Reform and Opening Up

Reform and Opening Up (Pinyin: gǎigé kāifàn; Simplified Chinese: 改革开放) is a policy of internal reform and external opening that China began to implement at the Third Plenary Session of the Eleventh Central Committee in December 1978. China's internal reforms started with the rural areas. In November 1978, Xiaogang Village, Fengyang County, Anhui Province implemented the household contract responsibility system (Lump Sum Contract Responsibility system ) of "dividing land to households and responsible for their own profits and losses ".

On July 15, 1979, the central government officially approved the implementation of special policies and flexible measures in foreign economic activities in Guangdong and Fujian provinces, which marked a historic step towards reform and opening up. Opening up to the outside world has become a basic national policy of China. The road is a powerful driving force for the development of the socialist cause. Reform and opening up established a Socialist Market Economy. In 1992, the Southern Talk announced that China's reform had entered a new stage. Reform and opening up have brought about tremendous changes in China. The 14th National Congress of the Communist Party of China held in October 1992 announced that the most distinctive feature of the new era is reform and opening up, and China's reform has entered a new reform period. In 2013, China entered a new era of comprehensively deepening reforms . Deepening reform and opening up requires adhering to the direction of socialism.

Reform and opening up is one of the two basic points of the basic line of the Communist Party of China in the primary stage of socialism. Since the Third Plenary Session of the Eleventh Central Committee of the Communist Party of China, the general principles and policies for socialist modernization are the road to a strong country and the source of vitality for the development and progress of the party and the country. Reform, that is, internal reform, is to consciously adjust and reform the aspects and links between production relations and productive forces, superstructure and economic base that are not compatible with each other under the premise of adhering to the socialist system, so as to promote the development of productive forces and various undertakings. progress in all aspects and better realize the fundamental interests of the broad masses of the people. Opening up, that is, opening up to the outside world, is an inevitable choice to accelerate my country's modernization drive, conforms to the characteristics of the current era and the general trend of world development, and is a basic national policy that must be adhered to for a long time.

Historical Background

Economic Precursor to Reform and Opening Up

The first economic reforms took place in 1972 with the implementation of the 43 Plan proposed by Zhou Enlai. Roughly 4.24 billion US dollars worth of financial investment poured in from over 20 Capitalist countries, primarily from Japan and the USA. However, in 1978, in accordance to the 82 Plan proposed by Hua Guofeng, 7.8 Billion US dollars worth of financial investment of roughly around 22 projects was invested. The 43 Plan implemented under Mao Zedong and the 82 Plan implemented under Hua Guofeng differed only in amount. The contents were consistent, even as early as the 1972, reform was the inevitable path forward for the CPC.

Mao Zedong and Zhou Enlai, Premier of the State Council, initiated a new wave of importing advanced foreign technologies and equipment in 1972. After one of Mao’s service staff told Mao that she queued for hours to buy some Dacron fabric, Mao had a conversation with Zhou about buying Western technologies for producing chemical fibers. Then Zhou instructed the State Council Working Group and the State Planning Commission (SPC) to prepare a report on importing chemical fibers and chemical fertilizer producing equipment. "The Report on Importing Complete Sets of Chemical Fibers and Chemical Fertilizers Producing Equipment" proposed to import four complete sets of chemical fiber producing equipment with capacity of 240,000 tons, two complete sets of 300,000-ton synthetic ammonia-producing equipment, and key equipment, spare parts and steel for construction or renovation of other chemical fertilizer factories, with a budget of US$400 million. Zhou and Mao approved the plan in February 1972. The Ministry of Light Industry and the Ministry of Fuel and Chemical Industries were responsible for implementing the plan.

Other ministries also wanted to import advanced foreign equipment in their fields and proposed more projects. Zhou Enlai instructed the SPC to combine their proposals into a single plan. The SPC submitted the Request for Instruction on Increasing Equipment Import and Expanding Economic Exchange to the State Council on January 2, 1973. It proposed to import complete sets of equipment worth US$4.3 billion in the next 3 to 5 years, hence it was called the 43 Plan.

