The Reform Era


The reform era, under the leadership of Deng Xiaoping, was a time of conflicting emotions in the Sino-American relationship. From 1978-1989, the U.S. looked to Deng Xiaoping and his policy of economic reform with the increasing expectation that political liberalization would naturally follow. Under President Jimmy Carter, U.S. foreign policy reflected a growing emphasis on human rights. Although the people of China, as many argued, were experiencing far greater freedom than they had under Mao, in the early 1980s American policy and scholarship increasingly emphasized the severe restrictions the state placed on the press, personal mobility, and the right to political protest. Regardless, the 1980s brought a dramatic increase in diplomatic, educational, and business exchanges between the two countries.

During the historic Third Plenum of the Eleventh Central Committee of the Chinese Communist Party (CCP) in December 1978, Deng Xiaoping outlined the requirements for his "Four Modernizations" in agriculture, industry, national defense and science/technology. In a major break with Maoist ideology, Deng announced that class struggle was finished, and that it was time to move forward into the process of modernization. Intellectuals and scientists who had suffered during the Cultural Revolution were to be rehabilitated, and a variety of reforms launched.

With these reforms, price incentives for farmers were introduced, and four special economic zones were established for the purpose of attracting foreign investment, boosting exports, and importing high technology products into China. In addition, state price controls on a wide range of products were eliminated. Finally, the government established additional economic zones in several Chinese coastal cities that were given extensive autonomy to experiment with various free-market reforms.

"Normalization" talks with the United States moved into high gear beginning in late 1978. As part of a new emphasis on the technical training of scientists, China presented a relatively long list of requests for higher technical training to the Committee on Scholarly Communication with the PRC.

These initiatives were followed up with a wide range of important foreign policy decisions. On October 23, the Sino-Japanese Treaty of Peace and Friendship was ratified, and Deng Xiaoping announced in mid-December that the United States and China would establish full diplomatic relations beginning in January 1979.

As a condition of its recognition of the Beijing regime, the United States reserved the right to maintain unofficial ties with Taiwan. To provide the domestic authority for such relations, Congress passed the Taiwan Relations Act (TRA), signed on April 10, 1979. The TRA provided for the establishment of the American Institute on Taiwan (AIT) to represent U.S. interests in Taiwan, and for the establishment of the Co-ordination Council for North American Affairs (CCNAA), renamed in 1994 the Taipei Economic and Cultural Representative (or TECRO) to represent Taiwan's interests in the United States. The ending of all official American diplomatic concourse with Taiwan meant that henceforth relations would be conducted only through these two organizations.

The TRA reflected the concerns of pro-Taiwan representatives in the American government. It reaffirmed the U.S. commitment to Taiwan by emphasizing that the future of Taiwan should be determined by peaceful means. Furthermore, Congress agreed to provide Taiwan with arms to be used for defensive purposes. China did not look favorably on this legislation, and in January of 1982 strongly protested a U.S. decision to sell aircraft to Taiwan. Assistant Secretary of State John Holdridge was sent to discuss the arms sales with the Chinese government in Beijing. In August, the two governments issued their third joint communiqué, in which the United States pledged not to increase and to gradually reduce its arms sales to Taiwan

Deng Xiaoping flew to Washington, D.C. in January of 1979 to visit President Carter and several influential congressional leaders. During his trip, he traveled to Seattle to view the production facilities associated with China's new corporate agreements with Coca-Cola and Boeing. Deng returned to Beijing having given the American people a favorable impression. Trade blossomed, academic exchanges escalated, and the number of American tourists to China grew with each passing year.

Later in July of that same year, the Sino-U.S. Agreement on Trade Relations was signed between the Chinese and American governments in Washington, followed by the establishment of the Sino-U.S. Joint Committee on Commerce and Trade in June 1981. Deng's policy of "opening" acknowledged that the Chinese economy could progress only with a greater infusion of technology and capital, both obtained from abroad. Technology transfer became a major objective. Contacts with firms in the U.S. and other countries for the installation of new machinery, factories, production processes, tourist hotels, and the extraction of coal and oil promised simultaneously to bring in both capital and technology. U.S. trade with China rose rapidly after the two nations provided mutual most-favored-nation (MFN) status beginning in 1980. Total trade (exports and imports) between the two nations rose from $4.8 billion in 1980 to $570.3 billion by 1995. In absolute terms, China remained a much smaller market for U.S. exports than various other East Asian markets such as Hong Kong, Singapore, South Korea, and Taiwan; but in 1980, it became one of the fastest growing. Diplomatic exchanges continued, with Speaker of the House of Representatives O'Neill visiting China in March 1983, and Chinese Prime Minister Zhao Ziyang visiting the United States in January 1984. Upon returning from his visit to China, where he met with Deng Xiaoping and toured special economic zones, President Ronald Reagan optimistically remarked "I have seen so-called communist China!" A year later, in July 1985, Chinese President Li Xiannian paid a return visit to the United States.

