12.7 — Deng's China and the Rise

In 1980 Shenzhen was a group of fishing and farming settlements near the Hong Kong border with a population of around 30,000.

It is now a city of over 17 million with a technology sector rivalling any in the world.

China's economy has grown roughly fortyfold in real terms since 1978. Around 800 million people have moved out of extreme poverty — the largest and fastest such change ever recorded (Chapter 9.13).

And it happened under a one-party state that killed several million of its own citizens within living memory (Chapter 12.3).

Explaining that combination is the point of this chapter.

The sequence

Chapter 9.13 gave the economics. Here is the political sequencing, which is the part that transfers least easily and matters most.

Deng's method was experimental rather than programmatic. His formulation — crossing the river by feeling the stones — describes it: pilot a change in one place, evaluate, expand if it works, abandon it if it does not.

And crucially, the reforms did not begin with the state sector. They began where failure was cheapest and the gain was fastest.

Agriculture, 1978–84. The household responsibility system let households farm assigned land and keep what remained after meeting a quota. It began as an illegal local experiment in Anhui province — villagers signed a secret agreement, reportedly with fingerprints, knowing it could be treated as counter-revolutionary — and was tolerated, then adopted nationally when the output figures were undeniable. Grain output rose enormously within a few years.

Township and village enterprises, locally owned rural industry, absorbed labour leaving agriculture and supplied consumer goods the state sector never had.

Special economic zones from 1980 — Shenzhen, Zhuhai, Shantou, Xiamen — where foreign investment, foreign management and export production operated under different rules from the rest of the country. A controlled experiment, geographically bounded, expandable if successful.

State enterprise reform came late and painfully. In the late 1990s, tens of millions of workers were laid off from state firms in a process that destroyed the iron rice bowl of guaranteed employment.

And WTO accession in 2001 locked in access to world markets and required a large body of domestic legal reform to comply.

What was actually built

Infrastructure at a scale without precedent. Over 45,000 kilometres of high-speed rail — more than the rest of the world combined, built in about fifteen years. Ports, airports, expressways, and an electricity grid built ahead of demand rather than behind it.

Manufacturing. China accounts for roughly 30 percent of global manufacturing output. It is not only assembly — it holds dominant positions in solar panels, batteries, electric vehicles, steel, shipbuilding and increasingly in electronics design.

Education. Higher education enrolment expanded enormously from the late 1990s; China now produces more STEM graduates than any other country and files more patents than any other country, though patent quality is a separate question.

Research. Chinese output in several scientific fields is now at or near the top by publication and citation measures.

And poverty reduction, as above, which is the achievement everything else is measured against.

What it cost

A ledger, as always.

Political repression. No independent press, no independent judiciary, no opposition party, and an extensive surveillance apparatus. Tiananmen in 1989 (Chapter 12.3) established the settlement: economic freedom, no political freedom, and the subject is not discussed.

Xinjiang. From around 2017, a system of mass detention of Uyghurs and other Muslim minorities in facilities the Chinese government describes as vocational training centres. Estimates of the number detained run to around a million. A 2022 report by the UN Office of the High Commissioner for Human Rights concluded that serious human rights violations had been committed which may constitute crimes against humanity. Several governments have used the term genocide; the Chinese government rejects all of it.

Hong Kong. The 1984 agreement with Britain provided for "one country, two systems" for fifty years from 1997. The National Security Law of 2020, following mass protests, has substantially ended the political autonomy that arrangement guaranteed.

Tibet, where the suppression of the 1959 uprising and subsequent policy have been contested for sixty years.

Environmental cost. Air pollution in Chinese cities was among the worst in the world through the 2000s and has improved substantially since; water pollution and soil contamination remain severe.

The hukou system, which ties access to schools, health care and housing to a registered place of origin, made hundreds of millions of internal migrants second-class residents in the cities they built. It has been reformed progressively and not abolished.

Demography. The one-child policy, from 1980 to 2015, was enforced with fines, forced abortions and sterilisations in some regions. Combined with a strong preference for sons and the availability of prenatal sex determination, it produced a substantial sex imbalance. And it accelerated the fall in fertility, which had already been falling. China's population began declining in 2022 and its working-age population peaked around 2011.

