By Imesh Ranasinghe Even though many have heard and seen China’s economic strength, many don’t know China's journey leading up to it taking centre stage in the world over the last decade. China became an economic superpower in the last decade as a result of 40 years of economic reforms its leaders took, even though it followed socialism. The book “How China Became Capitalist” by Dr. Ning Wang and Ronald Coase tells about that journey China chose to take in the 1970s. By the time Mao Zedong, the Founder of the People’s Republic of China in died 1976, China was thrown into a deep political and economic crisis when the Chinese people had already suffered years of starvation due to policies adopted by Beijing during Mao’s period. China’s gross domestic product (GDP) in 1976 was at $ 153.94 billion and its GDP per capita was among the lowest, but today, China's GDP has passed $ 14 trillion. Speaking at an event held by Advocata Institute in Colombo, Dr. Ning Wang, the co-author of the aforementioned book, spoke on how China had transformed itself beyond anyone’s wildest expectations through economic reforms in four decades. How did China do it?  According to Dr. Wang, China’s market transformation is extraordinary but is not a result of some secret programme designed by the Chinese Government or prescribed by some experts in the World Bank (WB) or anywhere. “Indeed, the Chinese Government had no blueprint at all. China’s market transformation is an intended consequence of the Chinese people trying to seek a better life. No one has anticipated China’s market transformation,” he said. He said when China started reforms at the end of the 1970s, the world was still mired in the Cold War between the West and the Soviet block, which was welcomed wholeheartedly by the West. “David Havey, a British scholar, in his 2005 book, ‘A Brief History of Neoliberalism’, singled out the opinion that China, American President Ronald Reagan, and British Prime Minister Margaret Thatcher were responsible for the revival of economic liberalism after the dying out of the Keynesian economics in the late 70s,” Dr. Wang said. He said if Mao had lived for another decade and had the American presidents, from Richard Dixon and James Carter to George W. Bush, entertained the idea of Trumpism, which sees globalisation as detrimental to American interests, China’s story would’ve played out differently.  Domestically, he said Chinese people in the late 1970s when Mao died had been devastated by his economic policy; not only the people, but even the Chinese leaders realised, by that time, that Mao’s policies had failed China, and had dire economic consequences. By that time, China had tried 20 years of socialist experiments but had failed to feed its growing population while at the same time China’s neighbours in East Asia had risen from the ashes of World War II and enjoyed rapid economic modernisation. He said the main challenge China faced with the start of economic reforms was the lack of knowledge on how to do it, technological knowhow, and the basic knowledge about the market system. To address this, over 20 delegations were sent by China to Hong Kong, Japan, Singapore, Canada, the US, and Europe, just to see how those countries run their economies, hoping to learn from them. At the same time, China welcomed capitalists from Hong Kong back to China, marking the beginning of Special Economic Zones in China, he said. Shenzhen, which was one of the four original economic zones, was certainly the most successful economic zone in the country. China’s collective farming and marginal revolutions The book covered a separate chapter titled, “The rise of Marginal revolution”, which showed how local initiatives from the grassroots level contributed to the reforms which made China what it is today. Dr. Wang said during China’s reform period and even today, the Beijing Government designed one reform after another, trying to push China’s economy forward. “But that's not the way the Chinese economy actually worked at the beginning. What really made the Chinese economy work, particularly in the 80s and 90s, is what we call marginal revolutions, which are programmes or methods of reform coming out of grassroots initiatives,” he said. One good example for it is the reform made in Chinese agriculture. Before the reforms in the 1970s, agriculture in China was done through collective farming where a farm or a group of farms were organised as a unit and managed and worked co-operatively by a group of labourers under state supervision under Mao following the policy set by Joseph Stalin during the 30s in the Soviet Union. However, just as Stalin’s policy failed and led to, due to starvation, the death of millions of Ukrainians, which was part of the Soviet Union at that time, Mao’s policy also failed to feed the growing population of China. To address this issue, Dr. Wang said, China did not start by privatising land. Instead, China tried something called private farming, where the State allowed the farmers to decide what they are going to plant on their field but the land remained a state-owned collective property and that is still true today. “The reform was not to teach socialism, the reform was to modernise and strengthen socialism,” he said.  He added that through this reform, the peasants in China gained more and more autonomy in deciding what they can do with the land. However, in the beginning, soon after Mao died, he said private farming started in a few places in China without permission from Beijing, as the Beijing Government still stuck to socialism, and under socialism, every economic activity had to be authorised by the State. “But quickly, private farming turned out to be far more productive than collective farming. Private farming, which began as an illegal practice, turned out to be superior than collective farming, so the local governments started to embrace private farming, and they started to persuade Beijing to allow private farming. But that didn't come easily, as Beijing at that time stuck to socialism and particularly because of Mao’s legacy,” he added. Mao was right, as according to Dr. Wang, after just two years, collective farming was gone and private farming had spread to all the rural areas. Due to its superiority, it was named the Household Responsibility System and was implemented as a national policy by Beijing. He said, as a result of it, China today no longer faces problems in terms of food security. Similarly, many of the reforms China adopted during the 1970s, he said, were practices started by peasants, local governments, and others, which Beijing recognised and adopted as national policies and that helped to modernise the Chinese economy. “But one reform after another, China soon realised that it was growing out of socialism, and indeed in the book, we have a chapter titled ‘Growing out of socialism’. As private farming replaced collective farming, as private enterprises started to out beat state enterprises, the Chinese Government was gradually forced to privatise or just let state enterprises go bankrupt.  