CHAPTER 1

Evolution in the Revolution

Crossing the river by feeling for stones.

—A phrase popularly attributed to Deng Xiaoping and emblematic of China’s pragmatic approach to reform since 1977

First of all we must recognize the huge gap between China and the rest of the world in the area of science and technology. We cannot fool anyone because you can’t visit our country without seeing how backward we are. We can only fool ourselves by saying that we are not backward.

—Deng Xiaoping, October 23, 1977

I accompanied Deng [Xiaoping] in 1992 [on his Southern Journey—nanxun], and one day he met officials and said that historically [China] was poor for thousands of years—we need development as soon as possible. This is our task. Cities like Guangzhou need a fast growth rate. If [the growth rate of GDP] is below 10 percent [per year], we cannot handle the problems and it brings lots of difficulties.

—Mayor of Guangzhou Li Ziliu, “Remarks,” June 9, 1994

Beginning in 1979, Chinese have experienced great transformations in their lives. Of course future difficulties will be inevitable. But as we Chinese often say, the most important thing is that “we’ve broken the ice and the ship has begun to sail.”

—Professor Li Shenzhi, “The History and Future of Sino-American Relations”

The core interest is regime survival and regime security. “Opening and reform were not to improve China, it is to improve the survival of the party; it is a by-product of the improvement. For its own survival [the party] has to bring benefits to the people, as the Kuomintang [in Taiwan] did before 1987.”

—Remarks of a senior academic, August 1, 2011

In 1977, the question for China was simple: Could the nation and the state become stronger and more prosperous? More than thirty-five years later, the original question is almost laughable, and now the question is: Can a much stronger China control itself, become more just, and contribute to global stability and development?

Deng Xiaoping’s second communist-era revolution cannot be as precisely dated as the first, which officially started on the day that the PRC was founded, October 1, 1949, and which I choose to end in mid-1977, when Deng Xiaoping reappeared after his second Cultural Revolution–era exile. From the vantage point of the twenty-first century, the revolution we associate with Deng and his reform-minded colleagues represents the accumulation of initial key strategic decisions concentrated in the eight years following his return. Some consequences of these early decisions were anticipated, others were not, and still others have yet to be fully revealed. These outcomes have included

•Vastly improved material circumstances for the Chinese people and an enormously expanded, relatively positive role for China in the world

•Growing economic and social inequality and market failures resulting from the spread of market mechanisms in the absence of effective regulatory and tax institutions, the absence of land rights in rural areas, and the presence of corruption on a very large scale

•The explosion of China’s accumulated capital, the abrupt expansion of international financial and trade roles, and the global imbalances to which all of this has given rise

•A staggering pace of urbanization and a swiftly growing middle class that is gradually becoming a force for participatory political change1

•Economic growth that is testing the still blurry outer limits of environmental sustainability, as well as the capacity to keep military strength within bounds that China’s neighbors can accept

Thus, while Deng Xiaoping pushed the stone of “his” revolution down the mountain, its precise route, effects, rate of movement, and final resting place have been and will continue to be shaped by a myriad of forces, many of which will prove to have been beyond initial intentions, expectations, or control.

This scene-setting chapter first describes the seven principal strategic decisions made at the outset of the Deng era and then examines some of the resulting transformations. In subsequent chapters we examine how Chinese leaders at various levels and in different areas of responsibility have understood important continuities and discontinuities since 1977 and how they have sought to shape the developing circumstances in which they find themselves and their nation.

BACKGROUND

Following Chairman Mao Zedong’s death on September 9, 1976, there was a brief interregnum in which Mao’s nominal successor, Hua Guofeng, and a cohort of revolutionary elders around him were rooting out the key leftist Cultural Revolution holdovers, stabilizing the economic and political situation, and deciding what role, if any, the still-exiled Deng Xiaoping would play moving forward.² On July 17, 1977, the issue of Deng was officially announced as settled by the Third Plenary Session of the Tenth Party Congress: he was reinstated to all the positions from which he had been ousted in April 1976 (vice-chairman of the Central Committee, vice-chairman of the party’s Central Military Commission [CMC], chief of the general staff of the People’s Liberation Army [PLA], vice-premier of the State Council, and, of course, member of the Central Committee and the Politburo Standing Committee). Little more than a year earlier a failing Mao Zedong had yet again turned on Deng in the aftermath of unrest in Beijing that had been sparked by Premier Zhou Enlai’s death in January 1976—unrest that the Cultural Revolution leftist contenders for power in the fast-approaching post-Mao era correctly judged was aimed at them, and for which they found it expedient to blame Deng.3

Upon returning to his duties in the summer of 1977, Deng initially focused on science and technology and education policy. However, he rapidly accumulated influence and started to make a series of policy pronouncements establishing the overall direction and dimensions of change that he foresaw. By 1982, Deng had completed easing Mao’s weak successor Hua Guofeng out of power, though as a sign of things to come he did not humiliate him. Unlike Chairman Mao, Deng left his vanquished opponent with a shred of dignity by letting him recede gracefully into the background, thereby lowering the temperature of elite politics considerably.⁴ After this, though never as omnipotent as Mao, Deng became China’s uncontested principal leader, or its primus inter pares, by a considerable margin. Between 1977 and 1985, Deng identified and initiated the principal strategic policy departures associated with the second Chinese communist-era revolution.

Below, we examine these directions and the transformations to which these policy changes have given rise. China’s point of departure in comparative economic and social perspective at this moment is illustrated in table 1, which shows the situation in 1980 according to World Bank figures. China’s then nearly 25 percent of global population accounted for somewhere around 2 percent of global GDP. The PRC at that time accounted for less than 1 percent of global trade. The urban population was less than one-fifth of China’s total, and nearly half of the overall population had not completed a primary school education. At the time, except for health indicators that the Maoist system did drive up (bringing great human benefit to China’s people), the PRC was behind India in several categories of societal performance, including percentage of population living in urban areas. Tiny Hong Kong accounted for a larger share of world trade than mammoth mainland China. And even Italy’s population had two times more of the global share of GDP than did China’s.

The point is clear—the China that Deng inherited was poor, very poor, albeit able to pin down large contingents of the Soviet military along a vast common border. Most of the outside world did not foresee the day when Chinese modernization would give birth to a far different actor on the world stage, a result of the initial strategic decisions made and implemented by Deng and his colleagues. Yet by retrospectively talking about “strategic decisions” one runs the risk of imposing an order on the process that, at the time, did not exist; in his day, Deng’s push was above all experimental, opportunistic, reactive, and relentless—essentially seeking those places where the population wanted to run in the direction he desired to take China.

TABLE 1 CHINA’S COMPARATIVE STARTING POINT, 1980

THE MAJOR STRATEGIC DECISIONS

Between 1977 and 1985, Deng and his allies created and immediately began to feverishly implement strategic policy initiatives that fall into seven fundamental categories. Not all of these initiatives were entirely new, and from today’s perspective, they have not all proven to be equally successful or even mutually consistent. While their overall success has been considerable, some have had enormous downsides, others have not yet been taken to their logical conclusions, and still others remain difficult to assess.

