AJRC_Analyses_2017A02 Meng-Chieh Lin

A N TA L L J ÓZ S E F K N O W L E D G E C E N T R E

HOW ECONOMIC OPENNESS HAS INFLUENCED CHINESE FOREIGN POLICY DECISION-MAKING SINCE 1978

JESSIE MENG-CHIEH LIN

COMMENTARY AJRC-Analyses 2017A02

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A N TA L L J ÓZ S E F K N O W L E D G E C E N T R E

AJRC-Analyses Series of the Antall József Knowledge Centre

Publisher-in-Chief: Péter Antall Managing editor: Tamás Péter Baranyi Editorial office: Antall József Knowledge Centre H-1093 Budapest, Czuczor Street 2

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© Jessie Meng-Chieh Lin, 2017 © Antall József Knowledge Centre, 2017 ISSN 2416-1705

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A N TA L L J ÓZ S E F K N O W L E D G E C E N T R E HOW ECONOMIC OPENNESS HAS INFLUENCED CHINESE FOREIGN POLICY DECISION-MAKING SINCE 1978 JESSIE MENG-CHIEH LIN1

The rise of China has become a central issue in contemporary discourse.

The key factor which has influenced the change within Chinese foreign policy decision-making is the Open Door Policy. Compared to the previous period, the implementation of the Open Door Policy has greatly improved China’s economic development and has provided better living conditions and quality of life for the Chinese people. This openness is not restricted to economic aspects, as it has also had considerable social and political effects. In order to offer an overview and to explain the complexity of Chinese foreign policy decision-making after 1978, this article will examine two dimensions: succession politics and economic reform.

Since the People’s Republic of China (PRC) is not a democratic regime, the changing of the ruling class does not happen through elections, and therefore political accountability never existed in contemporary Chinese politics. On these grounds, we shall use different approaches to fully understand the reasons why the process of Chinese foreign policy decision-making has become more complex since 1978.

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Succession politics have characterized Chinese politics since at least the 1960s. Throughout this period, foreign policy was not immune to the sway of the domestic political considerations of emerging and declining Chinese leaders, and this tendency continued when the succession to Chairman Mao became a reality in September 1976. However, succession politics did not end once Deng Xiaoping established his authority in the post-Mao era. Domestic politics continue to set limits to policy flexibility among Deng’s lieutenants as they seek to minimize their vulnerability and maximize their appeal to their colleagues, while at the same time implementing policies congruent with both their foreign policy perspectives and international strategic constraints. Looking back on the issue’s historical background, this tendency can be clearly observed. Deng’s leadership went through three distinct stages: The first was the period in which he established control over foreign policy, the second stage was Jessie Meng-Chieh Lin received her MA in International Relations at Peking University and a dual BA in History and Political Science at National Taiwan University. She is a former intern at Asian and African Relations Office, Antall József Knowledge Centre.

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A N TA L L J ÓZ S E F K N O W L E D G E C E N T R E at the height of his power when he consolidated his authority over the political system, and the third stage commenced when competing polit­ ical coalitions re-emerged to constrain Deng’s freedom of manoeuvre, therefore eliciting a more prudent Chinese foreign policy.2 The political succession from Mao to Hua Guofeng, and from Hua to Deng Xiaoping, shaped the various foreign policy decision-making processes.

In Deng’s period, the primary division in policy among the Chinese elite was apparent between the so-called reformers and conservatives. The conservative coalition included senior politicians as the ailing Chen Yun, Peng Zhen, and Bo Yibo. These leaders and their more reform-minded colleagues shared an active and strong interest in the rapid modernization of the Chinese economy based on a pragmatic development strategy.3 Their priority was economic development at the expense of both socialist ideological objectives and the traditional economic policies of planned socialist economies. Hence, they had been eager to enhance Chinese economic interaction with the advanced market economies while maintaining strategic cooperation with the US in order to maximize Chinese security.

Since 1978, the People’s Republic of China has transformed itself from a centrally planned economy to an emerging market economy. Meanwhile, its economy has achieved nearly a 9.5 percent average growth rate.