President Regan's remark is indicative of American opinion towards China during the late 1980s. The Cold War was ending, and many believed that China's economic liberalization would inevitably lead to the creation of democratic government in China, and hoped it would come sooner rather than later. In 1986, many of China's top leaders were convinced that economic reforms could not be fully successful without corresponding political reforms. They believed that for economic enterprises to function in a market environment, the basic structure of the government needed to be changed, and administrative efficiency had to be improved. Even if economic issues were set aside, a moderate amount of political reform was deemed important for the government to strengthen its diminishing political legitimacy among the younger generations of the Chinese population. In May 1986, the State Council approved experiments in structural reform in sixteen medium-sized cities, and a "Central Structural Reform Deliberation Group" of high officials was set up in September.

That December, student demonstrations took place in dozens of cities, demanding that the CCP give the intelligentsia a greater voice in the country's affairs. Strikes erupted across the country to protest the inflationary consequences of the post-Mao reforms. Political and military conservatives used this as an opportunity to take control, and forced the resignation of Communist Party General Secretary Hu Yaobang. The government feared that workers would join with the students and create a potentially destabilizing situation. By dismissing the demands of the students as selfish, the CCP was able to exploit the division between the students and the workers and thus end the movement.

The seventh National People's Congress (NPC) meeting, in March-April 1988, built upon this feeling of increased liberalization. In theory, the NPC is the supreme political body of the Chinese government, and has many legislative functions, but in reality it has been historically dominated by the CCP. Western analysts have labeled it a "rubber stamp" congress because of its tendency to approve all legislation presented to it by the CCP without true debate. In 1988, however, the selection of top government leaders gave many positions to moderates, though not enough to give them a majority over the conservatives. The NPC attempted to take a more active role, promising to review 117 laws over the next five years. They even established a committee to oversee the enforcement of law. The standing committee of the NPC vetoed the nomination of a government official for the first time in its history.

These events created an air of optimism among China's intellectuals, as well as among China watchers in the United States, but many serious problems were beginning to take shape. Massive inflation ensued, with the cost of non-staple foods rising more than 20 percent, and the price of vegetables increasing by almost 50 percent. The government tried to compensate by offering wage subsidies to government workers, workers in state-run enterprises, retirees, and college students. Just as food prices were skyrocketing, the State Council decided to raise monthly housing payments up to ten times higher with the idea that gradually residents would be given an equity position in their apartments. These new economic pressures on families with fixed incomes created jealousy towards those entrepreneurs who were becoming wealthy. The two-track price system, with both a free-market price and a lower administered price, created an ideal environment for corruption. Government officials were often offered bribes to allocate lower-priced goods that could then be resold for a profit.

By mid-1988, China faced an increasingly complex political situation. The reform process had created serious economic and political strains. People in both rural and urban areas feared more inflation, and were angered by government corruption and the general loss of economic security. In response to the murder of a student on campus at Beijing University, about 2000 students marched to Tiananmen Square demanding better campus security. Big character posters sported slogans like "Strive for Democracy, Freedom, and Human Rights," and "Down with the Communist Party." Disturbances in rural areas also revealed social, economic and political tensions, as well as a definite decline in government authority. In Shandong province, thousands of farmers destroyed and looted a local party committee building after the local administrators had urged garlic growing, taxed it, and then were unable to purchase all the products at a high price.

In response to this growing public discontent, price reform was slowed down. At the second session of the Seventh National People's Congress (NPC) in March and April of 1989, the program of political reform was sharply constrained in Li Peng's discussion entitled "Strive to Create a Good and Stable Social and Political Environment." Emphasis turned away from reform and towards party leadership. Reform of government structure and the rule of law were put on hold seemingly indefinitely. The election of NPC delegates was done with a show of hands as opposed to secret ballot as was done in 1988.