These seven categories of decisions or policy tendencies are not listed in presumed order of importance, nor can one necessarily point to one “decision” having been made at one precise time. All of them were clearly articulated by Deng, with some being signaled as early as 1974 but most being promulgated between 1977 and 1985. While the majority of these policy tendencies pertained to domestic initiatives, two were international in focus, and all had enormous domestic and international impact.5

Strategic Category 1: From War and Revolution to Peace and Development

A governing necessity in China has always been to first define the era in which the nation finds itself. Defining the era helps establish goals and priorities and provides the parameters for messages going out from the center to tens of millions of party and state cadres and to a citizenry whose population was closing in on one billion by the time Deng returned to power. Mao defined his era as one of “War and Revolution.” By way of contrast, Deng clearly defined his era as one of “Peace and Development.”⁶

Deng and his colleagues were fortunate that history developed as it did in his early years of taking the helm, making his description of a new era credible.⁷ This new focus helped establish the generally peaceful and economically oriented regional environment that he needed and from which most other players in the region and the world benefited. Much that was helpful was happening in the years in which Deng’s policies took shape:

•The United States had recently exited Vietnam.

•Taiwan was in a relatively open phase under Chiang Kai-shek’s son and successor, Chiang Ching-kuo.

•Globalization of trade and manufacturing was gaining momentum.

•The dynamic East Asian economies of Japan, South Korea, Singapore, and Taiwan were taking off, in search of opportunities for surplus capital and sites for the low-wage components of the production chain as their labor and land costs rose.

With the costs of international shipping dropping, and the U.S. economy moving up the value chain, China had opportunities and Washington was willing to cooperate. Although the Soviet Union was (and would remain) a threat well into the 1980s, with new “friends” China no longer had to confront Moscow alone, and economics quickly became the game throughout the country and in much of Asia.

Deng was ready to learn from others and participate in the global economy, as he told a group of American visitors in October 1977, less than three months after his return to power: “We must, for instance, learn from advanced countries something that the Gang [of Four] had called slavish imitation. . . . One must have enough confidence in one’s own ability to take in other things. By self-reliance we should also absorb from advanced countries.”8 In a single sentence he turned Mao’s concept of “self-reliance” on its head.

This calculation on Deng’s part was fundamental to nearly all of the other policy thrusts. Had he and his colleagues not judged that the international environment was relatively benign, and would remain so for a considerable period, it would have been difficult for him to keep military expenditures very low in terms of absolute renminbi, as a percentage of the PRC’s GDP, and as a percentage of the Chinese budget for the first dozen years of reform. This enabled him to focus scarce resources on domestic investment and reduced the anxiety level of most of China’s neighbors, thereby further relaxing the regional environment. Had Beijing faced the threat it faced in the 1960s from both America and the Soviet Union simultaneously, the military would have played suffocating domestic, economic, and political roles. Because of his own military credentials, Deng could talk about the need to constrain military expenditures—postponing increases until the domestic economy was far stronger (see figure 1). Having been a major military figure, Deng was able to constrain the armed forces in a way that his civilian successors without such stature would one day find more difficult.9

FIGURE 1. Budgeted national defense expenditure, 1978–2011.

Strategic Category 2: Pragmatic Experimentalism

Deng’s revolution was as much a state of mind as it was a specific set of policies. That state of mind was “Let’s see what works to produce economic growth,” by permitting different regions and levels of the system to develop responses to problems, and then popularizing successful policies—allowing these to spread from the grassroots up. Lower-level leaders want many things from superiors (money and resources being central), but often the most valued thing that the top can give the bottom is policy leeway. Deng provided this type of freedom: he often encouraged local initiative and hung back without committing himself. Only when success was assured did he weigh in definitively, encouraging successful models to be tried elsewhere. In one 1979 conversation Deng put it this way to a group of U.S. governors: “The most important method we have accepted is since China is so big, we are carrying out decentralization, including giving large powers and decision making to enterprises. Only in this way can they naturally find the right way. . . . During the past two years, [we have] carried out experiments and in this respect all have proved successful. This has been confirmed and now this will be made part of the system.”¹⁰ While Mao could also be described as an experimentalist, his experiments were always to serve ideological aims, and they usually ended with an enforced uniformity in the name of giving the initiative to the “masses.” Deng allowed for diversity, although he sometimes then had to try to recapture at least partial central control when deviations became too great and the loss of central authority too extreme in key areas such as central revenues.

Strategic Category 3: Material Incentives, Markets, and State-Society Balance

Political leaders have different predispositions with respect to which tools of power they find most effective or congenial. The available instruments of power are coercion, material reward (remuneration), and ideological (normative) persuasion.11 Mao was a believer in the first (coercion) and the last (ideology), with a distinct bias against material incentives. Mao would consider the latter only if China was in a severe economic crisis, as was the case in the immediate post-Liberation period from 1949 to 1953 and in the aftermath of the Great Leap Forward in 1960. Because he emphasized coercion and ideology, Mao needed a strong state and party that could create and wield such instruments.

In contrast, Deng relied principally on remunerative power, employing coercion only when the political system was threatened, as in 1979 with the Democracy Wall movement and again a decade later with the Tiananmen demonstrations. Deng wanted a strong state, but one that was far less intrusive in its relation to society—using material incentives, as opposed to direct administrative control and mass mobilization, as often as possible. Some of his policies, most notably those in agriculture, were almost self-implementing because they so closely aligned with the interests and inclinations of those applying them and because people were so relieved simply to be freed from policies that had proven catastrophic. In speaking to a group of visiting Americans in 1979, Deng could not have been clearer: “[It is] impossible to give play to personal enthusiasm and initiative without linking it to incentives. During the past ten years [1969–79], it has been proved that all those enterprises which had decision powers—the workers themselves increased income and have given more profit to the state. Not only in factories but in the countryside as well.”¹² In a fall 1977 conversation in which he seemed worn and wary shortly after his return to power, Deng said: “As for wages, over the past decade there were no raises of wages. In 1974 there was a proposal to raise some wages, but the Gang of Four opposed it. Again the same thing happened in 1975, and now we are working again on raising wages.”¹³ Deng believed that higher pay produced more work and that more work produced more benefits for both the workers and the state. Mao was a zero-sum type of political leader, while Deng was a win-win leader, except when it came to keeping the CCP in its solitary leading role.

With respect to markets, Deng was persuaded of their power and efficiency in the wake of the Great Leap Forward in the early 1960s when he worked hard to bring China back from starvation.14 The first big initiative Deng embraced upon his last return in the late 1970s was to restore production incentives to rural households and reopen moribund rural markets. From there, he and his colleagues methodically introduced markets on an ever broader front, moving sequentially to raw materials and labor markets. Much has been accomplished to further open markets in the intervening years, but full interest-rate liberalization and land market development, along with reduction of selective monopolies and subsidization by the state, are areas where change remains incomplete.

