relied on assistance from the United States, Mao relied on support from the Soviet Union as well as the rural population of China. 
The bloody conflict between the KMT and the CCP began when both parties were attempting to subdue Chinese warlords in northern China (1926–28) and continued though the Second Sino-Japanese War (1932–45), during which time vast portions of China fell under Japanese occupation. The need to eliminate the warlords was seen as necessary by both Mao Zedong and Chiang Kai-shek, but for different reasons. For Mao, their elimination would end the feudal system in China, encouraging and preparing the country for socialism and communism. For Chiang, the warlords were a great threat to the central government. This basic dissimilarity in motivation continued throughout the years of fighting against the Japanese invasion of China, in spite of a common enemy.
Mao's Communist forces mobilized the peasantry in rural China against the Japanese, and at the time of the Japanese surrender in 1945 the Chinese Communist Party had built an army of nearly a million soldiers. [ citation needed ] The pressure Mao's forces placed on the Japanese benefitted the Soviet Union, and thus the CCP forces were supplied by the Soviets. [ citation needed ] The ideological unity of the CCP, and the experience acquired in fighting the Japanese, prepared it for the next battles against the Kuomintang. Though Chiang's forces were well equipped by the US, they lacked effective leadership and political unity.
In January 1949, Chiang Kai-shek stepped down as leader of the KMT and was replaced by his vice-president, Li Zongren. Li and Mao entered into negotiations for peace, but Nationalist hardliners rejected Mao's demands. [ citation needed ] When Li sought an additional delay in mid-April 1949, the Chinese Red Army crossed the Yangtze (Chang) River. Chiang fled to the island of Formosa (Taiwan), where approximately 300,000 soldiers had already been airlifted.
Over the course of 4 months beginning in August 1948, the ROC leaders relocated the Republic of China Air Force to Taiwan, taking over 80 flights and 3 ships.  Chen Chin-chang [zh] writes in his book on the subject that an average of 50 or 60 planes flew daily between Taiwan and China transporting fuel and ammunition between August 1948 and December 1949.
Chiang also sent the 26 naval vessels of the Nationalist army to Taiwan. The final Communist assault against Nationalist forces began on 20 April 1949 and continued until the end of summer. By August, the People's Liberation Army dominated almost all of mainland China the Nationalists held only Taiwan and the Pescadores Islands, some parts of Kwangtung, Fukien, Chekiang and a few regions in China's far west. 
Institute of History and Philology director Fu Ssu-nien spearheaded a rush to persuade scholars to flee to Taiwan, as well as bringing books and documents.  Institutions and colleges like Academia Sinica, National Palace Museum, National Tsing Hua University, National Chiao Tung University, Soochow University, Fu Jen Catholic University and St. Ignatius High School [zh] were re-established in Taiwan.
In 1948, Chiang Kai-shek began planning the KMT retreat to Taiwan with a plan to take gold and treasure from the mainland. The amount of gold that was moved differs according to sources, but it is usually estimated as between three million to five million taels (approximately 113.6-115.2 tons one tael is 37.2 grams). Other than gold, KMT brought old relics, which are now kept in the National Palace Museum in Taipei, Taiwan. Some scholars say the movement of gold and treasure was one of a number of protective measures against the Japanese invasion and occupation, similar to how European governments transferred gold to other locations during World War II.
There are different opinions on treasures that are at Taiwan's national palace museum. Some in China view the relocation as looting. Others believe these treasures have been accidentally protected, and might have been lost forever due to the Four Olds campaign during the Cultural Revolution. Others believe that Taiwan is still part of Chinese sovereign territory so the relocation is not an issue. 
The National Palace Museum claims that in 1948 when China was going through its Civil War, executive director Chu Chia-hua and others (Wang Shijie, Fu Ssu-nien, Xu Hong-Bao (Chinese: 徐洪宝 ), Li Ji (Chinese: 李济 ), and Han Lih-wu) discussed shipping masterpieces to Taiwan for the artifacts' safety. 
Chiang Kai-shek's mission to take gold from China was held secretly because, according to Dr Wu Sing-yung (Chinese: 吴兴镛 pinyin: Wu Xing-yong ), the entire mission was operated by Chiang himself. Only Chiang and Dr Wu's father, who was the head of Military Finance for the KMT government, knew about the expenditure and moving of gold to Taiwan and almost all orders by Chiang were issued verbally. Dr Wu stated that even the finance minister had no power over the final expenditure and transfer.  The written record was kept as the top military secret by Chiang in the Taipei Presidential Palace and the declassified archives only became available to the public more than 40 years after his death in April 1975.
Gold and treasures in Taiwan Edit
It is a widely held belief that the gold brought to Taiwan were used to lay foundations for the Taiwanese economy and government.  After six months of the gold operation by Chiang, the New Taiwanese dollar was launched, which replaced the old Taiwanese dollar at a ratio of one to 40,000. It is believed that 800,000 taels of gold were used to stabilize the economy which had been suffering from hyperinflation since 1945.
Three of the most famous artifacts taken by Chiang are the so-called Three Treasures of the National Palace Museum in Taipei: the Meat-shaped Stone, the Jadeite Cabbage, and the Mao Gong Ding.
Meat-shaped Stone Edit
The Meat-shaped Stone is a piece of jasper, dyed and carved to make it look like Dong po-ruo, a Chinese stewed pork belly. 
Jadeite Cabbage Edit
The second of the Three Treasures is the Jadeite Cabbage. It is carved out of a natural jade stone which was half green and half white. Its size is 9.1 centimeters (3.6 in), smaller than the average human hand. Since it was carved out of natural jade, it has a lot of flaws and cracks. This makes the sculpture seem more natural, for those cracks and flaws look like the cabbage's stem and leaves.
