origin stories

For a brief time, it appeared that little would change in the wake of Mao’s death as Hua Guofeng, a conservative leader who sought to follow Mao’s economic and social policies, emerged as his successor. In October 1976, the now infamous “Gang of Four”—Jiang Qing, Wang Hongwen, Yao Wenyuan, and Zhang Chunqiao, the radical leaders of the Cultural Revolution—were arrested on Hua Guofeng’s orders. They were blamed for the excesses of the Cultural Revolution, and Hua Guofeng was named to succeed Mao.

A wily and thoughtful leader, Deng had sought refuge in Canton, where he was protected by a powerful military leader, Xu Shiyou, who despised Hua Guofeng, associating him with the Gang of Four. In 1977, Xu began pressuring the party to rehabilitate Deng, and in July of that year, Deng was reappointed to his position of vice premier. While Hua continued to champion the reforms of central planning and a more cautious version of the notions that Mao had articulated in pushing the Great Leap Forward, Deng had a different economic orientation. A pragmatist, Deng believed that economic reform was necessary and developed his political power through advocating reform. He saw central planning in industry and collectivization in agriculture as inflexible and unable to deal with the economic problems China was facing.

Once Deng wrested power from the conservative factions of the party, to unleash the broader forces and trends, his specific challenges included: 

• transforming incentives in the agricultural economy; 

• forcing the central government to give local bureaucrats some measure of economic control over the localities they govern; 

• creating a system that kept in place the planned economy while at the same time giving autonomy over to the local enterprises; 

• beginning a process that would address the economic burden that the social security system posed for Chinese enterprises; 

• facilitating the development of a private economy; 

• attracting foreign direct investment.

By 1978, a 10-year economic plan – fashioned in 1976 to get the nation back on track after the Cultural Revolution – was already falling far below projected goals. In response to these challenges, Deng was prepared to lead China in a radically different direction economically and would introduce a set of controlled modifications into the structure of the socialist system.

When Deng unveiled his vision of economic reform to the Third Plenum of the Eleventh Central Committee of the Chinese Communist Party in December 1978, China’s economy was faltering. Deng saw as his task the unraveling of the interdependence created under Mao. However, he would remake the economy slowly, experimenting widely with many policies that would gradually rationalize and cede governmental control over the economy and society. Wisely he also advocated the implementation of a modernization plan that would incorporate foreign investment and technology.

Following his political breakthrough in 1978, Deng symbolically signaled these changes with a crucial visit to the United States in January 1979. During this trip, Deng officially normalized relations with the United States, which in turn officially ended formal U.S. diplomatic relations with Taiwan and explicitly conceded China’s position on the “one-China” policy. Many nations in the international community would follow by normalizing relations with China. During that trip, Deng also visited Atlanta, Houston, and Seattle to see the facilities of the first two companies with which agreements would be signed—Coca-Cola and Boeing.

Economists and institutional advisors from the West advocated the rapid transition to market institutions as the necessary medicine for transforming communist societies. Deng believed in a more gradual philosophy, describing it as “feeling for stones to cross the river.” (摸着石头过河) Because of that, the Chinese path has been very different from the shock-therapy approach. 

While countries like Russia have followed Western advice – constructing market institutions at a rapid pace, immediately removing the state from control over the economy, and rapidly privatizing property – China has taken its time in implementing institutional change, following Deng's guidance of gradualism.