Deng’s introduction of markets was economically crucial and had far-reaching political implications. By taking many economic decisions out of the hands of central state planners and bureaucrats, Deng unleashed an evolving process in which the state-society balance was gradually altered. It has been liberating to the degree that individuals have gained more control over their economic lives. To the degree that tyrannical lower-level officials have been able to capture some or most of the power relinquished by the center, it has been disappointing: in some cases it seems that one group of tyrants has simply been replaced by another. Markets have consequences for equality, equity, and social justice that have been progressively harder to contain within the confines of a rigid political system, though Deng’s successors have thus far proven remarkably adaptable.

Strategic Category 4: Population

One of Deng Xiaoping’s earliest preoccupations was with the sheer size of China’s population—he felt he had to stop it from growing. In an October 1979 conversation with U.S. governors, Deng put it simply: “The most outstanding characteristic is that the population of the country is too large. Even if by upgrading production to the level [of more advanced countries,] . . . producing lots of steel, various kinds of industrial products and food grains, the average per capita GNP still won’t be very high compared to the rest of the world.”¹⁵

Deng was adamant that the PRC’s population was too big: each year’s added increment of population expansion would eat up a large fraction of gains.16 He was thinking about political legitimacy, which in the early 1980s required a rapid increase of the per capita income of his people. A growing population worked against this because even a low birth rate added many people in absolute terms. Deng’s basic measure of progress was per capita income, and the more “capitas,” the harder it would be to achieve success. Perhaps Deng also feared that the peace and prosperity his policies would bring would generate a fertility boom that would make raising per capita welfare even harder. Whatever his precise logic, he rejected Mao Zedong’s populist notion that the more people China had the stronger it was. In retrospect, Deng clearly was not thinking about longer-term demographic issues such as gender imbalance or an inverted age pyramid.

This was Deng’s thinking and the origin of the one-child policy of the late 1970s. This policy was implemented in many ways throughout the PRC and changed over time but soon became synonymous with coercion throughout the world with its initial indiscriminate enforcement across social and economic groups and many instances of forced sterilization and/or forced abortion. As Deng said in 1977, “It is difficult to get zero [population] growth. Much effort must be made in the countryside to overcome the desire of all Chinese for huge families.”¹⁷

Strategic Category 5: Capable Personnel for the Economy and Polity

For Deng Xiaoping, the Cultural Revolution produced a personal loss of power, humiliation, exile, and grief,¹⁸ but for China the movement led to a lost decade in which China’s youth had little to no formal education. Scientific research was at a standstill outside military-related areas. Deng told a group of U.S. governors in 1979, “As you know, we have suffered a gap of ten years when we didn’t produce skilled or scientific personnel. We have lost a generation. . . . So, in this respect, we are going to learn from advanced countries, not only technological knowledge but management skills.”¹⁹ In almost every conversation with visitors, whether it was President Carter’s science adviser Frank Press in 1978, U.S. university presidents in 1979, or Robert McNamara of the World Bank in 1980, Deng pressed for substantial educational assistance. In July 1978, Deng and Frank Press agreed to an exchange of PRC and American students, with the number of the former limited only by their capacity to be admitted to U.S. institutions of higher education and to obtain the necessary financial support. One of the World Bank’s first initiatives in the PRC was to help modernize key educational institutions and link them to the outside world. In 1978, there were 50 Chinese students in the first contingent coming to the United States; by 1984, this number had reached 14,000; by the 2010–11 academic year China had 157,558 students enrolled in U.S. colleges, universities, and other educational settings; and by the academic year 2011–12, the number had jumped another 23 percent, to 194,029 students.20

In terms of the domestic tertiary education system, upon his return to power, Deng immediately reopened schools and began rigorous testing and admissions regimes; the number of college and university undergraduates expanded from 165,000 in 1978 to 950,000 in 2000, then vaulted to 5.3 million in 2009.²¹ Further expansion of all forms of tertiary education is occurring rapidly in the 2010s.²² By 2011, only five other countries had “more universities than China in the top-ranked 500 universities of the world, compared to twelve [countries] just eight years ago.”²³

Deng was just as deeply concerned about the educational deficiencies of literally tens of millions of party, state, and military cadres who were old and set in their ways, uneducated as well as untrained, and politically dogmatic—“ossified” was his preferred characterization. Mao’s promotion criteria had prioritized political reliability over technical capacity—“better red than expert.” In 1979, about a year following the pathbreaking Third Plenum of the Eleventh Central Committee that constituted the launch of the initial stages of reform, Deng said: “The line and principles adopted for the modernization program are correct, but the problem—and it is a serious one—is lack of trained personnel necessary to carry them out.”²⁴ Daringly for the era, he went on to praise capitalism, saying: “We say that capitalist society is bad, but it doesn’t hesitate to discover and utilize talent. . . . The seniority system represents a force of habit and is backward.”²⁵ He immediately began to establish midcareer training schools, set retirement ages, and make entry into government service progressively more competitive and skill based, rather than a mere political litmus test.

Strategic Category 6: Preservation of the Communist Party’s Monopoly of Power

With all of the policy loosening in the social, intellectual, and economic realms that Deng was promoting between 1978 and 1979, citizens predictably began to explore the limits of political space—and quickly ran up against them. The years 1978–79 saw a personal challenge to Deng and some of his policies in the person of Wei Jingsheng (and others) who argued that there would not be economic and societal modernization without the emergence of political democracy, or, as Wei himself put it: “We want to be the masters of our own destiny. We need no gods or emperors and we don’t believe in saviors of any kind. We want to be masters of our universe, not the modernizing tools of dictators with personal ambitions.”26 This movement, known as Minzhu Qiang, or Democracy Wall, snowballed in the early months of 1979 and was further fueled by China’s sub-par performance in the brief military conflict—“the counterattack waged in self-defense”—with Vietnam in February-March of that same year. This “punitive” military campaign came in the immediate wake of Deng’s postnormalization visit to the United States, when President Carter advised against a military strike against Vietnam but clearly was not prepared to do much to seek to prevent it or to sanction China afterward.

Deng pressed for an end to the Democracy Wall movement (which had spread beyond Beijing to other parts of the country) by articulating and imposing “the Four Cardinal Principles,” the core of which was (and remains): “We must uphold the leadership of the Communist Party.”²⁷ Deng observed this principle repeatedly throughout his career: his involvement in the antirightist campaign of the latter part of the 1950s, the repression of the Democracy Wall movement in 1978–79, and subsequently the June 4, 1989, Tiananmen crackdown.

