Unequal Shares: How Tianmen protests led to the new market economy

By Wang Hui, Le Monde diplomatique, April 2002

The crushing of the 1989 social movement in Tiananmen Square was a turning point in Chinese history. The movement was far bigger than the liberal, student protest we all saw before the world's news cameras; it extended right across the people. The destruction of the movement unblocked China's transition to the market economy, but the state system remained fundamentally authoritarian and inequalities have grown.

CHINA has become a keen player in the global economy and promoted praised radical market reforms in the last 20 years, and especially in the last 10. But proper attention has not been paid to the interaction between state and markets. Reforms, especially post-1984 urban reforms, led to a redistribution of wealth, and a transfer and privatisation of resources previously held by the state. This benefited new special interest groups who commandeered the process. Sharp new inequalities emerged: a decline in social security, a widening gap between rich and poor, mass unemployment, and migration from rural to urban areas.

None of this could have happened without the intervention of the state, which perpetuated the political system but shifted its other functions in society. This political continuity and economic and social discontinuity gave Chinese neo-liberalism a special character and helped it ascend. After 1989 neo-liberalism became the only discourse in China, influencing policy and the media and pre-empting debate about alternative perspectives and goals. China's entry into the World Trade Organisation is the latest stage.

To understand the origin of neo-liberalism in China we must go back to the economic transformations from 1978 to 1989, and analyse the role of the state in the making of the market economy, and the failure of the 1989 social movement, whose social and democratic aspirations were crushed that year in Tiananmen Square.

Most studies have emphasised the role of students and reformist elements in the state, but the social movement that led to Tiananmen mobilised others as well. Students did have a role (the enlightenment of the 1980s had undermined old ideologies). But the spontaneity and scope of the 1989 movement had a far broader origin. Intellectuals could not suggest realistic social objectives; and they did not grasp the depth of the movement.

Criticism of the period made the state the chief enemy, but did not understand China's new social contradictions that while the Maoist state had protected inequality, under the guise of equality, through coercion and planning, the new reform state transformed inequality into income differences among classes, causing sharp social polarisation. Critics failed to grasp that there had been deep socialist desires in the mobilisation of the 1980s: not the old state socialism with its state monopolies, but a new socialism striving for social security, equality, justice and democracy, within a context of state monopoly and rapid market expansion.

The movement, despite its contradictions and the different agendas of interest groups, was directed against monopoly and privileges, and advocated democracy and social security. Except for peasants, who were not directly involved, people from all social classes in large and medium-sized urban areas were drawn in a broad mobilisation of society, revealing growing contradictions within the state.

There were two phases of reform. The first, in China's rural areas from 1978 to 1984, raised the price of agricultural products, encouraged consumption and developed local industry. These reforms gradually reduced the income gap between urban and rural dwellers. Though partial introduction of market mechanisms played a role, the reforms were rooted in traditional Chinese land distribution, based on principles of equality. The countryside moved from the people's commune, state monopoly model, to a socialist, small-peasant, anti-monopolistic model. This led to increased agricultural productivity and, for a time, mitigated rural-urban polarisation.

The second phase, from 1984, was urban and is seen as the decisive moment of market expansion. But at the core of its real social content was the decentralisation of power and interests (fangquan rangli); the redistribution of social advantages and interests through the dispersal and transfer of resources previously controlled by the state (1). This can be seen in the decline in public spending; it averaged 34.2% of GNP between 1953 and 1978 (37.2% in 1978), but dropped to 19.3% in 1988. Local governments were given more independence and power (2).

According to the sociologist, Zhang Wali: The reform policy of decentralising power and interests did not reduce the power of public entities in the distribution of revenue; it merely reduced the power of the central government. Interference in economics was not weakened, but strengthened, and this interference was more direct than that of central government. The decentralisation of power did not lead to the disappearance of the traditional command economy, but to the miniaturisation of the traditional structure (3).

The major emphasis was on reforming state-owned enterprises (SOE), given greater independence and pushed to reorganise their activities and management. Later, mergers, assets transfers and plant closures changed productive relations. With growing unemployment, the state put transfers before closures, but still maintained the basic direction. Because of the structure of the industrial system, once the state started to relinquish prerogatives in industry and commerce, moving towards macro-economic adjustment, inequalities in resources under the old system became new inequalities in benefits.

Public complaints

Without democratic supervision or a suitable economic system, this was almost inevitable. The positions and interests of workers, and even of government officials, were undermined. There was no job security for the old, weak, sick, disabled or pregnant (4). But the reforms gave an illusion of legitimacy because of their liberating effects, the debate they stimulated and the grassroots participation. The stability of the state in the 1980s was based on its ability to maintain this momentum, as well as coercion.