It included 26 projects to build 7 petrochemical complexes for producing chemical fibers (240,000 tons) and plastics as well as chemicals, 13 chemical fertilizer plants (with capacity to produce 4 million tons of ammonia and 6.3 million tons of urea), 3 power stations (with a total capacity of 870,000 kilowatts), and 1 steel rolling plant (with capacity of 2 million tons), 1 chlorinated pellets plant for iron and steel production (with capacity of 300,000 tons), and 1 alkyl benzene plant (with capacity of 100,000 tons). It also included 43 sets of fully-mechanized coal mining machines, and many other machines for various industrial sectors. The proposed imports were completed between 1976 and 1982, and the chemical fibers, fertilizers and electricity produced by those plants and factories played a key role in meeting the demand for clothes, food and electricity in the early 1980s. The large increase in grain output after 1978 was accompanied by large increases in fertilizer consumption. This was the second wave of importing foreign equipment and technologies, in which Deng Xiaoping was little involved, while Hua Guofeng played a part a member of State Council Working Group. The first wave had been the 156 industrial projects assisted by the Soviet Union in the 1950s.

Political Precursor to Reform and Opening Up

The resolution of the Central Committee of the Communist Party of China on certain historical issues of the party since the founding of the People's Republic of China (unanimously adopted at the Sixth Plenary Session of the Eleventh Central Committee of the Communist Party of China on June 27, 1981) reviewed the history of the 28 years before the founding of the People's Republic of China, and completed the 30-year history of the founding of the People's Republic of China. The seven years of socialist transformation and the ten years of building socialism in an all-round way have made basic estimates and evaluations.

Regarding the 10 years of the "Cultural Revolution", the document mentioned:

The 10 years of the Cultural Revolution caused the party, the country and the people to suffer the most serious setbacks and losses since the founding of the People's Republic. History has proved that the thesis of the "Cultural Revolution" did not conform to China's reality and did not conform to Marxism-Leninism. These theories were completely wrong in their estimation of the class situation in China and the political situation of the party and the country at that time. Practice has proved that the "Cultural Revolution" was not and could not be a revolution or social progress in any sense . It does not "disorder the enemy" at all, but disrupted China. Therefore, it was never been possible to achieve this supposed social progress in the first place. History has proven that the "Cultural Revolution" was a civil strife wrongly launched by leaders and exploited by counter-revolutionary groups, which brought serious disasters to the party, state and people of all ethnic groups. It was a social regression. In October 1976, the conspiracy of the Lin Biao and Jiang Qing Ultra-Leftist counter-revolutionary clique was smashed, the party was saved from danger, the revolution was saved, and China entered a new period of historical development.

Economic Situation prior to Reform and Opening Up

Economically, as of 1978, although China's gross national product reached 362.4 billion renminbi, more than double the 171.6 billion renminbi in 1965, with an average annual growth rate of 6.8%, and established an independent, categorically complete industrial system. But the people are still poor, the technology is relatively backward, and after the Cultural Revolution, the CPC has a certain degree of governance crisis and crisis of trust. An estimated 30 percent of rural residents, about 250 million, lived below the poverty line, relying on small loans for production and state grants for food. Despite the rise in grain output, earnings per capita in the 1970s were almost the same as in the mid-1950s Housing showed almost no improvement during the 1960s and 1970s Even by 1978, per capita levels of rural consumption – nearly thirty years after the start of the socialist era – of almost every food in an absolute sense were low, only 1.1 kilograms of edible oil and 6.4 kilograms of meat per year

According to Professor Luo Yuanzheng, Deputy Director of the Institute of the World Economy, Chinese Academy of Social Scienes stated that in 1979:

But our country is very backwards in terms of production; the eight hundred million people living in the countryside are basically manual labourers. Per capita production does not exceed on the average exceed 2,000 jin; in france it is 30,000 jin and in the USA, 147,000 jin. Basically, industrial automation and the levels of specialization have remained at the level of the 1940s and 1950s. The gap is even greater with new and developing industries. Work efficency in industry is also very low. Per capita annual steel production for workers employed in the steel industry is approximately 10 tons. While in Japan it is 300 tons.

In the construction industry, for example there was always a marked decline in economic results, as measured in per hundred yuan of fixed assets from 1957 to 1976. Industrial enterprises under the ownership of the state (or the whole people) declined for the same time period by 48.8 per cent from 23.6 yuan in 1957 to 12.1 yuan in 1976.According to The Chinese Steel Industry's Transformation

In 1978 China's total steel production was only 32 million tonnes, less than three weeks of current output levels. The per capita steel production was merely 33 kg, a fifth of the world average levels. The industry's technology, equipment, product variety and quality, as well as technical and economic indicators, all lagged far behind developed countries. For example, when the world average ratio of open-hearth steel-making to total steel-making fell below 20 per cent in the late 1970s, China's ratio still stood at 35.5 per cent. When the ratio of continuous casting was more than 50 per cent in Japan and 30 per cent in Europe, China's was merely 3.5 per cent. As a result of obsolete technologies, out of total production, the energy consumption per tonne of steel was as high as 2.52 tonnes of standard coal.