The internal contradiction within Deng’s overall program was apparent then and became progressively more glaring as time wore on—the social pluralization and empowerment of subgroups that his economic, educational, social, and foreign policy initiatives promoted worked against the ongoing CCP political monopoly. Deng felt that economic progress, and the Chinese people’s tragic experiences with instability throughout the twentieth century, not least in the communist era itself, would combine to provide a breathing spell during which he could put his foot on the brake of political liberalization while depressing the economic accelerator. As he said to a group of visitors from the United States in 1979, “As to the so-called Democracy Wall or the demonstrations and sit-ins, etc., this can’t represent the genuine feeling of our people.”²⁸ I think that he truly believed this. And while he was correct that there would be a breathing spell—a period during which satisfying participatory political demands could be deferred because economic progress and social stability were priorities for all citizens—he left his successors with a ticking time bomb. The questions are, how much longer will this breathing spell last? How much counterproductive repression may be needed to prolong it? If a political explosion in the indefinite future is to be avoided, does a smoother course to a more participatory and responsive future system need to be charted? This issue is at the forefront of the challenges facing China’s fifth-generation leaders, not least Xi Jinping, in the second decade of the twenty-first century.

Strategic Category 7: From Autarky to Comparative Advantage and Interdependence

Mao Zedong believed that trade carried a high risk of dependence and that the PRC would be secure and independent only when it was as self-sufficient as possible. In contrast, Deng understood—perhaps from having seen the trading nations of Europe up close as a student in the 1920s, and from observing the successes of the dragon economies around China in the 1970s and 1980s—that trade was essential to the wealth and power of a nation. He believed in the mutually beneficial effects of trade. From the earliest days of his return to power in 1977, Deng planned to enmesh China in the international economic system in at least three ways outlined below, two of which were successful beyond what he probably imagined.

The unsuccessful effort was his initial presumption that China had sufficient energy resources (coal and anticipated oil reserves) to export to earn foreign exchange that could, in turn, buy technology. As it turned out, in 1993 China became a net oil importer because of the combination of faster-than-expected growth in domestic energy demand and smaller-than-hoped-for energy discoveries. This fact obviated Deng’s initial energy-based development strategy. Nonetheless, in the earliest stage of reform, Deng was hopeful that by trading the PRC’s energy for the West’s technology he could jump-start the economy. His hopes, and perhaps some uncertainty, come through in his words to visiting directors of the National Committee on U.S.-China Relations in October 1977.29 “We are planning to export more oil products. We have very large oil deposits. Basically, we can solve the exploration problems ourselves. Our main imported technology will be in the oil industry. The Japanese told us that Americans had told them that China has fifty billion tons in reserve. How do you know? I asked Bush [George Herbert Walker Bush] of the CIA. ‘Did you get it [the figure] from the sky?’ He said, ‘Maybe.’”³⁰

What proved to be a wildly successful effort to enter the international division of labor, however, began in 1978, as reform-minded Vice-Premier Li Lanqing subsequently recounted in his memoir Breaking Through.31 This economic push involved making China a destination for foreign direct investment (FDI) and employing capital from abroad to construct manufacturing and assembly platforms in selected coastal areas with favorable conditions to produce exports, thereby earning foreign exchange. This would soon involve developing Special Economic Zones (SEZs) in Fujian and Guangdong provinces (Shantou, Xiamen, Shenzhen, and Zhuhai), and the development of an interesting (democratic) governance experiment in Shekou. The economic and administrative policies associated with the four SEZs spread geographically in the 1980s—the opening of Shanghai in the early 1990s being a notable landmark along the way.

Parenthetically, Xi Jinping, who became CCP general secretary in late 2012, grew up in the midst of these developments and at that time was just leaving school and working in Beijing in the State Council and then the Central Military Commission. Xi Jinping’s father, Xi Zhongxun, whom I met twice, was Deng’s close colleague and, in his role as second secretary of the Guangdong Party Committee, developed and promoted an avant-garde “Report on a Tentative Plan for Building Foreign Trade Bases and Urban Development in Bao’an and Zhuhai Counties.”³² In December 1978, this plan was adopted by Beijing, and Xi Zhongxun was named first party secretary of Guangdong Province, with Yang Shangkun (later president of the PRC) as his deputy; on January 23, 1979, part of Bao’an County became Shenzhen, the most famous of the SEZs. With all of this, Xi Zhongxun was laying a cornerstone for the edifice of Deng’s legacy. In the fierce battles over adopting and implementing this set of then controversial economic policies, Deng said, “The central authorities do not have the money, but we can give you some policies to allow you to do it on your own and blaze a new trail.”³³

The other successful effort was to start to closely cooperate with the World Bank and other Bretton Woods institutions. Robert S. McNamara, president of the World Bank (April 1968–June 1981), describes Deng’s enthusiastic acceptance of financial assistance and, perhaps more importantly, the Bank’s advice. As Robert McNamara put it in a 1991 interview with the World Bank History Project:

When I went to China in April of 1980 and met with Deng Xiaoping. . . . My purpose was in negotiating the reentry of the People’s Republic into the Bank, which they’d begun the year before. Accomplishing that with Deng Xiaoping, I then said to him—we’d started out; we’d agreed on reentry—“What is it you wish?” I said, “I guess there’s no need to ask you, (A), do you want us to help you?” He had told me he was just beginning. . . . And I said, “Well, number two, do you want us to help you in developing macroeconomic policies?”

He said, “Yes.”

“Do you want us to assist in financing the adjustment process?”

“Yes.”

“Do you want us to have an office in Beijing?”

“Yes.”34

At a meeting with Chinese researchers some years later, McNamara evaluated Deng’s leadership in the early years of reform, saying:

“Twenty-five years ago [as president of the World Bank] I spoke with Deng Xiaoping about his objectives. They were to quadruple the Chinese GDP by 2000 and to expand the welfare of his people. People in the U.S. don’t understand this accomplishment. He accomplished clear objectives. The one-child policy. He required senior executives to assume responsibility for moving toward the objectives. Deng Xiaoping required all senior people in his cabinet to read the summary volume of the eight volume World Bank assessment that had been made of the Chinese economy. And officials all know the main social welfare indicators on poverty reduction nationwide over time. His priorities were the military in the last place. He provided incentives. The result was eight percent growth in agriculture—unheard of.”³⁵

THE PRINCIPAL TRANSFORMATIONS

We now fast-forward from clusters of decisions made between 1977 and 1985 to the resulting transformations that we can observe in the second decade of the twenty-first century. This approach sacrifices chronological detail for the clarity that this contrast provides. In the chapters to follow, however, we will capture the detail by examining various dimensions of China—through both wide-angle and up-close lenses—from the perspective of a diversity of Chinese leaders over time. Here, though, we paint a picture of the broad circumstances that China’s leaders confront more than three decades after the initial policy decisions described above. Table 2 demonstrates how far China had come by 2010 using the same measures as employed in table 1. In a comparison of tables 1 and 2, particularly notable are China’s increased share of global GDP, the dramatic increase in the PRC’s share of world trade, gains in basic health indicators, the degree of urbanization, and progress in the educational system.