Mao Gong Ding Edit
The Mao Gong Ding is the third of the Three Treasures. It is a bronze tripod/cauldron. It has a height of 53.8 cm (21.2 in), width of 47.9 cm (18.9 in), and a weight of 34.7 kg (77 lb). It has an inscription of 497 characters arranged in 32 lines, the longest inscription among the Ancient Chinese bronze inscriptions. It is said to date back to the Ancient Zhou Era. 
From Taiwan, Chiang's air force attempted to bomb the mainland cities of Shanghai and Nanking, but to no effect. Chiang's ground forces aimed to return to the mainland, but had no long-term success. Thus Mao Zedong's Communist forces were left in control of all of China except Hainan Island and Taiwan.
As a whole, the Civil War had an immense impact on the Chinese people. The historian Jonathan Fenby proposes that “hyperinflation [during the Chinese Civil War] undermined everyday lives and ruined tens of millions, hampered by a poor taxation base, increased military spending and widespread corruption." 
Originally, the Republic of China planned to reconquer the mainland from the People's Republic. After the retreat to Taiwan, Chiang Kai-shek established a dictatorship over the island with other Nationalist leaders, and began making plans to invade the mainland.  [ failed verification ] Chiang conceived a top secret plan called Project National Glory or Project Guoguang (Chinese: 國光計劃 pinyin: Gúoguāng Jìhuà lit. 'National glory plan/project'), to accomplish this. Chiang's planned offensive involved 26 operations including land invasions and special operations behind enemy lines. He had asked his son Chiang Ching-kuo to draft a plan for air raids on the provinces of Fujian and Guangdong,  from where many ROC soldiers and much of the population of Taiwan had origins. If it had taken place, it would have been the largest seaborne invasion in history. 
Context of Project National Glory Edit
The 1960s saw Mao Zedong's so-called "Great Leap Forward" in mainland China lead to catastrophic famines and millions of deaths, as well as progress by the PRC towards possible development of nuclear weapons. Thus, Chiang Kai-shek saw a crisis-opportunity to launch an attack to reclaim mainland China.
At this time, the U.S. was fighting the Vietnam War. For Project National Glory to be successful Chiang Kai-shek knew he needed US military assistance. Thus he offered to help the Americans fight the Vietnam War in exchange for U.S. support conducive to take back his lost territory. The U.S. opposed and refused Chiang's suggestions. [ citation needed ] This did not stop him. Rather, Chiang went ahead with the preparations and continued to further his plan to take back their lost territory. 
In 1965, Chiang's plans to strike were completed. His generals and admirals planned possible dates to deploy while soldiers and field officers prepared for battle, according to the government archives.
1 April 1961: The year witnessed the advent of the Project National Glory. The office was built by the Republic of China Armed Forces together with the Ministry of National Defense in the town of Sanxia, Taipei County (now a district in New Taipei City). Army Lieutenant General Zhu Yuancong took the role of governor and officially launched the project to compose a prudent plan of operations to recover the lost territories in mainland China. At the same time, the establishment of Project Juguan [ clarify ] came to light whereby military members began to work out a possible alliance with American troops to attack mainland China.
April 1964: During this year, Chiang Kai-shek arranged an ensemble of air-raid shelters and five military offices at Lake Cihu (Chinese: 慈湖 ), which served as a secret command centre. Following the establishment of Project National Glory, several sub-plans were put into place, such as the frontal area of the enemy, rear area special warfare, surprise attack, take advantage of the counterattack, and assistance against tyranny.
However, the United States Armed Forces and the U.S. Department of Defense, together with the State Department, strongly opposed Project National Glory rejecting the KMT plan to retake mainland China. Thus, every week American troops checked the inventory of Republic of China Marine Corps amphibious landing vehicles used by ROC and ordered American military advisory group members to fly over the Project National Glory camp on scouting missions. These flyovers infuriated Chiang Kai-Shek.
17 June 1965: Chiang Kai-shek visited the Republic of China Military Academy to convene with all mid level and higher officers to devise and launch the counterattack.
24 June 1965: A multitude of soldiers [ quantify ] died during a training drill to feign a Communist attack on major naval bases in southern Taiwan near Zuoying District. The deaths that occurred during the happening were the first but not the last in Project National Glory. 
6 August 1965: A People's Liberation Army Navy torpedo boat ambushed and drowned 200 soldiers as the Zhangjiang naval warship carried out assignment Tsunami Number 1, in an attempt to transport special forces to the vicinity of the Eastern mainland Chinese coastal island of Dongshan to carry out an intelligence gathering operation.
November 1965: Chiang Kai-shek ordered two other naval vessels, the CNS Shan Hai and the CNS Lin Huai to pick up injured soldiers from Taiwan's offshore islands of Magong and Wuqiu. The vessels were attacked by 12 PRC ships, the Lin Huai sunk, and roughly 90 soldiers and sailors were killed in action. Surprised by the heavy loss of life in the naval battle at Magong, Chiang gave up all hope for Project National Glory.
After several unsuccessful feigned invasions between August 1971 and June 1973, in the lead up to the main landings, the 1973 coup which witnessed Nie Rongzhen's rise to power in Beijing [ clarification needed ] drove Chiang to call off all further false attacks and commence full landing operations. Having said this, according to General Huang Chih-chung, who was an army colonel at the time and part of the planning process, Chiang Kai-shek never completely gave up the desire to recapture China "even when he died (in 1975), he was still hoping the international situation would change and that the Communists would be wiped out one day." 