Due to political turmoil from the cultural revolution, output was significantly affected. In 1966, Steel output was at 15 million tons, then dropped to 10 million tons in 1967, then dropped to 9 million tons in 1968. In 1968 only 40% of it's steel capacity was being used, 13 million potential tons of steel went unmade. In 1973, China's steel production peaked at 25 million tons. It is only in 1977 did Steel production output beat the previous peak , at 31.7 million tons. Labor productivity in industry was stagnating from 1970 to 1982.

Per capita grain production had never risen above the historical peak in 1955 by the end of 1976. Total factory productivity peaked in 1958, but fell and never reached that peak by the time of 1976. In fact, in 1976, agricultural TFP fell to an all time low. Labor productivity in agriculture from 1952 to 1978 only grew by 0.2% Labor productivity was declining from 1958, falling into below 1952 levels in 1960, never rising above 1952 levels until 1979.

Labor productivity in industries peaked in 1966 and never recovered by the end of 1976, constantly rising and falling sharply. In fact, the gap in productivity being the USA and China had widened over the period of the 60s and 70s. Total Factor Productivity rose only 0.9% between 1965 and 1978. By the end of 1978, the level of manufacturing productivity was a mere 5.9 per cent of that of the USA, only marginally up on the 5.3 per cent recorded in 1952. GVA per capita only grew by 0.5% as a percentage of the USA's from 1952 - 1978.

There was also an issue of Abseenteism/Loitering and lack of worker's efficiency in the workplace that still persisted well after Deng Xiaoping's Reform and opening up. For some time, customs continued in the public sector as described by a witness and Western scholar, “even the last attendant […], if he wants to, can decide to do nothing, stay home for a year or two and still receive his salary at the end of the month.” The “culture of laziness” also infected the expanding private sector of the economy. “The former employees of the State […] arrive late, then they read the newspaper, go to the canteen a half-hour early, leave the office an hour early,” and they were often absent for family reasons, for example, “because my wife is sick.” And the executives and technicians who tried to introduce discipline and efficiency into the workplace were forced to face not only resistance and the moral outrage of the employees (who considered it infamy to impose a fine on an absent worker caring for his wife), but sometimes even threats and violence from below.

The phenomenon of “loitering labor” [was] such that by the late 1970s, the same farm tasks … were taking one and a half times as long to accomplish as they required under family management. Similarly, this was recorded in a book which defends the Maoist collective farms, stating that farmers during the cooperative [collective] days used to work all day, every day, year-in and year-out, but got almost nothing done – work a little, take a break, work a little more, take another break. They felt harassed and they produced very little. What they were doing looked like work but in fact they were stalling around. Now they make every minute count.

In order to accelerate economic development as soon as possible, the Party Central Committee with Deng Xiaoping at the core began to solve these problems one by one, and tried to change the deep-rooted image of the Communist Party and socialism in the people's minds. The purpose of this reform movement was to maintain the socialist system as the premise and change the management system and policies that are not suitable for production development, and the establishment of a Socialist Market Economy. The economic aspect of this reform made the first breakthrough in the countryside, and then quickly implemented reforms in various economic fields across the country.

Achivements of Reform and Opening Up

Poverty Reduction

From the beginning of Reform and Opening Up to 2022, poverty has been reduced significantly. The number of people living below the poverty line (1.90 USD a day) has fallen by around 800 million people. China has contributed to around 75% of the worlds total poverty reduction. The rural poverty rate declined from 97.5% to 1.7%. By 2020, absolute poverty was eliminated in China, being the first country to reach the UN goal of "No absolute poverty". From 1981 to 2015, China's poverty rate declined from 88% to 0.7%. When discussing relative poverty of 2.15 USD or below a day, from 1981 to 2019, 91.62% declined to 0.14%. And less than 3.65 USD a day, fell from 2.15 to 0.14%. And in regards to discussing relative poverty of 6.85 USD or below a day, from 1981 to 2019, fell from 99.98% to 24.72%.