Hu Jiwei, former editor-in-chief of the People's Daily, criticized the government for not following through with the reform program outlined in 1987 at the Thirteenth Party Congress. Yan Jiaqi, a Chinese political scientist, proposed a constitutional amendment that would allow delegates to the NPC to be elected through universal suffrage.

After the death in April of Hu Yaobang, who had become a symbol of reform after his forced resignation in 1987, student resentment against this new wave of conservatism crystallized. Demonstrations took place in cities across China, organized by students and supported by workers who had their own greivances. In mid-May, students began fasting in Tiananmen Square, and elected student leaders tried to present their demands to government leaders in Hall of the People. Conservative leaders refused to grant them an audience or compromise on any of the demands; reformer such as Zhao Ziyang supported the students at their own risk. The students asked Li Peng, Yang Shangkun and Deng Xiaoping to resign, and erected an image of the Goddess of Democracy, based on the Statue of Liberty, in late May.

The incident received extensive press coverage not only because it seemed to be the fulfillment of all that Americans had hoped would happen in China, but primarily because it coincided with the first meeting between Moscow and Beijing since the late 1950s. This historic meeting re-established diplomatic relations between China and Moscow, andwas the reason most foreign correspondents had originally gone to Beijing.

When the demonstra-tions resulted in the violent repression of June fourth, the declaration of martial law, and the purging of reform leaders, foreign governments were stunned and uncertertain how to respond. Many governments expressed outrage, ordered their nationals home, imposed economic sanctions, and talked of barring China from various international associations, but they did not break diplomatic relations with China.

The U.S. embassy gave sanctuary to physicist Fang Lizhi, one of several intellectuals associated with the dissident movement. When the United States granted him sanctuary, the Chinese government blasted it as an unwarranted interference in Chinese internal affairs. The U.S. also granted visas or extended stays to all Chinese students in the U.S. or fleeing China. The initial effects of 1989 on U.S. policy toward China were drastic. Under Title IV of the 1974 Trade Act, as amended (commonly referred to as the "Jackson-Vanik Amendment"), China's MFN status is subject to annual renewal through a presidential waiver, which is subject to congressional action. Prior to 1989, renewal of China's MFN status was generally non-controversial and automatic. However, the Tiananmen Square incident and the subsequent Chinese government crackdown on the exercise of human rights generated support among many members of Congress to terminate China's MFN status. Subsequently, since 1989, the renewal of MFN (recently renamed NTR or Normal Trade Relations) has become a source of considerable debate in Congress.

The international community responded swiftly with international economic sanctions as well as a condemnation of human rights violations. Government and World Bank loans were withheld, and military sales stopped. Most nations initially favored official suspension of high-level contact, but President Bush sent two officials for secret talks. The democratic principles of U.S. came into conflict with China's authoritarian principles over the Tiananmen crisis and created much tension in US-China relations.

The effects of the Tiananmen incident within the Chinese government were just as swift. Zhao Ziyang, who had taken a more conciliatory stance toward the demonstrators, were purged from the government along with his supporters. Jiang Zemin, mayor and Party secretary of Shanghai and Politburo member, replaced Zhao as President and became chairman of the Central Military Commission (CMC), marking him as Deng's most likely successor. Due to his strong stand against the students, Li Peng remained Premier.

On June 23, 1989 the 13th Congress convened. Hu Qili was removed and Yang Shangkun and Liu Huaqing rose to the second and third rank in the CMC. Qiao Shi also rose within the party ranks. The economic reform agenda was not deeply damaged, but a clear message regarding the Party's refusal to tolerate political dissent was communicated to the Chinese people. After the controversy surrounding June 4, 1989, market reforms were stopped for a while, but the Shenzhen special economic zone greatly benefited from an influx of students no longer employable in Beijing, or no longer willing to live there. Martial law was finally lifted on Jan 11, 1990.

The decade of the 1980s ended with a freeze on US-China relations. Clearly China was not going to democratize overnight, nor was it going to follow the same path as the Soviet Union. The United States entered the 1990s with a more pragmatic view of the relationship. In the coming decade, American academics and statesmen would realize that change would come to China only slowly, and in forms acceptable to the Chinese government and people, not necessarily as Americans had hoped or expected.


October Newsletter Index || U.S.-China Policy Review Mainpage