Failure and shift of focus to modernization Edit
The failure of Chiang's Project National Glory changed the course of Chinese and Taiwanese history, forever altering Mainland-Formosa relations. For example, the Taiwanese “shifted the focus to modernizing and defending Taiwan instead of preparing Taiwan to take back China,” stated Andrew Yang, a political scientist specializing in Taiwan-Mainland China relations at the Taipei-based Council of Advanced Policy Studies.  Chiang Kai-shek's son Chiang Ching-kuo, who later succeeded him as president, focused on maintaining peace between the mainland and Taiwan. Today, political relations between Taiwan and China have changed as General Huang said, "I hope it will develop peacefully. There's no need for war." 
After being expelled from the mainland, Chiang Kai-shek and other KMT leaders realized they must reform the party.
Reinventing a new political party Edit
In late 1949, having been almost destroyed by the Chinese Communists, the Kuomintang relocated to Taiwan and reinvented itself. Not only did the KMT leadership build a new party, but it built a new polity on Taiwan that created economic prosperity. From August 1950 to October 1952, more than four hundred working meetings were held almost four times a week to discuss how to build a new political party and implement Nationalist government policies. On August 5, 1950, Chiang chose the Central Reform Committee (CRC) to serve as the party's core leadership for planning and acting. The CRC members were on average young with an average age of 47 and all had college degrees. 
The new CRC had six goals.
- Make the KMT a revolutionary democratic party.
- Recruit peasants, workers, youth, intellectuals, and capitalists.
- Adhere to democratic centralism.
- Establish the work team as the basic organizational unit.
- Maintain high standards of leadership and obey the party's decisions,
- Adopt Dr. Sun Yat-sen’s Three Principles of the People as the KMT's ideology.
All CRC members took an oath to fulfill the party's ultimate goals which is to get rid of the Communists and recover the Chinese mainland. 
Expanding the Party's social foundation Edit
Having organized a cohesive, loyal party, Chiang Kai-shek wanted to extend its influence deep into Taiwan's society in order to broaden its social base. One way to do that was to select new members from different socioeconomic groups. Various party branch members were ordered to recruit new members, especially students and teachers. New members had to show loyalty to the KMT party, understand what the party represented, obey party principles, and perform services for the party. In return, the CRC promised to pay attention to society's needs, which helped the CRC define a clear political purpose. Party policy also targeted ways to improve ordinary people's living conditions. Having new party branches made up of people of similar social status was a strategy that improved relations with workers, business leaders, farmers, intellectuals.  With the new party branches promoting the various groups of people, the KMT was able slowly to extend its control and influence into Taiwan's villages. By October 1952, KMT membership had reached nearly 282,000, compared to the 50,000 members who had fled to Taiwan. More significant, more than half the party members were Taiwanese. By the late 1960s, this number had risen to nearly one million. 
CRC made its work teams responsible for enforcing party policies and informing members how to behave. They also prevented communist infiltration, and recruited new party members after investigating their backgrounds, in order to hold regular meetings to discuss party strategy. The new party, then, behaved very differently from the way it had before 1949, with its work teams having new managerial and training responsibilities. According to the KMT's new rules, all party members had to join a work team and attend its meetings so that the party leadership could discover who was loyal and active. According to one report, in the summer of 1952, the KMT's Taiwan provincial party headquarters had at least thirty thousand work-team units in the field, each unit having at least nine members who worked in various state agencies, areas of Taiwan, and occupations.  Gradually, the party expanded its influence in society and in the state.
Local political reforms Edit
An important KMT tactic was to promote limited, local-level political reforms to enhance the party's authority with the Taiwanese people. To legitimize the Republic of China (ROC) as the central government for all China, Taiwan's Nationalist government needed elected representatives for all China. Thus, in 1947 more than one thousand mainlanders in Nanking were elected by the Chinese people as members of the National Assembly, Legislative Yuan, and the Control Yuan. After coming to Taiwan, those representatives were permitted to hold their seats until the next ROC election could be held on the mainland, thus legitimizing the ROC's control of Taiwan. 
In this new political environment, the reformed KMT and the ROC government were able to propose their new power. Chiang Kai-shek believed that, in this authoritarian polity, local elections could promote Taiwan's eventual democracy. People did not believe that the KMT would ever not interfere with such elections. However, having so many local elections in a year, many voters became convinced that the KMT wanted to advance political pluralism. Party leaders tried to broaden their influence, while only slowly allowing opposing politicians to compete, by giving political lessons to teach voters how democracy should work.
In January 1951, the first elections for county and city council were held. In April, other elections followed for county and municipal offices. In December 1951, the Taiwan Provisional Provincial Assembly was organized. Its members were appointed by county and municipal assemblies.  Through martial law and the control of local election rules, the KMT won most of those local elections but claimed that free elections had been held. Chiang believed that enough liberty had been granted. Therefore, party leaders continued to emphasize that martial law was still necessary.
The new approach of the party also extended to its approach to education. Initially, the party had seen public schools as a necessary instrument of assimilation and nation-building. Private schools, seen as unwanted competition, were therefore suppressed. However, as education needs on the island began to outstrip government resources, the party reevaluated their approach. Starting in 1954, private schools were not only tolerated, but backed by state funding. Simultaneously, steps were taken to secure the obedience of private schools, such as ensuring the placement of party loyalists on school boards and the passing of strict laws to control the political content of the curricula. 
There are opposing views on the legality of the KMT takeover of Taiwan. At the time of the retreat to Taiwan, the KMT maintained that they were a government in exile. The Chinese Communist government maintains to this day that the Republic of China on Taiwan is a province that must eventually return to rule by the mainland.
