Real Life Behind China's Changes

They read Time, listen to rock 'n' roll, and shop at private markets. But they live without heat in the winter, put up with bicycles that fall apart, and know that the Cultural Revolution may return…Observations from year in Deng's China.

The portrait of Mao still hangs over the entrance to the Forbidden City and, at the south end of Tiananmen Square, the crowds still reverently file four-abreast past his waxen body. But the flea markets tell a different story. Street peddlers smile in amazement at the foolish foreigners who will spend as much as two dollars for an old porcelain Mao bust and who buy Mao buttons by the pound.

"We've thrown out our Mao busts," a university professor confides. The revelation is made cautiously, as it would not be prudent to broadcast such behavior. During the 1966–76 Cultural Revolution, such an action or admission would have been treasonable and harshly punished. Political differences produced violent confrontations and imprisonment for many. Locks on doors were banned and apartments were subject to search at any time. University teaching came to a halt.

Many simple pleasures became political liabilities: "One night, I burned my American plastic playing cards," recalls another professor. "They gave off a beautiful blue-green light in the heating stove." The cards had cost one month's salary, but discovery by Mao's infamous Red Guards would have been far more costly.

There are no guarantees that such policies won't return. Yet memories of the Cultural Revolution are fading, particularly among the young, as China slowly moves toward a more open society. In the name of "modernization," the regime of Communist Party head Deng Xiaoping has freed up many segments of the economy, encouraged tourism and scholarly exchanges, and loosened a few restrictions on personal freedom.

As a visiting scholar, I recently spent a year teaching the fundamentals of capitalism—finance and economic theory—at a Chinese university. I found the country torn between its Marxist past and the lure of freedom and prosperity. Change is a matter not only of ideology—communism versus capitalism—but also of competing interests—entrepreneurs versus politicians, city dwellers versus farmers, those with influence versus those with money. As the recent student protests and the crackdown that followed have demonstrated, which path China will take is still an open question.

One of the most dramatic facts that confronts a visitor to China is the country's extreme poverty. Despite its nuclear technology and satellite-launching capabilities, China is indeed a Third World country. People carry enormous loads on hand-pulled carts, and even moving vans are usually tricycles with flatbed platforms. In urban areas, the residential streets are thick with the smoke from the coal briquettes used for heating and cooking. When my laundered shirts were hung outside, their pockets often ended up with an inch of coal dust in the bottom.

Bicycles appear ubiquitous on the teeming streets, but there is actually only one bike for every six Chinese. Cars, of course, are scarce, and people who drive such precious capital equipment have great prestige. One morning, a fellow faculty member and I took the university car to the train station to pick up a package of books; on the way back, the driver detoured, parked the car, and went into a restaurant to eat breakfast. "In China," said my companion, "the drivers are the bosses." Tour bus drivers, I found, would take an entire busload of people on a detour while they went to buy tangerines.

According to government statistics, only one family in 10 among those of above-average income has a refrigerator. Heat, hot water, and even indoor plumbing are luxuries; a block of apartments typically shares a concrete-block communal outhouse, usually with running water, however. University dorms do have bathrooms. But few students—who receive free tuition, room, and board—want to step from a cold shower into a drafty, unheated bathroom in the wintertime, so they make do with sponge-baths.

China's reported per capita income is $300 a year. Workers in international hotels that charge foreigners $100 a night earn about $30 a month, with most of the difference going to the government—surely one of the highest tax rates in the world. A lecturer in the university can expect to make $25 dollars a month, a full professor about $70. One well-published Chinese professor invited me for dinner at his apartment. We all assembled in the one bedroom where the coal-fired barrel stove was located; the floors, like those of most Chinese homes, were bare concrete and the room was sparsely decorated—a legacy of the Cultural Revolution, when such bourgeois frivolity was condemned. While heading for the bathroom, I observed that the rest of the apartment was unheated and that I could see my breath. No hot water was available, but the apartment did have a bathroom and a refrigerator.

While rent on such a subsidized cold-water university flat is low—about $5 per month—and some food items are subsidized, precious little money is left over for discretionary purchases. And Chinese consumers also suffer from the shortages and shoddy goods typical of a command economy. Shopping in a regular Chinese store, I paid $20 for a feather-filled winter jacket, only to have the zipper break as soon as I tried it on at home. I took the coat back to the store and exchanged it for a new one. Again, the zipper immediately broke. Having learned my lesson, I decided to have the zipper replaced by one of the many street tailors who repair clothing and shoes on pedal-powered sewing machines outdoors. Many stops later, I concluded that China doesn't allocate coat-sized zippers to tailors—they only had zippers for pants.

In an effort to remedy such shortages and quality problems, the government has adopted some market incentives. The most successful and widely publicized program in the modernization drive has been the agricultural sector's "Responsibility System." After years of collectivized farming, the government began in early 1979 to lease land directly to individuals. Each farm is required to earmark a portion of output for sale to the government at an artificially low price, but the farmer owns any additional output. The Chinese government estimates that the responsibility system has produced double-digit real annual growth in agricultural output since its introduction. Agriculture accounts for 60 percent of employment, so the real output increases have had a broad beneficial impact.