The 12th Congress of the Communist Party of China reconfirmed and ap­proved a course toward the “all-round modernization” of the peo­ple’s econ­omy, “the fourfold increase of GNP,” and made it an objective to achieve the “satisfactory well-being” of the people by the year 2000. The new Chinese foreign policy decision-making process follows the disci­ pline established at the Third Plenum of the 11th Central Committee of the Communist Party of China in December 1978. During this period, China’s GDP per capita increased roughly sevenfold, and the living standard of ordinary Chinese people improved significantly. According to Justin Yifu Lin, Fang Cai, and Zhou Li, as a pre-reformed transitional economy the Soviet-type planning system of China was endogenous to the choice of a comparative advantage-defying and capital-intensive heavy-indus­tryoriented development strategy. Nevertheless, heavy industry was also capital-intensive in the 1950s when China was a capital-scarce, low-income, agrarian economy. Obviously, the capital-intensive heavy industry was not China’s comparative advantage at that time. Therefore, to start

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Robert Ross: Succession Politics and Post-Mao Foreign Policy. In: Chinese Defense and Foreign Policy, 27-62. Ed.: June Teufel Dreyer. Paragon Press, New York, 1989.

3 Robert Ross: Succession Politics and Post-Mao Foreign Policy. In: Chinese Defense and Foreign Policy, 27-62. Ed.: June Teufel Dreyer. Paragon Press, New York, 1989. 46.

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A N TA L L J ÓZ S E F K N O W L E D G E C E N T R E the development of the heavy industry, the introduction of a set of distorted macro-policies was required from the Chinese government.4 Due to the low efficiency and stagnation of the economy in this period, by the end of 1978 the Chinese government had launched economic reforms and adopted a policy of opening in order to rebuild the legitimacy of the ruling Communist Party of China (CPC) after the torturous 30-year period of political turmoil, especially the catastrophic Cultural Revolution between 1966 and 1976.

The historic decision about “reformation and opening-up” made at the Third Plenum of the CPC Eleventh Party Congress marked the beginning of China’s reform era. China had a clear desire to increase productivity and raise living standards by reforming its economic system and structure. This objective dominated the Chinese foreign policy decision-mak­ ing process from then on. The first part of Chinese economic reform in the late 1970s and early 1980s involved implementing the contract responsibility system in agriculture. Through the newly introduced opening-up policy, China began to expand international trade and allow foreign direct investment. These initiatives immediately increased the standard of living for most of the Chinese population, and generated support for the subsequent, more difficult reforms. Economic reform was the main factor that notably shaped the Chinese foreign policies of this period. Unlike in the former period, China cannot remain distant from the international system anymore. Through a cautious and gradual approach, China was able to replace the traditional Soviet-type system with a market system, maintaining remarkable records of growth and relative price stability during the transition process.

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The domestic management system of state-owned enterprises (SOE) was initiated by the government. The government intervention was further reduced, and SOEs gained more autonomy.5 The first stage (1979–1983) emphasized several important experimental initiatives that were intended to increase enterprise autonomy and to expand the role of financial incentives within the traditional economic system; in the second stage (1984–1986) the emphasis shifted to the formalization of the financial obligations of SOEs to the government and exposed enterprises to market influences. The government instituted a “two-track system” in which SOEs primarily had to fulfil production quota and sell at prices Justin Yifu Lin—Fang Cai—Zhou Li: Zhongguo Jingji Gaige yu Fazhan [Chinese Economic Reforms and Development]. Lianjing, Taipei, 2000. 27-37.

5 Justin Lin: Lessons of China’s Transition from a Planned Economy to a Market Economy. China Center for Economic Research, Working Paper No. E2004001. Peking University, 2004. 13.

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A N TA L L J ÓZ S E F K N O W L E D G E C E N T R E set by the government, after which they could produce beyond this quota and sell at a price set by the market. Price control has gradually loosened; during the third stage (1987–1992) the contract responsibility system — which attempted to clarify the authority and responsibilities of enterprise managers — was formalized and widely adopted. The last stage (1993-present) represents an attempt to introduce the modern corporate system to SOEs. Steeper reforms toward privatization have taken place since 1997, when the government decided to “let go of the small and hold on to the large.”

Following a long period of economic reforms, the Chinese economy has been deeply integrating into the global economy. In 1978, China was large­ly a closed economy, with a trade-to-GDP ratio of 9 percent.