According to an article published in 1955 on the legal status of Taiwan, "It has been charged that Chiang Kai-shek has no claim to the island because he is 'merely a fugitive quartering his army' there and besides, his is a government in exile."  Moreover, the Treaty of San Francisco, which was officially signed by 48 nations on 8 September 1951, did not specify to whom Japan was ceding Taiwan and Pescadores. Despite this, the ROC was viewed by the vast majority of states at the time as the legitimate representative of China, as it had succeeded the Qing Dynasty, while the PRC was at the time a mostly unrecognized state. Japan was, at the time of the signing of the Treaty of San Francisco, still technically under American occupation.  After full independence, Japan established full relations with the ROC and not the PRC. 
The Secret Behind the Chinese Communist Party’s Perseverance
One of the key factors in the CCP’s survival is its insistence on perpetuating its own truth.
With the celebration of the 100th anniversary of the Chinese Communist Party looming in July, it’s timely to look at the nature of a political party that has managed to survive 10 decades of internal strife, self-inflicted wounds, and a recurring loss of confidence among the people it purports to lead.
In this, part 1 of a series of essays on the CCP in the run-up to its centennial, we look at the perseverance with which the Party has maintained its relevance, its power, and its grip on the future of the most populous country on Earth. The Chinese Communist Party’s insistence on its right to lead the country, along with its often-blind adherence to its own sense of superiority, underpins the longevity of the CCP, and explains the astonishing resilience of the world’s longest-surviving Leninist relic.
As such, countries and companies that engage with PRC entities today would be wise to be mindful that the CCP side in any negotiation or relationship will persevere to ensure that the outcome enhances the continued health, welfare, and existence of the Chinese Communist Party. This fundamental goal has been a hallmark of the CCP since its birth and is central to all areas related to the CCP’s long-term interests. A foreign country’s goal may be a trade agreement to advance the interests of its companies at home. On the surface, the CCP side may seem to negotiate for the same goal for its own companies, but the mission will always be larger than just that one contract.
To protect the party, even companies and their successful CEOs will be sacrificed if those interests in any way conflict with or threaten the supremacy and policies of the CCP. The three-month disappearance from the public eye of billionaire Alibaba founder Jack Ma from October 2020 to January 2021 is a recent example.
Over the last 30 years in particular, through trade, investment, diplomacy, sanctions, international treaties, inclusion in international organizations, and educational opportunities, nations and corporations around the world have tried to temper and tame – China would say contain – the excesses of authoritarian control in which the Chinese Communist Party regularly engages as it perpetuates its mission to build and maintain its power.
As we see today, however, the carrots and sticks used by the international community have not worked well. Despite its gains in material development, the Chinese Communist Party cannot take the plunge into true political reform and development. And from its perspective, it has little need to. It has persevered and grown stronger than its greatest expectations. Many CCP members today view the party’s continued leadership as proof that its methods have been correct. The end has fully justified the means. Why change when steadfast attention to the health of the CCP has kept it alive and thriving for a hundred years, even when it has not only stumbled, but at times fallen over a cliff? The party, say many, is only fulfilling its manifest destiny, with a fervor that was born out of its earliest struggles.
The First 40 Years: A Litany of Challenges
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In its journey from unassuming beginnings in Shanghai to a behemoth of political and economic wherewithal that has just landed a rover on Mars, the CCP has faced hurdles throughout its history that have challenged it to its core.
But it’s useful to remember that in the first 28 years of its existence, the CCP did not gain national political dominance. Those first nearly three decades saw the party struggle to achieve the goals with which the Soviet Bolsheviks had inspired them. The CCP twice joined forces with the Nationalist Party of Chiang Kai-shek, before ultimately and improbably clawing out a brutally-won military and political victory over the entire mainland.
For 18 years, the armies of the Communist Party were constantly at war. The Red Army lost millions not only in the civil wars which they waged against the Nationalists, but also in their collaborative efforts with the Nationalists to rout the Japanese out of China.
Once the Chinese Communist Party won the day and established the People’s Republic of China in 1949, with most of the Nationalists setting up camp on Taiwan, the CCP was faced with a monumental challenge: what to do with what they had won. The political support they had garnered among tens of millions of Chinese in the countryside now had to be built out across the entire nation.
The CCP was not without resources, however, and took cues, training, and technology from their political mentors, the Soviets. Predictably, the honeymoon was soon over, and Soviet advisors began leaving China just as Mao Zedong initiated the Great Leap Forward. The goal was to communize the countryside. The famine that ensued cost the country anywhere between 15 and 55 million lives, and yet the CCP survived.
How does a political party recover from implementing policies that directly cause the death of anywhere between 15 and 55 million of its citizens? How does that party remain in power when even the official tally of the dead cannot be more accurately quoted than within a range of 40 million souls who may, or may not, have died from starvation?
What possible steps could such a political party take to effectively overcome the damage to its legitimacy that such a disaster made?
The answer, as always, was a dedicated perseverance, imbued by its early years into the culture of the party, to control the narrative, and to switch the blame from the CCP to the incompetence of individual persons, all while adding in the malign role that nature played in creating a perfect storm of a humanitarian crisis of truly immeasurable proportions.
Perpetuating Its Own Truths
When tested through the prism of the CCP’s unwavering defense of its legitimacy, many of China’s seemingly inexplicable, self-destructive, reputation-destroying policies, practices, and pronouncements make sense.
A key example is the CCP’s reaction when in July 2016 an international tribunal ruled overwhelmingly in the Philippines’ favor in a case Manila brought against China’s South China Sea claims. The tribunal dismissed China’s nine-dash line claim, and its more nebulous claim to “historic rights” in the South China Sea, and accused Beijing of causing monumental environmental damage on its occupied reefs, to boot.