TABLE 2 COMPARATIVE INDICATORS OF CHINA’S CIRCUMSTANCES IN 2010

With regard to qualitative change over the 1977–2013 period, four broad areas of contrast are particularly illuminating: political, economic, societal, and global.

Political Changes

There have been major political changes in China since 1977, though not of the type considered significant by many Westerners. These changes hold both the promise of further positive change and the certainty of major challenges, indeed dangers, ahead.

The Basis of Legitimacy

Mao Zedong, and to a considerable extent Deng Xiaoping, had political legitimacy rooted in their personal histories and the authoritarian political culture from which they sprang. They were leaders who sank deep roots into the three fundamental bases of power in China: the party/bureaucracy, the military, and the core geographic regions of the country. They possessed diversified and deep bases of power.36 Current Chinese leaders do not have such compelling revolutionary histories or such strongly diversified power bases, and they preside over an increasingly knowledgeable, networked, and urban population. Thus leaders today depend more heavily upon performance-based legitimacy—with their performance measured by economic growth, social stability, and expanding opportunity for citizens. All Chinese leaders today speak about the importance of “public opinion,” and they are busy measuring it. For example, one district party secretary in Shanghai in 2007 told me: “‘In the Tang dynasty we didn’t care about people’s views, now we listen. Every day I read Time, USA Today, and the Internet. Actually, this is the biggest change in governance, in governing philosophy.’”³⁷

Mao Zedong presided over policies that starved millions and, so far as I am aware, never went to the rural areas to show a shred of compassion, much less to acknowledge his mistakes. He went to the countryside to mobilize but never to apologize once his grandiose initiatives had gone awry. Today, when natural disasters strike, such as the May 12, 2008, Wenchuan earthquake in Sichuan Province, the Chinese premier and other senior officials are there, with TV hookups carrying images within hours and social media and cellular communications conveying information even faster. Similarly, in the earliest days of the Hu Jintao–Wen Jiabao era in late 2002/early 2003, SARS hit first southern China and thereafter rapidly spread to other parts of the country and abroad. The holdover health minister and local officials had ignored, and then minimized, the escalating disaster. The new Hu-Wen leadership fired the minister of public health, Zhang Wenkang, in April 2003, thereby establishing some accountability. This move boosted the new leadership’s legitimacy and sped Jiang Zemin’s move toward the sidelines of power in 2003–4.

While this certainly does not constitute democracy, it is what political scientists have called responsive authoritarianism.

Ambitions of the State, Preemptive Accommodation, and Repression

One of the most significant transformations in the post-Mao era has been the withdrawal of the state from enormous swaths of everyday life. The ambitions of the state for control have contracted since 1977, although there are no legal or constitutional guarantees that this situation will persist and, in certain domains such as cyberspace, control has become possible where it was not previously. If you ask what Mao sought to regulate in his day, even if he was unable to accomplish it, the answer is, “Everything.” Today, the party-state principally seeks to protect its monopoly of power against any organized opposition—and this it has done to remarkable effect, thus far.

Beyond that arena of protection, however, enormous areas of human endeavor have been politically deregulated: personal income decisions; lifetime career planning and personal mobility; freedom of expression, as long as it is not antisystem in an organized way; and the ability to go abroad. Even the right to express oneself in print has expanded, with the system shifting from crude prepublication censorship to postpublication punishment if views stray too far—a standard that oscillates, with punishments ranging from admonishment to imprisonment.

The challenge now is, having partially freed so much of human life from the Maoist straitjacket, how can the CCP keep threats to its monopoly of power from reaching critical mass, particularly in the era of universally available social media? The party has sought to do so by preemptive accommodation and repression: identify the popular grievance as early as possible, meet reasonable demands, prevent disparate social groups from linking up, and arrest the leaders who are prominent in organizing protest if it becomes too public or too threatening. While clearly not democratic, this approach is not totalitarian either.

Types of Leadership

Though this topic will be addressed in considerable detail in chapter 2, the type of leader one finds in China today is very different from Mao, or even Deng. James MacGregor Burns has described three ideal types of leader: transformational, transactional, and power wielder.38 All politicians have elements of each in their makeup, but leaders are distinguished by their dominant proclivity, by their goals, and by the instruments of power with which they feel most comfortable and effective.

Transformational leaders establish spiritual or ideological connections with their followers, and their sway over citizens is based on, and aimed at, establishing entirely new social and political orders. Such leaders often lead revolutions (Mao Zedong or the Taiping Rebellion’s Hong Xiuquan, for example) or address grave systemic crises in more established orders (i.e., Franklin D. Roosevelt).³⁹ These leaders thrive, not on the thin gruel of system maintenance, but rather on major crises and systemic change. Transactional leaders, by way of contrast, function more as the lubricant of the political mechanism of an established order—reducing friction, building coalitions, finding incremental ways through political problems, cutting pragmatic deals, and performing system maintenance tasks (the “great triangulator” Bill Clinton may be the prototype here, or Jiang Zemin). Power wielders are distinguished by their devotion to maintaining personal power; the means by which they do so, or the policies pursued, are evaluated only in terms of their ability to prevail personally (Iraq’s Saddam Hussein comes to mind).

Various types of leaders have different vulnerabilities—a particular set of dangers awaits the transactional leaders who are now dominant in the PRC. Events can quickly alter the public view of them from essential, pragmatic problem solvers to weak, indecisive, and inadequate persons. Transactional leaders must keep solving problems and building workable coalitions; when they are unable to do so their utility is at an end. Elections are a regularized way to get a new team in democracies when the old team is tired out, but authoritarian regimes are saddled with less predictable, often more disruptive means.

Not only have Chinese leaders changed dramatically in terms of their type, moving from transformational toward transactional since 1976, but they also have become more educated, considerably younger, and more diverse in professional and geographic origins. Cheng Li’s examination of 538 of the so-called “fifth-generation” leaders, who were predominantly born in the 1950s, finds a gradual increase in the number of non–Communist Party officials at the vice-governor and vice-minister levels and above; some diversification in birthplace away from the eastern seaboard; increasing diversity in academic and professional study and subsequent functional specialization (away from engineering and the hard sciences); ever higher levels of education, with 73 percent of fifth-generation leaders having postgraduate degrees (though of widely varying quality); and more experience studying abroad.40

All this change is pushing the system into uncharted political territory. While Deng set his country on a radically different course, it was a course that would require huge and continuous changes for a protracted period. Will his increasingly transactional and less muscular successors prove able to produce the transformations that are required? Less dominant leaders now face a stronger society.

Economic Changes

Changes in the political system affect, and are affected by, economic transformations. Several economic changes have been particularly important in China: (1) transformations from a planned to a market economy; (2) a shift from stifling state ownership to substantial nonstate control; (3) a rise in state-corporation power that is not as responsive to central control and is now capable of pursuing its own interests, one of which is to maintain its monopolies in key sectors of the economy; (4) a shift from agriculture toward manufacturing and services; (5) development of regulatory institutions, however imperfect; and, (6) a change from autarky to interdependence.