So the Chinese economy gradually grew out of socialism and became a market economy,” Dr. Wang said. Outsiders’ view of China’s economic transformation  Dr. Wang pointed out that the purpose of China’s economic reforms, from the perspective of Chinese leaders, was not to turn China into a market economy or to turn China into a capitalist society. He said even today, China claims to be a socialist country, and China’s transition from a socialist economy to a market economy is not a designed outcome of any government-led reform.  Emphasising, Dr. Wang said, what the Chinese leaders like Deng Xiaoping, who became the leader of China after Mao’s death, had in mind at that time was to modernise China’s socialist economy and China, at that time, adopted whatever methods or ways that helped to improve the economy. Xiaoping formed a very famous theory, the cat theory, which was basically that it doesn't matter whether a cat is black or white, as long as it catches mice.  This shows that he was open-minded at that time.  However, he said when talking about capitalist China’s market economy, many journals’ reports on China tend to be misleading, as they characterise China as having a state capitalism system, which is a mischaracterisation. “When you compare China and the US economy, you see some features the US economy doesn't have – the presence of state enterprises in China is a striking example, and another striking feature of China’s economy is that after 40 years of reforms, China is still run by the Chinese Communist Party. China doesn't have any other political parties, it doesn't allow other political parties to exist, so China is still one single-party state. That led many observers in the West to characterise China as adopting state capitalism,” Dr. Wang added. He said in order to really understand how China had come to where it is today, you have to compare China today with China under Mao. “The State has been withdrawing itself, not completely, from the economy. At the beginning of reforms, China had no private sector to talk about; it was illegal at the beginning of the reform, but today, more than 90% of the jobs in the urban economy in China are created by private companies.” He said by looking at the employment data and labour market, it can be seen that the Chinese economy has become more and more market-driven. “Even the stock market, the financial market, for example, has become more and more market-driven. In the beginning, it was very hard for private enterprises to get listed on China’s stock market, but today, more and more of China’s private companies are listed as public companies.” Another way the West got China wrong is the assumption that urging China to gradually modernise the economy, is going to lead to it democratising its politics and coming closer and closer to western countries like the US.  “So this belief in convergence is commonly found around scholars in the West. Francis, an American political scientist talking about the end of history, has the underlying assumption that there is one single best model for capitalism – we believe that is wrong. In the book, we have a chapter titled ‘Capitalism to capitalisms’,” he said. Moreover, he said due to the size, history, and culture of China, it is impossible for China to just become some country like America and Japan. He also said when confronting climate change and other environmental challenges, it is realised that diversity in nature is important to have a healthy environment. “But when we think about human society, we somehow think there is one important motto that fits everyone everywhere  – that cannot be true, because, if diversity works for nature, diversity must work for human societies. “We want China to be different. We want different kinds of capitalism or market economies that compete with each other and make everyone better off.”  Shortcoming in the chinese market system  Dr. Wang said that there is a big shortcoming or even a defect in the Chinese market system that the book mentioned when it was published 10 years ago, and is still true today. That is the lack of an open market for ideas in China. He said even though Chinese people have more and more economic freedom today, the way they express their ideas, the process in which ideas are created in China, is very much controlled by the State. “One indicator of that is Chinese universities. In any other modern society, universities are places where new ideas are created, but this is not so in China. The universities you have heard about, the Beijing universities, are all public universities. There are few private universities, but they are not in a position to compete freely with public universities, and the media are still very much controlled by the State. In that sense, China does not have an open market for ideas and that is what we think is the most severe shortcoming or defect of the Chinese system,” he said. Advantage and disadvantage of China’s one-party system Dr. Wang said China’s one-party system comes with advantages as well as disadvantages. Explaining the advantages, he said when he visited Chicago in the US in 1993, Chicago was debating about opening up a third airport, after the O’Hare and Chicago Midway International Airports, to meet the growing demand. But, he said, Chicago is still debating about opening up its airport while China has built more than hundreds of brand new airports around the country. “That shows the efficiency of the Chinese political system. Once it decides what to do, there are not many negotiations like those between the Democrats and Republicans (in the US), whilst the Chinese Government is committed to doing something it can do and be done quickly.” However, he said, the disadvantage of the one-party system is the risk in selecting the best priorities to focus on among the many goals it has to achieve. “This is an economic problem; every individual has their own preferences, so that process in China is not run democratically. I'm not saying this is done without any participation from the people, as there are many ways for Chinese people to get involved in the political process,” he said. Finally, he said Sri Lanka is well positioned to take advantage of its economic ties with China, its close relationship with India, and strong economic ties with the West to realise the economic potential of the 22 million residents.