Every arm of the CCP came to its own defense, calling the ruling “a farce.” According to The Guardian, China’s People’s Daily, the official voice of the CCP, said that “The Chinese government and the Chinese people firmly oppose [the ruling] and will neither acknowledge it nor accept it.” The Guardian also quoted China’s Global Times as saying the ruling had “brazenly violated China’s territorial sovereignty and maritime rights.”
Does this hurt China’s reputation around the world? Of course. Does that damage matter to the Chinese Communist Party? Not that much, and it’s certainly outweighed by the benefit of those reefs, which give a direct advantage to the party in its goal of controlling commercial and military operations in the South China Sea, which in turn supports the goal of strengthening the CCP and extending its longevity. Judging China’s behavior in terms of any other value system is not only pointless, but will always come up with wrong answer.
Thus, the Chinese Communist Party perseveres by perpetuating its own truths, maintaining a laser focus on strengthening and lengthening its life and influence, while judging its results by its own terms only.
In the next article, we’ll focus on a specific example of that perseverance: the survival of the Chinese Communist Party during and after the June 4, 1989 massacre in and around Tiananmen Square in Beijing.
Bonnie Girard is President of China Channel Ltd. She has lived and worked in China for half of her adult life, beginning in 1987 when she studied at the Foreign Affairs College in Beijing.
Another is written by Jie Ding, an official from the China International Publishing Group, an organisation controlled by the Chinese Communist Party. It argues that "there is a lack of systematic ordering and maintenance of contents about China's major political discourse on Wikipedia".
It too urges the importance to "reflect our voices and opinions in the entry, so as to objectively and truly reflect the influence of Chinese path and Chinese thoughts on other countries and history".
"'Telling China's story' is a concept that has gained huge traction over the past couple of years," Lokman Tsui, an assistant professor at the Chinese University of Hong Kong, told BBC Click. "They think that a lot of the perceptions people have of China abroad are really misunderstandings."
To Tsui, an important shift is now happening as China mobilises its system of domestic online control to now extend beyond its borders to confront the perceived misconceptions that exist there. Wikipedia has confronted the problem of vandalism since its beginning. You can see all the edits that are made, vandalism can be rolled back in a second, pages can be locked, and the site is patrolled by a combination of bots and editors.
People have tried to manipulate Wikipedia from the very beginning, and others have worked to stop them for just as long.
However, much of the activity that Lin described isn't quite vandalism. Some - such as Taiwan's sovereignty - is about asserting one disputed claim above others. Others, subtler still, are about the pruning of language, especially in Mandarin, to make a political point.
Should the Hong Kong protests be considered "against" China? Should you call a community "Taiwanese people of Han descent", or "a subgroup of Han Chinese, native to Taiwan"?
It is over this kind of linguistic territory that many of the fiercest battles rage.
Why a Taiwan Invasion Would Look Nothing Like D-Day
Our natural impulse when thinking about future amphibious operations is to look to the past. Yet the reality is that no good point of comparison for a Chinese invasion of Taiwan exists.
The first team of Taiwan artillerywomen poses for the press during the annual Han Kuang exercises in Pingtung County, southern Taiwan, Thursday, May 30, 2019.
Credit: AP Photo/Chiang Ying-ying Advertisement
Every year on June 6, the United States and its NATO allies commemorate the anniversary of D-Day, the daring amphibious assault on France’s Normandy region that helped bring down Nazism and liberated Western Europe. Today, commentators frequently draw parallels between D-Day and an imagined Chinese invasion of Taiwan. But such comparisons are wrong. Here’s why.
Emotion Versus Logic
Most observers view the Normandy landings as a glorious moment in human history. The very thought of D-Day evokes strong positive emotions, especially for citizens in the Western democracies that were involved. It’s easy to see, then, why likening D-Day to the invasion of democratic Taiwan could be problematic. Chinese Communist Party (CCP) propaganda notwithstanding, Beijing’s campaign would be about spreading tyranny, not liberating oppressed peoples.
That’s why I like to use the term Zero Day (Z-Day) to refer to the notional date of a future Chinese invasion of Taiwan. Z-Day is the term Winston Churchill used when talking about a potential Nazi invasion of England, an operation Adolf Hitler planned to launch in 1940, but aborted after he lost the battle for air supremacy over the English Channel. While all historical metaphors are imperfect, this one seems fitting, even hopeful. For England, Z-Day never actually arrived.
But if a future Z-Day did come to Taiwan’s shores, it wouldn’t be like the Normandy landings. Our natural impulse when thinking about future amphibious operations is to look to the past. Yet the reality of this scenario is that no good point of comparison exists. Nothing even remotely similar has occurred in history.
It’s easy to forget that World War II’s grandest amphibious operation was actually a relatively simple affair in terms of the battlespace. The D-Day landings occurred in rural France along a relatively flat, 80-kilometer beachfront. The harrowing bluffs overlooking Omaha Beach made famous by the Hollywood movie “Saving Private Ryan” were only between 100 and 170 feet high. Few civilians lived in the area, which had been extensively bombed prior to the assaults.
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Normandy’s beaches were heavily fortified, but lightly garrisoned. They were defended by around 50,000 troops under German command. To defeat them, the Allies employed over 6,000 ships and over 1,000 aircraft, which together landed approximately 155,000 troops on D-Day, including 24,000 by air.
Now think of a very different battlefield. Taiwan is a rugged, heavily urbanized nation of 23.6 million people. The country of Taiwan (also known as the Republic of China) is made up of over 100 islands, most too tiny to see on the map. Many of Taiwan’s outer islands bristle with missiles, rockets, and artillery guns. Their granite hills have been honeycombed with tunnels and bunker systems.
The main island of Taiwan is 394 kilometers long and 144 kilometers across at its widest point. It has 258 peaks over 3,000 meters in elevation. The tallest, Yushan, or “Jade Mountain,” is just under 4,000 meters high.