Free markets for the agricultural "surplus" are flourishing. Typically, they stretch for several blocks outdoors, and the best offer a wide variety of food, as well as clothing, bicycle parts (frequently needed), and miscellaneous items. The main market in Guangzhou (Canton) is particularly famous for its live delicacies: eels, snakes, fish, cats, and dogs.

The largest markets, such as the one in Wuhan, may stretch for several miles. Sellers occupy both sides of the street, displaying their wares on tables or on canvas on the ground, while buyers struggle through the crowded middle. In one popular market in Tianjin, I became gridlocked in a sea of humanity and bicycles and, as is so common in China, had to push and shove to free myself from the crowd.

Institutional change usually produces losers as well as winners, and China's reforms have not proceeded without opposition. Initially, agricultural decontrol met with criticism and resistance from urban consumers accustomed to artificially low prices. When the Responsibility System was instituted and price controls came off, agricultural prices soared. But the price hikes fueled subsequent supply increases and prices later retreated. The booming and prosperous farm sector has provided dramatic testimony to the power of free markets and economic incentives.

Major reforms weren't extended to manufacturing until late last year. Previously, shortages existed for many of the better goods. To ration the goods, purchase coupons giving the bearer the right to buy goods at the controlled price were often used. These coupons were distributed to work units, and managers would determine which workers merited the coupons as bonuses. My Chinese graduate students told me that there was an active black market for these coupons, and they seemed as aware of the current black-market price of a coupon as our western economists are of the Dow Jones Industrial Average.

While the coupons succeeded at rationing goods in short supply, they did not provide any economic incentives to the factories to produce more of these goods. Since these factories could not raise their prices, they instead cut costs by reducing quality. For example, bicycle makers only hand-tightened nuts and bolts, leaving purchasers to complete the assembly. In this way, the manufacturers raised the quality-adjusted price to consumers by selling incompletely assembled bicycles at the controlled price.

Even the most sought-after bicycles had quality problems. I purchased my top-of-the-line "Flying Pigeon" at the Tianjin Friendship store and soon learned of these problems from first-hand experience. Riding my bicycle back to campus, I lost two nuts along the way. This pattern was to repeat itself: bicycle bells flying apart when used, pedals falling off or apart at inopportune moments, flat tires from leaky valve stems, and so on. At $60, my bike was far out of the reach of most Chinese, and, as a foreigner, I didn't have to secure a purchase coupon to gain the right to buy it.

In late 1986, price controls were finally lifted on some 750 commodities, including bicycles, hardware, paper products, toys, and cosmetics. Not surprisingly, the prices for the best-quality products (including Flying Pigeon bikes) rose sharply. But, reported the New York Times, deregulation also caused the prices of many shoddy items to fall. With the price controls removed, consumers voted with their money. The manufacturers of substandard goods were punished by the market, not—as a China Daily article had urged a year earlier—with the prison terms of a command economy.

Along with agricultural and manufacturing reforms, the Chinese are seeking to develop a capital market. Several factories already have issued bonds and "stocks" that may incorporate some profit sharing but don't include ownership rights. The government seems willing to let the market take a greater role in allocating capital, although officials who talk about permitting stockholders to actually acquire ownership rights are still considered radicals. And private ownership of capital equipment is still restricted to a very small scale, such as the three-wheel motorcycle-type tractors owned by many farmers.

But the old ways of rationing goods have even infiltrated China's early efforts to develop a capital market. In the days before price deregulation, I was surprised when a teacher from Hong Kong told me he had seen people queued up one cold December morning to buy two-year nonnegotiable bonds paying less than the interest rate on bank savings accounts. By talking with bank officials, I soon solved the mystery. The bonds, it seemed, were issued by a bicycle factory, and attached to each one was a coupon giving the bearer the right to buy a bicycle at the official price. Adding in the black-market value of such a purchase coupon, the bonds were easily yielding an effective 20 percent interest rate, compared to their 6½ percent nominal rate. Compared to the old system of political connections, even such a cumbersome mechanism is more likely to allocate capital to efficient factories with products in demand.

The reforms have produced substantial improvements in the Chinese economy's performance. According to government statistics, real national income increased almost 10 percent annually from 1981 to 1985. Construction cranes dot the Beijing skyline, putting up commercial and apartment buildings. More cars are beginning to appear on the city streets.

But problems are arising that threaten to derail the modernization drive. The Chinese now find themselves wrestling with the same equity-versus-efficiency dilemmas found in the West. In China, however, these questions are complicated by an officially sanctioned ideology derived from the works of Mao, Marx, and Lenin. Make no mistake, capitalism is still a dirty word in China.

The reforms have led to much greater disparities in money-denominated personal income. Real incomes have never been equally distributed in China, but income differences were more disguised under the old system. Under a price-controlled command economy, contacts or "pull" (guanxi, in Chinese) play a crucial role in determining an individual's real income. Access to purchase coupons, a contact to get your child into college, "free" meals in restaurants paid for by your work unit, or a bonus vacation at a cadre resort were important determinants of real income.