The problems now

The model that produced the growth is running into its own limits, and each has a mechanism.

Demography. The dependency ratio is worsening rapidly. The pension and health systems face a burden that the demographic dividend period did not prepare for. A frequently used phrase is that China risks growing old before it grows rich.

Debt and property. Investment-led growth financed by credit produced enormous construction, and a large share of household wealth is in property. The property developer Evergrande's default in 2021 revealed the scale of the leverage. Local governments funded themselves substantially by selling land use rights, which ties municipal finance to property prices.

The middle-income trap (Chapter 10.6). Growth from moving people out of agriculture and importing technology eventually exhausts itself, and the next stage requires innovation, which requires — this is the contested claim — the kind of open information environment the political system restricts. China's record in applied technology is strong, and whether that holds at the frontier is the open question.

Consumption. Household consumption is an unusually low share of GDP, because of financial repression, weak social insurance which makes precautionary saving rational, and the hukou system. Rebalancing toward consumption has been official policy for over a decade with limited progress, because it requires transferring resources from the state and corporate sectors to households.

And centralisation. Under Xi Jinping, term limits on the presidency were removed in 2018, anti-corruption campaigns have removed political rivals as well as corrupt officials, and decision-making has concentrated. Chapter 12.3's lesson about information flowing upward in a system where bad news is dangerous is the relevant risk.

Belt and Road

Launched in 2013, an enormous programme of infrastructure investment and lending across Asia, Africa, Europe and Latin America — ports, railways, roads, power stations and pipelines.

Its motives are several and all are real. Excess domestic construction capacity needing an outlet. Securing supply routes for energy and materials. Building political relationships. And a genuine gap in developing-country infrastructure that Western institutions had not filled.

The debt-trap criticism should be assessed carefully. The claim is that China lends unsustainably in order to seize assets on default. The most-cited case is Hambantota port in Sri Lanka, leased to a Chinese company for 99 years in 2017.

Detailed research — notably by Deborah Brautigam and colleagues — found that the Hambantota case is more complicated than the standard telling: the port was built on the initiative of the Sri Lankan government, against advice, and the lease was a response to a broader balance of payments crisis driven largely by non-Chinese debt.

What the research does find: Chinese lending is frequently opaque, at commercial rather than concessional rates, with confidentiality clauses, and with limited coordination with other creditors — which makes debt restructuring harder when a country gets into trouble. That is a real problem and it is not the same as a deliberate trap.

India has declined to join, principally because the China-Pakistan Economic Corridor runs through territory India claims.

What it means for India

Because this is the comparison that matters most for an Indian reader.

The gap. China's GDP is roughly five times India's; its GDP per capita is roughly five times as well. China's manufacturing share of output is roughly double India's (Chapter 9.14).

The strategic relationship. A disputed border with periodic confrontations, including the Galwan clash in 2020 in which soldiers on both sides were killed in hand-to-hand fighting at altitude (Chapter 6.26). Chinese infrastructure and influence in Pakistan, Sri Lanka, Nepal, Bangladesh and Myanmar. And a trade relationship in which India runs a very large deficit, importing electronics, chemicals and machinery.

And the opportunity. Rising Chinese wages and the diversification of supply chains away from single-country dependence — the "China plus one" strategy — is the specific opening India's production-linked incentive schemes are aimed at. Whether India takes it depends on the conditions in Chapter 9.14 rather than on China's difficulties.

Where this shows up in your life

Almost everything manufactured that you own.

And the analytical point, which is uncomfortable in both directions. China's record refutes two comfortable claims simultaneously. It refutes the claim that authoritarian systems cannot deliver development — it plainly can, for a period, at scale. And it refutes the claim that development produces democracy — the modernisation theory expectation that a middle class would demand political rights has not held, at least so far.

What China has not refuted is Chapter 9.6's finding about information and innovation, and the next fifteen years are the test of it.

What the next page covers

Chapter 12.8 covers globalisation and the 2008 crash — what actually integrated the world economy after 1990, who gained and who lost, how a housing market in one country produced a global financial crisis, what was done about it, and why the political consequences of that crisis are still the dominant fact in the politics of most rich countries.