Unlike Normandy, the coastal terrain here is a defender’s dream come true. Taiwan has only 14 small invasion beaches, and they are bordered by cliffs and urban jungles. Linkou Beach near Taipei provides an illustrative example. Towering directly over the beach is Guanyin Mountain (615 meters). On its right flank is the Linkou Plateau (250 meters), and to its left is Yangming Mountain (1,094 meters). Structures made of steel-reinforced concrete blanket the surrounding valleys. Taiwan gets hits by typhoons and earthquakes all the time, so each building and bridge is designed to withstand severe buffeting.
This extreme geography is densely garrisoned by armed defenders. In wartime, Taiwan could mobilize a counter-invasion force of at least 450,000 troops, and probably far more. While Taiwan’s standing military is only around 190,000 strong, it has a large reserve force comprised primarily of recent conscripts with basic training. In 2020, Taiwan’s then defense minister estimated that 260,000 reservists could be mobilized in a worst-case scenario to augment active-duty personnel. This appears to be a conservative estimate.
Over 2 million young Taiwanese men are in the military’s reserve system, along with a large number of registered government personnel and contractors. Taiwan’s all-out defense strategy encompasses police officers, firefighters, airline personnel, bulldozer operators, construction workers, truck drivers, bus drivers, fishing boat crews, doctors, nurses, and many others. By law, pretty much anyone with a useful wartime skill could be pressed into national service.
It is not public information how many guns Taiwan has stockpiled for its army, marine, and military police reservists. Nor is it clear whether Taiwan’s unpopular and poorly-resourced reserve system could effectively mobilize and use a significant number of them. Much would depend on early warning intelligence, and the will of Taiwan’s president and her cabinet to act with alacrity. Democracies are often reluctant to declare national emergencies and institute martial law until the enemy invasion starts. This might be why the former defense minister pessimistically assumed he would only be able to mobilize around 15 percent of the military’s total reserve force.
Were it to occur, the battle for Taiwan would involve other complexities that are vital but squishy, meaning they cannot be satisfactorily quantified. It would be the first country-on-country war where both attacker and defender had modern, long range missiles in their arsenals capable of cracking open ships and devastating land targets with precision from hundreds of kilometers away. No one actually knows what such a fight would look like because it’s never happened before.
Both sides would have advanced cyber weapons, electronic warfare suites, smart mines, and drone swarms that have never been tested in real-world combat. Both would have satellites and at least some ability to attack satellites. Both would have economic leverage to use and the ability to cripple the other’s economy.
Both would have large numbers of its citizens living in the other’s territory, a certain but unknown number of whom are saboteurs and spies (and some of those double agents). Both would have the fearful option of using weapons of mass destruction to disperse biological, chemical, and radioactive agents against the other. And both might apply more exotic weapons, such as directed energy weapons and hypersonic missiles.
The most critical question, of course, is what the United States would do. It seems logical to assume the White House would send aid to Taiwan. Whether or not the president would order U.S. forces to defend Taiwan is currently unknown. Nonetheless, according to the Taiwan Relations Act, the U.S. military must plan on defending Taiwan and prepare accordingly.
Unlike the U.S. military, the PLA has not seen combat since 1979. As a result, nobody serving today in China has any combat experience except for a handful of geriatric generals. Equally important, the Chinese military does not train in realistic, highly complex environments. These two facts call into question whether or not the PLA could actually pull off a complex invasion operation successfully. If the U.S. came to Taiwan’s defense, few experts would give China good odds.
Some things we can count on, or at least estimate with the help of computers. The quantifiable elements of the PLA invasion operation would be mindboggling. Millions of armed forces in uniform would be mobilized in China, including soldiers, sailors, airmen, rocketeers, marines, cyber warriors, armed police, reservists, ground militia, and maritime militia. It seems likely that somewhere between 1 and 2 million combat troops would actually have to cross the Taiwan Strait, which is 128 kilometers across at its narrowest point and 410 kilometers at its widest opening.
PLA troop numbers, of course, are highly speculative “best” guesses, which depend entirely on assumptions. In theory, the PLA might land as few as 300,000 to 400,000 soldiers, for example if the Taiwanese president was killed or captured prior to Z-Day and armed resistance crumbled. On the other hand, if the Taiwanese government survived and mobilized everything under its power in a timely fashion, the PLA might have to send over 2 million troops to Taiwan, including paramilitaries such as the People’s Armed Police and the Militia of China.
Why so many? Commanders planning offensive operations typically want a 3-to-1 superiority over the defender. If the terrain is unfavorable, they might want a 5-to-1 ratio (and sometimes more). Assuming Taiwan had 450,000 defenders, the PLA general in charge would therefore want to have at least 1.35 million men, but probably more like 2.25 million. Obviously, this is a simplistic formula. But without access to top secret Chinese military studies and plans, a logical estimate is better than the alternative.
If the PLA ground force was a million or more men, then we might expect an armada of thousands or even tens of thousands of ships to deliver them. The vast majority of these ships would not be from the PLA Navy. Vessels like tugs, oilers, barges, ferries, fishing boats, semi-submersible platforms, container carriers, and heavy roll-on/roll-off cargo ships would be mobilized. According to Chinese military doctrine, many ships would be deployed as decoys, conducting feints to distract attention away from the main assault.
For the PLA, enormous ship numbers are now attainable. The CCP’s military-civil fusion strategy has been gearing up for just such an operation. China’s civilian fleets are vast, and every day more hulls are being retrofitted to support a future military campaign against Taiwan.