Changes in Economic Structure

With regard to ownership over time, in 1977 peasants were still in communes and industrial activity was almost entirely in the state-owned sector. In contrast, by 2009, state-owned enterprises (SOEs) accounted for only 11.5 percent of gross national output, only 8.1 percent of profits, and a mere 10 percent of industrial employment—while consuming a disproportionate 31 percent of investment. On the other hand, what the World Bank calls “pure private firms” accounted for 29.6 percent of gross national output, 28 percent of profits, and 33.7 percent of the industrial labor force, while getting only 21 percent of total investment.41 A number of conclusions can be drawn from these figures, but three stand out. First, the efficiency of investment in the private sector has been stunning compared to that in the SOE sector. Second, there has been ongoing discrimination against the private sector in credit allocation—a major source of systemic inefficiency. And third, further movement toward a genuinely competitive private sector would unleash enormous additional growth.

Turning to the structure of the Chinese economy, in 1978, 28 percent of GDP came from primary industry (mostly agriculture), about 48 percent from secondary industry (manufacturing), and a very low 24 percent from tertiary enterprises (services). By 2008, primary industry as a share of GDP had dropped to 11 percent, secondary industry remained about the same at 48 percent, and tertiary industry had grown to 40 percent (reaching 43 percent by mid-2012).⁴² There is still enormous growth potential in further boosting the service sector’s share of GDP, particularly in health care and education.

Building a Regulatory Structure

Once the decision to utilize markets was made in the late 1970s, diverse economic actors increasingly needed to be regulated. In the planned economy, regulatory functions were handled (to the degree they were handled at all) by fiat and the relevant functional bureaucracy. Under the new conditions of an evolving market economy, special-purpose agencies had to be created from the ground up to regulate increasingly dynamic markets and an ever greater number of economic players, many of whom were beyond easy reach. Even state-owned enterprises, once energized by profit, required independent regulation. Regulatory and administrative law had to be developed. When I first went to the PRC in October 1976, I examined the pharmaceutical regulatory apparatus: it was basically nonexistent at the national level, and what masqueraded as one at the provincial level was ineffective. I asked one official how many drug products had ever been recalled for safety or quality reasons. His answer? None.⁴³

Greater economic dynamism has meant that regulators are continually behind the ever evolving, ever more creative market-driven actors. Since the 1990s, on an ongoing basis, the PRC has seen the emergence of securities regulators; banking regulators, including the emergence of a more effective central bank; food and drug regulatory agencies; environmental regulatory bodies; and nuclear power regulators such as the National Nuclear Safety Administration, just to name a few. Barry Naughton points to the particular economic and social importance of the 1990s development of regulatory bodies, laws, and regimes as they related to the fiscal and tax system, the banking and financial system, corporate governance, and foreign trade and the external sector—not least membership in the World Trade Organization and all that this implied.44 It is not easy to develop a force of skilled regulators, provide them the investigatory tools and legal remedies to be effective, keep them from getting co-opted by the industries they are supposed to regulate, and keep party officials from shielding their pet projects and pecuniary interests. Corruption is just one danger.

In this race between market innovation and public-interest regulation in the PRC, young, untested, compromised, or nonexistent regulatory authorities have often lost, as seen in many areas, such as

•Scandals involving tainted drugs and food products, some of which have found their way into the global supply chain

•Environmental disasters with international effects, notably petrochemical spills

•Infrastructure failures such as bridge collapses

•Unsafe toys and manufactured goods

•Bogus securities

•Violations of domestic and foreign intellectual property rights

•Fraudulent credentials and scholarly work—rampant in academic settings

•Shocking inattention to safety in coal mines and other workplaces, even among subcontractors making components and assembling products for iconic Western brands such as Apple⁴⁵

From Autarky to Interdependence

Mao was committed to “self-reliance” (zili gengsheng) and inflicted enormous costs on the Chinese people to avoid dependence on others, particularly after his negative experience with Moscow in the 1950s. This experience also initially clouded Deng’s thinking, as shown by his telling a group of American visitors in 1977: “Another aspect of self-reliance is to rely upon our own savings and not borrow money from others. We once had to borrow a great deal from the Soviet Union, and we built up a debt with them. Later, the Soviet Union tried to control us through our debts. They wanted to make us into an Eastern European satellite country. So we fell out with them.”46

By 1980, however, Deng had overcome whatever compunctions he had (and whatever domestic opposition he faced) concerning indebtedness to foreigners and was ready to move ahead with the World Bank, though he remained very concerned that Beijing always be assured of its repayment capacity. In 1982, China had 0 percent of GDP in World Bank loans; by 1993 China peaked out at a World Bank loan to GDP ratio of 2.2 percent. Then, by virtue of the PRC’s growing domestic capacities, by 2010 this ratio had declined to a mere 0.37 percent of GDP.⁴⁷ Another sign of China’s willingness to rely on the international financial system in ways unimaginable to Mao is that in September 2008 China surpassed Japan as the largest foreign holder of U.S. Treasuries and by June 2012 held $1.1643 trillion in Treasury securities.⁴⁸ With regard to external debt, China’s net external debt is negative (China is a net creditor), though Beijing did have large external debt amounting to $695 billion at the end of 2011, or 9.52 percent of GDP, much of this being trade financing.⁴⁹

China’s willingness to accept interdependence is found in other critical areas, such as key foodstuffs, most notably soy. A cardinal rule of governance in China from its earliest recorded history has been “Yang min,” or “Feed the people.” For Mao, this injunction meant domestically producing all the food—particularly grain—that the PRC needed, irrespective of the efficiency of so doing (as opposed to buying grain and other foodstuffs from more efficient producers in Australia, Canada, Brazil, or the United States). For Mao, depending on foreigners for food was equivalent to having the hands of your enemies around your nation’s throat. By 2004, however, China had become a net food importer, with an 80 percent dependence on soya, a relatively high dependence on vegetable oil and edible sugar, and a variable dependence on wheat.⁵⁰

A similar pattern exists with respect to energy. In 1993, China became a net petroleum importer—and has never looked back, becoming a larger oil importer than the United States in December 2012. More recently the PRC has also become a major player as an importer in the global coal market. Kevin Tu and Sabine Johnson-Reiser explain: “The country’s [PRC] dependence on other nations’ coal exports is growing. . . . With 182 million tons (Mt) of coal sourced from overseas suppliers in 2011, China has overtaken Japan as the world’s top coal importer.”⁵¹

