Rewriting China’s Recent History: Fluctuations in State Economic Control, 1949–1984

• Author: Yiying Zhang,Xiaodan Dong,Tiejun Wen
• Date: 01 November 2019
• Published date: 01 November 2019
• DOI: http://doi.org/10.1111/ajes.12301

Rewriting China’s Recent History:

Fluctuations in State Economic Control,

1949–1984

By YiYing Zhang*, Xiaodan dong†, and Tiejun Wen‡

absTracT. China’s political and economic systems are often discussed

in combination. It is generally believed that under the political system

of centralization, the economic system had to be a state monopoly.

This article challenges that view by providing an economic perspective.

The period 1949–1984 is selected to explore the causes of successive

periods of strengthening and weakening of the state’s monopoly

power over the economy. Scholars have generally assumed that the

period of state monopoly originated from socialist ideology or the

personal will of the leaders. But economic conditions severely limited

the options available. After the new China was established, the Chinese

Communist Party (CCP) did not try to create a fully socialist economy

in the short run. Instead, the CCP formulated a New Democracy

platform that pragmatically allowed many types of enterprise to

function side by side, including private industry, household ventures,

and state-owned enterprises. The original plan of the CCP was to

allow private enterprise to develop in order to build up capital to

rebuild the war-damaged economy so that a strong foundation could

be established for creating a socialist economy. But the Korean War

from 1950 to 1953 and an influx of Soviet capital caused a shift from

a mixed economy to state capitalism by 1956. From that point on, Mao

Zedong and other Chinese leaders had to change course again and

again as fiscal crises limited available options. A reversal occurred in

American Journal of Economics and Sociology, Vol. 78, No. 5 (November, 2019).

DOI: 10.1111/ajes.12301

© 2019 American Journal of Economics and Sociology, Inc.

*Lecturer, China Rural Construction College, Southwest University.

†Associate Professor, School of Agriculture and Rural Development, Renmin University

of China.

‡Corresponding author, Ph.D., Deputy Director, Academic Committee of Renmin

University of China. Professor, Executive Dean of China Rural Construction College,

Southwest University.

Research was supported by the Fundamental Research Funds for the Central

Universities (SWU1809705).

1072 The American Journal of Economics and Sociology

1958 when the Soviets withdrew both their advisors and their capital

subsidies, leaving the state capitalist system weakened. The crisis in

the Chinese economy from 1959 to 1961 required decentralization of

economic authority and efforts to promote rural capital formation. The

next shift occurred after 1963 as the economy was organized to

prepare for a possible military invasion. The required mobilization of

industrial resources in remote regions of China inevitably reinforced

state management of the economy. The final reversal occurred in the

late 1970s, when imports of Western technology and equipment

created another fiscal crisis for the central government, which then

had to shift the burden of capital formation from the state to private

entities. The reform of the rural household contract system, the

adjustment of economic structures, and an increase in exports to gain

foreign exchange all took place as part of “de-monopolization”

reforms. The reforms that occurred after 1979 were not an aberration

or a radical break from the past. They were part of a pattern that

evolved from 1949 to 1984, with fluctuations dependent on the

weakening and strengthening status of state finances. The shifts that

occurred during this period have either been ignored by observers, or

they have been misinterpreted as being motivated by ideology. In fact,

new policies were created to enable the government to adjust to

changes in the internal and external environment.

Introduction

Discussions of China’s political and economic systems, both at home

and abroad, have focused on political structures. China developed a

centralized political system during the Qin and Han dynasties, over

2,000 years ago. Since that time, the Chinese government has empha-

sized two core issues: first, how to build a complex bureaucracy to

manage society; second, how to extract sufficient fiscal revenues from

the national economy to maintain the bureaucratic system. As a result,

the relationship between China’s political and economic systems has

been closely integrated.

Since the Qin Dynasty, China has been a large centralized power …. Often

there is an autocratic political undertone to the economy, showing that