By 2004, this figure reached 70 percent. China’s foreign trade rose from US$ 21 billion in 1978 to more than US$ 300 billion in 1997, and more than US$ 1,150 billion in 2004. The ranking of China in the world’s trading nations jumped from thirty-second in 1978, to third in 2004. After 2001, China was often described as a “world factory,” to describe its high market share in the global manufacturing export market.6 Wang emphasizes that China is not a “world factory” but rather “a production workshop in the global processing plant.” Chinese scholars are generally unwilling to admit that China is a “world factory.” They assert that “the world process­ ing plant” should be used instead, to describe the status of China in the global division of labour.7

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The principle of Chinese foreign policy has changed significantly since 1978. Combined with economic liberalization, China has built a pipeline for money and goods to circulate all over the world e.g. with the establish­ ment of the Special Economic Zone (SEZ), a geographical region designed to export goods and provide employment. The most prominent SEZs in China are in Shenzhen, Xiamen, Shantou, and Zhuhai. It is notable that Shenzhen, Shantou, and Zhuhai are all located in Guangdong province, on the southern coast of China, where the sea is very accessible for the maritime transport of goods.

According to Leong, the policy change to a more liberalized economy is identified using SEZ variables as instrumental variables, export, and Shulian Zhou: New Type of Industrialization—Whether or Not China Has Become a World Factory? (in Chinese). In: Zhongguo Neng Chengwei Shijie Gungchang Ma? [Can China Become a World Factory?], 20-30. Ed.: Lu Zheng. Economic Management Publisher, Beijing, 2003.

7 Fang Jin: Deepened International Division of Labor and the Impact on the Status of China (in Chinese). In: Zhongguo Neng Chengwei Shijie Gungchang Ma? [Can China Become a World Factory?], 75-83. Ed.: Lu Zheng. Economic Management Publisher, Beijing, 2003.

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A N TA L L J ÓZ S E F K N O W L E D G E C E N T R E FDI growth have positive and statistically significant effects on econom­ic growth in these countries.8 The presence of SEZs increases re­ gion­al growth, but increasing the number of SEZs has negligible effect on growth. The key to faster economic growth appears to be a greater pace of liberalization. As a result, the Open Door Policy enabled China to engage not only with East Asian trade and regional cooperation organizations, but also with global structures. Its foreign policy loosened the export limitation and China became more willing to cooperate with other international political actors.

Regarding the cultural and social aspect, China has entered the “Era of Peace and Prosperity” (Taiping Shenshi), a period when the country will reclaim not only national strength but also global power.9 While Deng Xiaoping’s goal was economic reform, the “open policy” has indeed opened China’s gate to the world. However, it has done far more than just liberalize markets — it has created a greater space for discussion in China. The last decade has witnessed an explosion of new social and cultural activities, as the party-state loosened its control over everyday life. Callahan further indicates that if we look below the surface of the baroquely choreographed debate between officials and dissidents that reduces complex situations to pro- and anti-communist party polemics, we can see that the power game between these two opponents is also influenced by a third group: citizen intellectuals.10 The rise of the third group urges the Chinese government to take their opinion into consid­ eration. Combined with the economic and political challenges I have al­ ready mentioned in the former paragraph; the social aspect is also greatly influential in shaping the foreign policy decision-making process.

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To conclude, China remained a “candidate great power” during the last decade of the Cold War because the communist regime had failed in its efforts to promote domestic development which could have provided the basis for comprehensive economic and military influence on a global level. However, after China adopted the Reform and Open Door Policy in 1978, to some extent it has integrated into the international economic regime by joining World Bank, IMF, GATT, and WTO. All of these economic, political, and social changes that have occurred since then, have greatly influenced the Chinese foreign policy decision-making process.

Chee Kian Leong: Special Economic Zones and Growth in China and India: An Empirical Investigation. International Economics and Economic Policy. 2013/4. 549-567.

9 William Callahan: Chinese Visions of World Order: Post-Hegemonic or a New Hegemony? International Studies Review. 2008/4. 749–761.

10 William Callahan: China Dreams: 20 Views of the Future. Oxford University Press, New York, 2013.

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