Another important aspect of interdependency is that as many as forty-five million Chinese workers nationwide (2007) were employed in the export sector, or about 6 percent of the active mainland workforce.52 In Shanghai, exports constitute a significant fraction of the city’s GDP, as mentioned to me by then Shanghai mayor Xu Kuangdi in 1998: “We have seventeen thousand foreign-invested ventures [in Shanghai]. Thirty-five percent of our exports [from Shanghai] are from foreign-invested firms. One-third of Shanghai’s GDP is from foreign-invested ventures.”⁵³ In Jiangsu, in a 2007 meeting with then provincial first secretary Li Yuanchao, later head of the party’s Organization Department, Politburo member, and vice president, a colleague of his pointed out that his province’s 8,600 U.S.-invested projects accounted for 80 percent of his province’s exports to America.⁵⁴

Concisely, since the late 1970s, China has accepted interdependence, which has great bearing on economic growth, political stability, and consequently regime survival. Local finances often depend on taxes from enterprises connected to the international trade system, and customs revenues are a significant fraction of the central government’s revenues. Customs revenue in 2011 reached 1.61 trillion yuan ($256 billion). PRC government fiscal revenue in 2011 hit 10.37 trillion yuan ($1.64 trillion). So customs accounted for 15.5 percent of total government revenue.⁵⁵

Finally, although much of what was discussed above is positive in its implications, there have been problematic economic dimensions as well. Among them is a web of explicit and implicit market-distorting subsidies, rebates, and other arrangements, not the least of which is the low interest rate, resulting in a low price for capital. Also, certain “pillar” industries (such as steel and the auto- and electronics-related sectors) are targeted for special attention and protection, contributing to misallocation of capital domestically and the lack of a level playing field for foreign firms. Finally, the economy remains substantially overweighted toward investment and exports, starving essential domestic areas (such as health, education, and social safety net systems) of appropriate attention and, in the process, inundating the world with exports that contribute to unsustainable imbalances given America’s insufficient national savings rate.

Societal Changes

Dramatic societal changes have occurred in China between 1977 and 2013, including breathtaking urbanization, the rise of a middle class, striking demographic developments, and social and bureaucratic pluralization. Much of this change has been positive, but there have been enormous downsides as well—ranging from ecological destruction to mounting corruption, growing inequality, and an increasingly lopsided demographic structure. One of the most important consequences of these societal shifts has been the emergence of less dominant leaders and a stronger society, as is discussed in the following chapter.

Urbanization

In 1978, China’s population was 18 percent urban; in 2011, China’s urban population exceeded its rural population for the first time in history;56 and by 2030, the urban population is expected to reach 68 percent of the national total, according to the Chinese Academy of Social Sciences.⁵⁷ That is to say, in the 2013–30 period, China is predicted to add to its urban population an additional number of persons about 80 percent the size of the United States in 2011. Urbanization has driven the growth of China’s middle class, which, according to the Organisation for Economic Co-operation and Development, was 157 million persons, or about 12 percent of total population, in 2010.⁵⁸ The World Bank predicts that the size of China’s urban middle class is likely to double in the 2011–21 period.⁵⁹ This shift, in turn, drives rising consumption levels (a 1 percent increase in urban population increases consumption by 1.6 percent) and creates ever larger demands for water, energy, and other resources.⁶⁰

The growth of China’s middle class, however, has left many behind—the Gini coefficient for income inequality (a statistical measure of inequality where “1” is perfect income inequality and “0” is perfect income equality) has increased from below 0.3 in 1980 at the start of the Deng era to close to 0.45 by 2009, reflecting a yawning urban-to-rural income ratio of 4.1 to 1 in 2007.⁶¹ Martin Whyte, in his book Myth of the Social Volcano, tells us that as important as these distributive inequalities may be, they are not, at least at this moment in China’s development, the social volcano most likely to erupt.⁶² Rather, what is potentially most explosive concerns a whole array of procedural injustices in which individuals and social groups feel unfairly treated. One important procedural injustice is that the household registration (hukou) system confers substantial benefits on those registered in urban areas and discriminates greatly against citizens with rural registration—it is extremely difficult to have one’s rural registration converted to urban status, even if migrants have worked in a city for years.

Population

The combined effects of urbanization, rising education and income levels, and greater opportunities for women help account for what has been a dramatic multidecade decline in China’s total fertility rate—a decline that began well before Deng’s one-child policy was launched, as noted above. The decline in total fertility (in conjunction with the one-child policy) has had a number of effects, including a rapidly aging population; a soon-to-be-declining proportion of working-age people; and severe gender imbalance—with a sex-at-birth ratio of about 118 boys for every 100 girls in 2010.63

The sustained fertility decline and very low birth rate (calculated to be about 1.44 children per woman in the Sixth Census of 2010) have enabled China to raise per capita GDP faster than otherwise would have been the case because for a prolonged period the PRC has had a relatively high percentage of working-age people, as Deng presumably envisioned in the late 1970s when he launched the one-child policy. However, this short-run gain must be judged against some of the long-run costs. Comparing the circumstances of Japan and China, Yi Fuxian explains: “Japan grew rich before it aged, while China has aged before growing rich. The average per capita GDP in Japan is now over US$40,000, while the figure in China is merely US$4,000. By the year 2013, China’s total working population, aged between 15 and 64, will hit its peak and turn downhill.”⁶⁴

Social and Organizational Pluralization

Chinese society and government are becoming more complex, with increasing income and educational stratification; more numerous bureaucratic organizations (e.g., regulatory agencies); increasingly active and capable large-scale economic actors in both the state and nonstate sectors; more professional associations and connections with global epistemic communities; more groups and organizations with their own, independent resources; a rapidly growing body of social organizations; and more foreign involvement of all sorts. With respect to the number of “social organizations” (or shehui tuanti, roughly equivalent to what we call the “third sector” or nongovernmental organizations, in the United States), in 1988 the reported number was 4,446, and by 2010 this figure had grown about a hundredfold, to 445,631.⁶⁵

This, in turn, means there are more varied interest groups in China, many of which are developing the capability to articulate their own, often parochial concerns. One example is the episodic ability of the military to proceed along avenues that have broad impact without sufficient coordination with other organizations or, sometimes, the knowledge of the senior civilian leadership itself (see chapter 6). Policy making is becoming more arduous. Simultaneously, Chinese leaders are becoming weaker in relationship to society and the organizations atop which they sit. As they become relatively weaker, they have to build coalitions, not force obedience. Can less dominant, transactional leaders effectively address the unfinished agenda of Deng’s reforms? Can they deal with the problems and seize the opportunities those reforms have presented, challenges largely unforeseen thirty-five years ago when Deng started this whole second revolution of the communist era—a growing middle class and global warming among them? This brings us to China’s global role.