China's Engels coefficient (% of income spent on food) was 57.5% for urban residents, 67.7% for rural residents in 1978. Which declinded to 29.3% in 2016 for urban residents and 32.2% for rural residents. Total Engel's Coefficient fell to 29.8% in 2021. China's domestic population share suffering under Global Multidimensional poverty fell from 9.47% in 2010 to 4.21% in 2014 and fell to 3.9% in 2023. Lack of clean drinking water, malnutrition and use of solid cooking fuel are the largest contributors.

While global absolute poverty (measured as less than $1.25/day) declined from 40.5 to 25.2 per cent between 1981 and 2008 (a 15.3% reduction), China begin the period with a much higher rate (84.0 per cent) and succeeded in reducing it to 13.1 per cent (a 70.9% reduction). Moreover, China even substantially reduced relative poverty (defined as living below 50% of mean income) from 85.2 to 41.0 per cent while the developing world's poverty rrate scarcely changed (Less than 10 percent change over the same time period of which being 1981 to 2008). By 1996, China's relative poverty was already below the relative poverty rate of the developing world.

Agriculture and Food Security

Grain production per capita finally exceeded the 1955 peak in 1978, while the total factor productivity in agriculture finally exceeded the 1958 peak in 1983. After Deng Xiaoping implemented the household responsibility system, agricultural output increased by 8.2% a year, compared with 2.7% in the pre-reform period, despite a decrease in the area of land used. Food prices fell by by nearly 50%, while income rose.

The real gross value of crop output per arable acre rose by around three quarters during the reform period. The average annual real grown of net farm output per worker accelerated sharply from only 0.3 per cent between 1957 to 1978 to 4.3 per cent from 1978 to 1991 During a two-year period in rural China, 1979-81, agricultural productivity increased by 18 per cent.

From 2012 to 2022, food security in China ranked according to the Global Food Security index rose from 55 to 74.2. China is ranked 25th out of 113 countries on overall score, placing it in the top 20 percent. China is ranked 2nd out of 113 countries on food availability, 33rd on food affordability (top 29%), 46th on food safety (top 40%) and 55th on sustainability and adaption (top 48%)

In 2022, China's prevalence of under nourishment is at 2.5% compared to the global average of 9.8%. 4.7% of children are stunted compared to the global average of 22%. China's rate of underweight children is 2.4% while the global average of 2021 is 12.6%. China's rate of obesity is 6.6% compared to the global average of 13%.

China has had a 100% positive change in food costs compared to the mean index of 78%. A 100% positive change in food safety net programmes compared to the mean of 72.4%. A score of 78.9 compared to the mean of 57.6 of access to agricultural input for farmers. A score of 98.6 for food volatility compared to the mean of 68.7. A score of 69.3 for supply chain infrastructure compared to the mean of 61.9. A score of 100 for commitment to input food security policies compared to the mean of 47. A protein quality of 83.8 compared to the mean of 68.5 and a food safety of 92.4 compared to the mean of 76.4.

In 2012 the Food and Agriculture Organization found that China (-96 million) and Viet Nam (-24 million) amounts to 91 percent of the net numerical reduction in undernourished people since 1990-92. Scholars associate land reform with China’s advance against hunger (and SOFI12 acknowledges small farmer access to land in China as key); to understanding the progress of China and Viet Nam, experts cite egalitarian land reform as a key. In both countries, small holders secured access to land through state policies. SOFI12 also notes the “situation of relatively equal access to farmland and human capital” in China as important in China's striking progress against hunger.

Labor productivity increased in the post-reform area, the annual growth rate of GVA per worker was only 0.8 per cent per year between 1955 and 1981, whereas it grew at a rate of nearly 5 per cent per year after 1981. From 1981 - 2006, the gross output value of farming was 4.3% and gross output value of agriculture was 5.5%. Compared from the period of 1954 - 1981 of 2.9 and 3.3% respectively. In terms of value added overall, it was 4.2% for 1981 - 2006. And 2.7% for 1954 - 1983.