In the mid 1980s inflation, and the threat of economic chaos and social instability, caused a debate over how to proceed. There were two issues: the choice between radical property reform or structural adjustment under state guidance; and the choice between a market pricing system or large-scale privatisation of SOEs. It was decided to have price reforms lead market conditions while continuing to reform, rather than privatise, SOEs. This was mostly successful because price reform made obstacles for the old monopolies and animated the market. The significance of the success is clear when compared to Russia's spontaneous privatisation.

But the decisions also created problems. China had a two-track price system: the prices of means of production were set by state plan; the prices of goods by the market. This generated official malfeasance (corrupt activities by state cadres and official organs who used the dual price structure to their advantage). And despite official rhetoric about separating politics and firms, the SOE reform merely separated ownership and management. A majority of state-owned resources were legally and illegally transferred to benefit the economic interests of a few and ended in the pockets of rent seekers (5). The expansion of the contract system in 1988, allowing SOEs, local governments and government departments (bumen) to contract foreign trade agreements and finance, led to inflation and inequalities in distribution through the conversion of products within the state plan into market products (6).

To deal with these problems, the government said in 1988 that it would end dual pricing and move towards market pricing. This led to panic buying and social instability, forcing the state to return to greater supervision of the economy. This made for sharp contradictions between the state and the creatures it had made the local and departmental special interest groups.

The 1989 movement was motivated by deep new inequalities. In urban areas, income levels were polarised: the workers' iron rice bowl was threatened and incomes fell. Unemployment of SOE workers rose, inflation raised costs, social benefits stagnated. Ordinary government officials were also hit by an income gap between themselves and other workers, and between government workers who had entered the market and those who had remained in the public sector (7). In the countryside, rural reform stagnated after 1985, prompting disenchantment. With increasing conflicts of interest in the state, everything was ready for a crisis of legitimacy. People did not approve of the planned economy, and the transformed economy was suspect when the inequalities of the reforms became apparent.

People began to query their legal and political foundation. Students demanded constitutional rights, workable democratic politics, freedom of speech and assembly, the rule of law, press freedom, and recognition of the legality of the movement. Other groups supported these demands, but wanted more social changes: opposition to corruption and to the princeling party (the special privileged class); stable prices; limitations on Yangpu on Hainan Island (an area rented to foreign capital); social guarantees and justice. The demand for democracy went hand in hand with demands for a fair redistribution of social benefits.

The movement criticised the traditional system and the old state, and directed its demands to the new reform-minded state. The distinction between old and new did not deny the continuity of the state, but showed the transformations in state functions. The new state that was promoting markets and social transformation was dependent on the political legacy of the old state.

Private deals

The movement was a spontaneous protest against the inequalities of authoritarian rule. But it had its own complexities. Special interest groups that had been big winners in the decentralisation of power and benefits were dissatisfied with impending adjustment policies, and tried to get the government to carry out even more radical privatisation programmes. They used the movement to make internal power arrangements to benefit themselves. Intellectuals with close links to the government did the same.

To the rest of the world Chinese neo-liberals seemed opponents of the state, fighting tyranny. They hid their complex relationship with the state, which they counted on to push through their policies expanding the domestic market, decentralisating and privatisating. Without democratic control, the confiscation of resources was made legal by new laws. Because of the relations between Chinese neo-liberalism and the world order, radical reformers imposed their own version of the social movement of 1989 and presented it as a progressive expression of global markets and democracy.

It was never a question of being for or against reform; the fight was over which kind of reform. Students and intellectuals supported political and economic reform and democratisation. But what they expected of, and understood by, reform, and how they stood in relation to its benefits, differed wildly. Most other people expected far more than political procedures and juridical arrangements. They hoped to re-organise politics and the legal system to guarantee social justice and the democratisation of economic life. These demands conflicted with those of the special interest groups pushing for radical privatisation.

The fight for democracy, social equality and justice was crushed by state violence in Tiananmen Square on 4 June 1989, which ended the possibilities that the social movement had opened. Indirectly, its failure was due to its inability to build bridges between democratic and social demands, and to become a stable social force. The movement should also be seen as part of a continuum leading to the protests against the WTO in 1999 in Seattle and the IMF in Washington in 2000: the expression of utopian hopes for egalitarian democratic reform and freedom. But instead of recognising this significance of the 1989 movement, the dominant view has been that it proved the excellence of the Western system. That ignored its real meaning and critical edge and removed its significance as a protest against the new relations, the new hegemony, and the new tyranny.