Global Role

The political, economic, and social changes recounted above have substantially transformed China’s world role since 1977. The China asking for help in the late 1970s and 1980s is now dispensing foreign aid in ever greater quantities in 2013, with its foreign aid growing 29.4 percent annually in the 2004–9 period.66 The China asking to rejoin the World Bank in 1980 and borrowing substantially into the new millennium is now the China that is gaining a bigger say in running the organization and related Bretton Woods institutions. The China that was starving its military of resources from the late 1970s until 1990 is today putting considerably more effort into the modernization of its armed forces. Debtor China now is creditor China, and the PRC not only seeks FDI but is becoming a sought-after investor by countries from Argentina to the United States and Zambia.⁶⁷ “If China follows the pattern of other emerging nations,” Daniel Rosen and Thilo Hanemann tell us, “more than $1 trillion in direct Chinese investment will flow worldwide by 2020, a significant share of which will be destined for advanced markets such as the United States.”⁶⁸ Three dimensions of change in China’s global role call for particular attention: power projection, foreign entanglement, and pride and confidence.

Power Projection

Power projection refers to a nation’s capacity to reach increasing distances beyond its air, sea, and land boundaries in order to bring power to bear on distant objects. Comprehensive national power projection is the capacity to bring all forms of power (coercive, economic, and ideational) to bear on an increasingly global scale.

Outside observers pay particular attention to the capacity to project military strength. Though still limited compared to those of the United States, the PRC’s capacities in these regards have grown markedly from the mid-1990s, and include

•Five successful manned space launches from 2003 through mid-2013, carrying a total of twelve taikonauts, including two women

•Progress in the arms manufacturing and aeronautics industries69

•The shooting down of an aging satellite in 2007

•The PLA navy’s participation in Gulf of Aden antipiracy operations, announced in late 2008 and conducted thereafter

•Testing of anti–ballistic missile capacity in 2010

•Demonstration of initial stealth aircraft capacity in January 2011

•Sea launch of China’s first aircraft carrier in 2011

•Ongoing development of more robust nuclear submarine and submarine-launched missile capability

•Increasingly sophisticated cyber capabilities

•Demonstrated ability to evacuate nearly thirty-six thousand Chinese citizens and other nationals from conflict-torn Libya in 2011⁷⁰

Thus PLA modernization has come a long way in three decades but still has a long way to go. It should also be noted that a substantial fraction of power projection capacity acquisition has been aimed at making credible Beijing’s ability to back up its Taiwan policy, securing the PRC’s maritime lifelines, backing up its claims to South and East China Sea territory, making credible its nuclear deterrent, and protecting its citizens abroad on an ever more extensive basis.

Power projection is more than military might—it is also the capacity to exert economic and intellectual strength from great distances. Above we noted the PRC’s expanding capacities in the realms of economic and financial strength. In terms of communications, cultural exchange, and diplomatic muscle, Beijing’s strengths are greater than ever before—building regional and global telecommunications and broadcasting systems, hosting ever more foreign students in China (50,000 in the year 2000, rising to 265,090 in 2010, with plans for 500,000 by 2020), and building ever larger foreign service and foreign assistance establishments.71

In short, China has moved from being a regional power to a global presence. This is quite remarkable, given that at the time of Mao’s death the PRC could hardly move militarily, economically, or intellectually to any significant distance beyond its borders.

Foreign Entanglement

In his first inaugural address in March 1801, Thomas Jefferson enjoined his American compatriots to have “honest friendship with all nations, entangling alliances with none.” An analogous staple of Chinese foreign policy since 1954 has been the “Five Principles of Peaceful Coexistence,” principles that boil down to noninterference in the internal affairs of other countries. Just as Jefferson’s principles eventually gave way to the necessities of growing power, expanding interests, and mounting fears of vulnerability with the advent of modern warfare, the luxury of sitting on the sidelines is proving infeasible for Beijing. One Chinese general’s remarks in 2011 summed it up for me: “‘Because of China’s growing comprehensive national power and because our national interests are expanding, we need the military to protect our interests.’”⁷²

China’s increasingly global reach and its involvements, however, are not principally military in character. China, for example, as the biggest foreign holder of American Treasury debt, is hostage to American fiscal and monetary policy—subjects about which Beijing now feels entitled to offer Washington advice. When Chinese citizens are trapped in states that are descending into chaos, Beijing must become involved in extracting its nationals, as was the case in Libya in 2011. Noninvolvement and noninterference are less frequently an option for a globalizing China. To simply see the PRC’s increasing involvement as a portent of aggressive intent is to forget the far more pervasive and legitimate motivations: to take advantage of global economic opportunities and to protect the lives, property, and interests of an entrepreneurial population spreading across the earth.

Pride, Nationalism, and a Sense of National Efficacy

The transformations documented above have given China’s leaders and people a greater sense of global efficacy and provided the resources to become more involved and effective on the world stage. China’s growing global involvement has also created a sense among Chinese leaders and citizens that they should and can help shape external developments to protect and advance PRC interests. A Pew poll in mid-2011 reported that 63 percent of Chinese people believed that the PRC “has already replaced the U.S.” as the world’s leading superpower or “will eventually” do so.73

The world is responding, first by acknowledging Chinese power, indeed, often exaggerating it. According to a Gallup poll, in February 2009 more Americans thought China was the “leading economic power in the world today” (39 percent) than thought the United States was (37 percent).⁷⁴ And for their part, many Chinese feel empowered listening to what the outside world says about Beijing’s ascendancy. As one Chinese foreign policy analyst commented on the overall sense of PRC citizens about China’s position in the world: “You [the United States] need our cooperation to save your auto industry; our World Bank voting share is up; so China will have a larger say in trade and financial issues. ‘Money talks.’ ‘Invest more in Africa and finally China will bypass the United States.’”⁷⁵

As we will delineate in the chapters that follow, China has enormous challenges that it still needs to overcome before it can prudently act on the sense of empowerment expressed above. The biggest challenge will be adapting its political system to the new society to which Deng’s second communist-era revolution has given birth, and the subject to which we turn in the next chapter.

China has come far since Deng Xiaoping’s initial conversations in the late 1970s with Western interlocutors. With clear strategic decisions and impressive implementation, China in 2013 is in a radically different position—domestically and internationally—than anyone (Chinese or Westerner) could have forecast in 1977.

Below we examine how Chinese leaders at all levels have looked at the challenges they have confronted to date and those that lie ahead. How have the Chinese themselves understood the problems of domestic governance and international affairs in the 1977–2013 period, and what can that tell us about what the world can expect in the decades ahead?

As far as the PRC has come since 1977, it still has a very long and uncertain road ahead. Deng made key strategic decisions, he pushed them forward, and though he was not a transformational leader like Mao Zedong, his policies, as Ezra Vogel has said, have transformed China.76 Looking ahead from 2013, the main issue is: Can China’s “fifth generation” of largely transactional leaders make the tough choices that are the consequences of Deng’s reforms? And, having made the choices, can they effectively implement them? Political instability is conceivable, perhaps likely, although its scale, duration, and consequences are uncertain. The biggest challenge facing the PRC is whether it can control itself at home and abroad with less dominant leaders and a much more pluralized and empowered bureaucracy and society.