For Beijing to have reasonable prospects of victory, the PLA would have to move thousands of tanks, artillery guns, armored personnel vehicles, and rocket launchers across with the troops. Mountains of equipment and lakes of fuel would have to cross with them. In addition to ships, thousands of transport planes and helicopters would be involved in the mammoth lift operation.
Over 90 million CCP members would be supporting the war effort, along with the industrial might of a nation of 1.3 billion people. China’s Marxist-Leninist system is uniquely capable of extracting private resources for the state’s use. According to Xi Jinping, one of the CCP’s greatest strengths is its ability to force collective action and conduct mass campaigns, especially in times of emergency.
The invasion of Taiwan would be the supreme emergency for all sides. It would be unlike anything ever seen before. It would new, different, and unpredictable.
Much is unknowable and nothing is inevitable about a potential Chinese invasion of Taiwan. The complexities inherent in this scenario are impossible to account for with a high degree of confidence. Even war games played on the Pentagon’s supercomputers rely on hefty inputs of human guesswork. A lot of it is pure wind. That’s the point. Wargame designers want military officers to experience defeat and talk over problems so they can do better in the real world. These are training exercises, not visits to some digital Oracle of Delphi.
Our minds are naturally drawn toward binaries, simple black and white formulas that help us make sense of the world. Consider these statements: “Beware! Z-Day is coming soon.” “Chill the hype! Z-Day will never come.” “Surrender! Taiwan is indefensible.” “Relax! Taiwan is impregnable.”
These are all false choices. The truth is that the future is unseeable no one knows what it might bring. Sometimes the more we study something that is truly complex, the less sure we are that we understand it. And sometimes that’s a good thing.
If he is sane, Xi Jinping will think hard before ordering an attack on Taiwan and realize how quickly events could spin out of his control. But can we really trust a genocidal dictator to act in a rational manner? That seems unwise.
There are countless things the United States and Taiwan can do in the open to raise doubts in Xi’s mind. There are even more things they can do in secret to prepare to win on Z-Day if that becomes necessary. Washington and Taipei have their work cut out for them.
The United States and Taiwan should strive toward what my colleague Mark Stokes has a dubbed a NSC (normal, stable, and constructive) relationship. The current ambiguity surrounding Washington’s policy toward Taiwan is destabilizing because it isolates Taipei, emboldens Beijing, and invites miscalculation on all sides.
Preserving peace for the long haul will require fresh thinking, political willpower, and a greater sense of vigilance. A basic knowledge of geography − and history − might also help.
Ian Easton is a senior director at the Project 2049 Institute and author of “The Chinese Invasion Threat: Taiwan’s Defense and American Strategy in Asia.”
China's growth has reduced poverty. Only 3.3% of the population lives below the poverty line. China contains about 20% of the world's population. As its people get richer, they will consume more. Companies will try to sell to this market, the largest in the world, and tailor their products to Chinese tastes.
Growth is making China a world economic leader. China is now the world's biggest producer of aluminum and steel.
Chinese tech companies quickly became market leaders. Huawei is the world's top telecommunications equipment maker. It is quickly becoming a world leader in developing 5G technology. Lenovo is a world-class maker of personal computers. Xiaomi is one of China's top smartphone brands.
What would China’s economy look like today?
But even if Xi has made the right tactical calculation for the current moment, his own senescence, together with the logic of how authoritarian command organisations evolve, all but ensure that his strategy will end in tears.
It is a huge mistake to ignore the benefits that come with more regional autonomy. Consider an alternative history in which the People’s Liberation Army had overrun both Hong Kong and Taiwan in 1949 Sichuan had not been allowed to pursue pilot reform programs in 1975, when Zhao Ziyang was appointed provincial party secretary and China’s centralisation had proceeded to the point that the Guangzhou Military District could not offer Deng refuge from the wrath of the Gang of Four in 1976. What would China’s economy look like today?
It would be a basket case. Rather than enjoying a rapid ascent to economic superpower status, China would find itself being compared to the likes of Burma or Pakistan.
When Mao Zedong died in 1976, China was impoverished and rudderless. But it learned to stand on its own two feet by drawing on Taiwan and Hong Kong’s entrepreneurial classes and financing systems, emulating Zhao’s policies in Sichuan, and opening up Special Economic Zones in places like Guangzhou and Shenzhen.
At some point in the future, China will need to choose between governmental strategies and systems. It is safe to assume that relying on top-down decrees from an ageing, mentally declining paramount leader who is vulnerable to careerist flattery will not produce good results. The more that China centralises, the more it will suffer. But if decisions about policies and institutions are based on a rough consensus among keen-eyed observers who are open to emulating the practices and experiments of successful regions, China will thrive.
A China with many distinct systems exploring possible paths to the future might really have a chance of becoming a global leader and proving worthy of the role. A centralised, authoritarian China that demands submission to a single emperor will never have that opportunity.
J. Bradford DeLong, a former deputy assistant US Treasury secretary, is professor of economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research.
COVID-19’s Impact on Cruise Ships
2020 was a tough year for the cruise ship industry, as travel restrictions and onboard outbreaks halted the $150 billion industry. As a result, some operations were forced to downsize—for instance, the notable cruise operation Carnival removed 13 ships from its fleet in July 2020.
That being said, restrictions are slowly beginning to loosen, and industry experts remain hopeful that things will look different in 2021 as more people begin to come back on board.
“[There] is quite a bit of pent-up demand and we’re already seeing strong interest in 2021 and 2022 across the board, with Europe, the Mediterranean, and Alaska all seeing significant interest next year.”