After Tiananmen neo-liberalism was the only discourse. Because of the threat of state violence, social dissent was compressed. In September 1989, three months after Tiananmen, the government implemented the price reforms it had been unable to bring in earlier. After Deng Xiaoping's southern tour in 1992, it accelerated market reform. Currency policy became an important tool of control; there was a big adjustment in foreign exchange and rates were unified to promote exports. Competition in foreign trade produced flourishing management companies; differences between dual-track prices were reduced; Shanghai's Pudong district was opened for development, and similar areas sprouted everywhere.

After that, income gaps among all strata, groups and regions widened, and the new poor arrived (8). This turning point put the old ideology (socialist ideology based on equality) into direct contradiction with practice, and the old functions of ideology could not be salvaged. After 1989 the government implemented a strategy both ideologically and economically strong (liangshou ying), and that, combined with economic reforms, became a new tyranny. Neo-liberalism replaced state ideology to become the new ruling ideology, providing direction and reason for government policy, international relations and the emerging values of the media.

The creation of a market society did not eradicate the conditions that caused the 1989 movement. It legalised them. The basic problems were never resolved. The problems of the 1990s corruption, privatisation, the declining social welfare system, ecological crises, unemployment, the commodification of rural labour, mass migrations (9) are intimately related to pre-1989 conditions. Problems have worsened and their scope widened because of globalisation. Market expansion has had a key role in creating social polarisation and uneven development, and in destabilising the foundations of society. And expansion helped create conditions for authoritarianism and monopoly. In that sense, privatisation is tied to authoritarian politics.

The economic reforms were not all negative. They freed China from its constraints and the distortions of the Cultural Revolution. They spurred real and great economic development. They have had liberating effects and have been largely welcomed by Chinese intellectuals. But they have left deep scars. For the generation that grew up after the Cultural Revolution, the only worthwhile knowledge comes from the West, especially the United States. Asia, Africa, Latin America, Europe, places of essential knowledge and culture, are outside the picture. Repudiating the Cultural Revolution is now a way of defending ruling ideology and state policy: any criticism of the ruling ideology is dismissed as an irrational regression to the Cultural Revolution, while criticisms of socialism and the Chinese tradition are a post-cold-war justification for the adoption of Western developmental models.

But Western capitalism and its global expansion cannot become the standard for China. It must be criticised, not just for the sake of criticism, but so that history and its new possibilities can be explored. The point is not to reject the modern experience, but to turn China's historic experiences into a resource for changes in theory and practices. The Chinese socialist movement was both a resistance and a modernisation movement. To understand how the pursuit of equality and freedom led to inequalities and hierarchies, you have to question the process of modernisation and find ways towards democratic processes that avoid social polarisation and disintegration.

(1) See Zhang Wanli, Twenty Years of Research on Social Class and Strata in China Shehuiwue janjiu, Beijing, 2000.

(2) Wang Shaoguang, Building a Powerful Democratic State - on 'regime type' and 'state capacity', Dangdai zhongguo yanjiu zhongxin lunwen (Essays from the Centre for Research on Contemporary China), vol 4, 1991.

(3) Twenty Years, op cit, pp 28-29.

(4) See Zhao Renwei, Some Special Aspects in Income Distribution during China's Transition Period in Zhao, ed, Zhongguo jumin shouru fenpei yanjiu (Researches on Income Distribution Among the Chinese People), Beijing, 1994; Feng Tongqing et al, The Situation of Chinese Labourers, Internal Structure, and Their Mutual Relationship, Zhongguo shehui chubanshe, Beijing, 1993; Zhang Wanli, Twenty Years op cit.

(5) Hu Heyuan, An Estimate of the Value of Rent in China in 1988, Jingji tizhi bijiao (Comparative Economic Systems), vol 7, 1989.

(6) Guo Shuqing, Transformation in the Economic System and Macro Adjustments and Controls, Tianjin renmin chubanshe, 1992.

(7) On the changes in the cadre stratum before and after the reforms, see Li Qiang, Stratification and Movement in Contemporary Chinese Society, Zhongguo jingji chubanshe, Beijing, 1993.

(8) See the work of the income distribution group for economic research at the Chinese Academy of Social Sciences: Zhao Renwei et al, Research on Income Distribution in China, Zhongguo shehui kexue chubanshe, Beijing, 1994.

(9) See Wang, A review of urban development and its precursors, Shehuixue yanjiu¸ vol 1,2000.