Real Gross Value Added was 4.5% from 1978 to 2003, up from the growth rate of 2.2% from '52 to '78. Labor productivity from 1957 to 1978 declined by 0.19%, but from 1987 to 1994 it increased by 3.05%. In terms of aggregate gross value added, from 1957 to 1978, it was 1.72% compared to 5.52% from '87 to '94. Labor productivity from 1952 to 1978 only grew by 0.2% per anum, from 1978 to 2003 it grew by 4% per anum. Over the course of 1952 to 1978, labour productivity in agriculture only increased by 4.3%. While labour productivity from 1978 to 2003 increased by 3.65x

The effect of decollectivization and the improvement in the intersectoral terms of trade was to eliminate much of underemployment (in the form of loitering); labour inputs (in terms of hours worked) surged in the late 1970s and early 1980s. Following the second land reform, every minute was made to count on the family farm.

Industrialization and Automation

From a semi-industrial nation in 1978, China is now the world's biggest producer of concrete, steel, ships and textiles, and has the world's largest automobile market. From 1975 to 1992, China's automobile production rose from 139,800 to 1.1 million, rising to 9.35 million in 2008. Light industries such as textiles saw an even greater increase. Chinese textile exports increased from 4.6% of world exports in 1980 to 24.1% in 2005. Textile output increased 18-fold over the same period China is a world manufacturing superpower, owning a 28.7% share of the global manufacturing output, the largest in the world.

The Chinese experience is based on industrialization: industry represented 35% of GDP in 1970 to 42% in 1990. The decline in percentage terms of agriculture, went from 38% of GDP in 1970 to 27% in 1990… The pattern of industrial growth during the 1980s has favored light industry, much of it in collective enterprises and, to a lesser extent, private firms as compared to substantially lower, though supposedly still rapid, growth in heavy industries in state-owned enterprises.

Chinese robotic installations have grown rapidly, becoming the world leader in robotics by 2019. The fastest growth in robotics installation out of any country. By 2016, China has become the largest operational stock of robots.Even when compared to the USA, a supposed first world developed country, China's robot density (robots there are per 10,000 workers) outpaces them. China's commitment to automation can be seen in the rural sector, such as intelligent green houses with more commitment to robotizing the farming industries. With the mechanization rate in urban sectors at around 70% by 2020, the number is bound to increase.

Labor productivity improved dramatically after reforms too. Labour productivity per worker peaked in China in 1966, and went under periodic rises and dips over the course of 1966 to 1976. It was only in 1978 that industrial productivity beat the historical 1966 peak. For state enterprises, total factor productivity from 1980 - 1996 increased 1.7% per year, meaning a 27.2% increase within the 16 year span. Compared to only 0.9% in 1965 to 1978. For light industry's output value grew by 8.7% per anum from 1952 to 1978. From 1978 - 1999, it grew 15.25%. For Heavy industry, it was 11.9% from 1952 to 1978, but 14.75% from 1978 to 1999.

Between 1978 and 1998, Chinese value-added per worker in manufacturing more than doubled in real terms, and in the process rose more quickly than in any of Japan, the USA and Russia. A process of catch-up was under way, especially in respect of Russia; the ratio of Chinese to Russian labour productivity narrowed from 16 to 54 per cent, as a result of poor Russian and improved Chinese performance. Value added per worker from 1990 to 2003 increased by 600%. During the same time period, Brazil and Mexico had stagnant growth, not exceeding more than 20% during the same time period.

At the end of 1952, China's gross value added in manufacturing was 3.4% of the American level. By 1978, the gross value added in manufacturing of China was roughly around 14% of the USA's level. By the end of 1994, that number has risen to 45%. From 1952 - 1978, China's GVA as a percentage of the USA's grew by 10.6%. From 1978 to 1994, that number grew by 31%. This means that the GVA in manufacturing for China increased 2.9 fold post-reform compared to pre-reform. GVA per capita as a percentage of the USA was around 5.8% at the end of 1978 (with a 0.5% growth rate from 1952 to 1978), that number increased sharply by the end of 1994 with it being 9.5% (with a 3.7% growth rate from '78 to '94) This means that from 1978 to 1994, per capita growth increased 7 times over the pre 1978 level.

From 1952 to 1978, labor productivity in industry and construction increased 2.11x, while from 1978 to 2003, it increased 6.21x. In yearly measurements, from 1978 to 2003 grew 6.5% per annum, compared to the 3.7% from 1952 to 1978. Labor productivity as a percentage relative to the USA grew by 4.3% from 1978 to 1994, compared to 0.4% from 1952 to 1978.