-Josh Leibowitz, president of luxury cruise line Seabourn
The First Five-Year Plan (1953–57) emphasized rapid industrial development, partly at the expense of other sectors of the economy. The bulk of the state’s investment was channeled into the industrial sector, while agriculture, which occupied more than four-fifths of the economically active population, was forced to rely on its own meagre capital resources for a substantial part of its fund requirements. Within industry, iron and steel, electric power, coal, heavy engineering, building materials, and basic chemicals were given first priority in accordance with Soviet practice, the aim was to construct large, sophisticated, and highly capital-intensive plants. A great many of the new plants were built with Soviet technical and financial assistance, and heavy industry grew rapidly.
As the Second Five-Year Plan—which resembled its predecessor—got under way in 1958, the policy of the Great Leap Forward was announced. In agriculture this involved forming communes, abolishing private plots, and increasing output through greater cooperation and greater physical effort. In industry the construction of large plants was to continue, but it was to be supplemented by a huge drive to develop small industry, making use of a large number of small, simple, locally built and locally run plants. A spectacular drop in agricultural production ensued. Meanwhile, the indiscriminate backyard production drive failed to achieve the desired effects and yielded large quantities of expensively produced substandard goods. These difficulties were aggravated when Soviet aid and technicians were withdrawn. By late 1960 the country faced an economic crisis of the first order.
The authorities responded with a complete about-face in policy. Private plots were restored, the size of the communes was reduced, and greater independence was given to the production team. There was also a mass transfer of the unemployed industrial workers to the countryside, and industrial investment was temporarily slashed in order to free resources for farm production. The agricultural situation improved immediately, and by 1963 some resources were being redirected to the capital goods industry.
The Great Proletarian Cultural Revolution began in 1966, but, unlike the Great Leap, it did not have an explicit economic philosophy. Nevertheless, industrial production was badly affected by the ensuing decade of confusion and strife, which also left some difficult legacies for the Chinese economy. In industry, wages were frozen and bonuses canceled. Combined with the policies of employing more workers than necessary to soak up unemployment and of never firing workers once hired, this action essentially eliminated incentives to work hard. In addition, technicians and many managers lost their authority and could not play an effective role in production in the wake of the movement. Overall output continued to grow, but capital-to-output ratios declined. In agriculture, per capita output in 1977 was no higher than in 1957.
Rural economic reform initiated after Mao Zedong began with major price increases for agricultural products in 1979. By 1981 the emphasis had shifted to breaking up collectively tilled fields into land that was contracted out to private families to work. During that time the size of private plots (land actually owned by individuals) was increased, and most restrictions on selling agricultural products in free markets were lifted. In 1984 much longer-term contracts for land were encouraged (generally 15 years or more), and the concentration of land through subleasing of parcels was made legal. In 1985 the government announced that it would dismantle the system of planned procurements with state-allocated production quotas in agriculture. Peasants who had stopped working the land were encouraged to find private employment in the countryside or in small towns. They did not obtain permission to move to major cities, however.
The basic thrusts of urban economic reform were toward integrating China more fully with the international economy making enterprises responsible for their profits and losses reducing the state’s role in directing, as opposed to guiding, the allocation of resources shifting investment away from the metallurgical and machine-building industries and toward light and high-technology industries, while retaining an emphasis on resolving the energy, transportation, and communications bottlenecks creating material incentives for individual effort and a consumer ethos to spur people to work harder rationalizing the pricing structure and putting individuals into jobs for which they have specialized training, skills, or talents. At the same time, the state has permitted a private sector to develop and has allowed it to compete with state firms in a number of service areas and, increasingly, in such larger-scale operations as construction.
A number of related measures were established to enhance the incentives for enterprise managers to increase the efficiency of their firms. Replacement of the profit-remission system with tax and contracting systems was designed to reward managers by permitting firms to retain a significant portion of increases in production. Managerial authority within firms was strengthened, and bonuses were restored and allowed to grow to substantial proportions. Managers also were given enhanced authority to hire, fire, and promote workers. Reductions in central government planning were accompanied by permission for enterprises to buy and sell surplus goods on essentially a free-market basis, and the prices thus obtained often were far higher than for goods produced to meet plan quotas. The state plan was also used to redirect some resources into the light industrial sector. The state, for example, has given priority in energy consumption to some light industrial enterprises that produce high-quality goods.
The reduction in the scope of mandatory planning is based on the assumption that market forces can more efficiently allocate many resources. This assumption in turn requires a rational pricing system that takes into account any and all extant technologies and scarcities. Because extensive subsidies were built into the economic system, however, price reform became an extremely sensitive issue. The fear of inflation also served as a constraint on price reform. Nevertheless, the fact that products produced in excess of amounts targeted in the plan can be sold, in most cases, at essentially free-market prices has created a two-tiered price system that is designed to wean the economy from the administratively fixed prices of an earlier era.
Efforts to create a freer labour market are also part of the overall stress on achieving greater efficiency. As with price reform, tampering with a system that keeps many citizens living more comfortably and securely than would an economically more rational system risks serious repercussions in relations with the public. Changes have proceeded slowly in this sensitive area.
A decision was made in 1978 to permit direct foreign investment in several small “ special economic zones” along the coast. These zones were later increased to 14 coastal cities and three coastal regions. All of these places provided favoured tax treatment and other advantages for the foreign investor. Laws on contracts, patents, and other matters of concern to foreign businesses were also passed in an effort to attract international capital to aid China’s development. The largely bureaucratic nature of China’s economy, however, has posed inherent problems for foreign firms that want to operate in the Chinese environment, and China gradually has had to add more incentives to attract foreign capital.
The changes in China’s economic thinking and strategy since 1978 have been so great—with the potential repercussions for important vested interests so strong—that actual practice inevitably has lagged considerably behind declaratory policy. Notable during this period have been the swings in economic policy between an emphasis on market-oriented reforms and a return to at least partial reliance on centralized planning.