Now, price decontrols have raised the relative importance of money income and have produced quite visible shifts in real incomes. They have, for example, completely wiped out the value of the purchase coupons my students so eagerly tracked on the black market. The Chinese press reports the spread of the "green-eyed disease." The financial successes that the reforms have spawned are producing envy and resentment from the less successful.

After the introduction of the responsibility system, the government encouraged the making of a film about a farmer with a 10,000-yuan ($3,000) annual income—10 times the national average. The government presumed that this would encourage support for the reforms and even greater work efforts. But the plan backfired. Many members of the public resented the showing of such ostentatious affluence, and the government subsequently determined that the subject was unsuitable for future films.

One university faculty member was upset by his younger brother's new-found financial success. "I worked hard to get an advanced degree," he complained to me, "and now my younger brother makes several times my salary as a farmer." The reforms have produced uneven gains, and the more the market is relied on, the more differentiated money incomes are likely to become. This reality of the market is bumping up against the country's nominal ideology.

On September 28, 1985, the China Daily featured a story on page one with the headline: "Party leader warns of threat of corrupting ideology." Chen Yun, a veteran Communist Party leader, was reported to have "called attention to corruption by decadent capitalist ideology and conduct." Further, the article said, "if cultural and moral development, political and ideological work and education in Communist ideas were not given serious attention, there would not be good party conduct and social conduct and China's cause would deviate from Marxism and the socialist road." It is clear that many of China's influential leaders still hold to the old party line.

Chen Yun also pointed out another spreading social ill: "The bourgeois decadent ideology of putting money above all else was seriously corrupting party conduct and social conduct in general." Pornography, prostitution, and economic crimes are reportedly increasing. One colleague at my Chinese university, an English teacher from Great Britain, reported being approached by a Chinese prostitute outside the entrance gates to the Beijing Hotel. One of my students acknowledged that several well-known prostitutes solicited business from foreigners in a Tianjin hotel.

While Beijing taxi drivers have a long way to go before reaching the notoriety of their New York counterparts, trusting foreigners are subject to more than one kind of ride when purchasing taxi services in Beijing these days. Towards the end of my one-year stay, taxi drivers were frequently operating without their meters running and then asking exorbitant fees. Of course, capitalist ideology receives the blame for all these problems.

The recent student protests have propelled China's universities—long overshadowed by the agricultural sector—into the headlines. Rebuilding after the havoc of the Cultural Revolution, the universities must play an increasingly important role in the years ahead. If China's development follows that of market-oriented countries in the region, such as South Korea, the real growth of the agricultural sector will slow down. As the labor force shifts and the nonagricultural sectors grow more rapidly, the importance of human capital and higher education will increase. Today, less than 1 percent of the college-age population can attend school.

The major problem for the Chinese in this area is to make the university environment attractive enough for their own young and well-trained faculty to stem the current brain drain. One of my students guessed that 80 percent of the Chinese who study abroad fail to return after completing their advanced degrees. (Perhaps 10,000 Chinese are now studying in the United States.) The few people who receive government money for foreign study have to sign a pledge to return. But most who study abroad have foreign scholarships or money from relatives outside China; for whatever reason, the government doesn't try to force these people to return—and many don't. The financial rewards and the academic and personal freedoms in the West provide a great lure.

Teaching has very little status and is poorly rewarded—a legacy of the Cultural Revolution. The university forms a work unit, just like a factory or farm. Eventually all employees can expect to be housed on campus, but such housing is rationed by seniority, and a charwoman can expect the same one- or two-room apartment as a full professor with equal seniority. Newly hired lecturers find themselves sharing 9×12 dormitory rooms with two or three other junior faculty or graduate students; and a married couple of lecturers will usually find themselves separated—he will likely be housed in the male dormitory, she in the female dormitory.

The policy is changing now, and Ph.D.s returning from abroad are apparently receiving preferential treatment. The Chinese appear to realize that differential financial rewards are needed for them to keep their best and brightest, but whether these reforms can be carried forward without a backlash remains to be seen.

While economic reforms are moving ahead, many other personal freedoms have not fared as well. The government's one-child policy is well known in the West, but people are subject to many other restrictive policies as well. While I was in China, a star rock singer from Shanghai was arrested for allegedly having sexual relations with two girlfriends and for living "decadently"; as far as I know, he is still in prison. The nonagricultural labor force is still subject to command-economy rule, and graduating students are assigned jobs and location of employment. (On the positive side, the government has relaxed its attitude toward religion, and many churches and shrines are reopening.)

One evening, I asked a graduate student what was really important in his life. "Personal freedom," he replied without hesitation. "And this is something that is almost totally lacking in this country." He went on to tell me about a letter that he received from a close friend who had just begun graduate study in the United States. The first line from that letter read: "Why couldn't I have been born in this country?" I was surprised that the writer would take such risks—letters can be opened and read—and that his friend would speak so frankly about such a sensitive subject. They were young and had not witnessed the Cultural Revolution.

The government intervenes actively in the foreign-exchange market and carefully controls citizen purchases of foreign goods. The Friendship Stores and hotels that sell foreign goods usually post guards at the door to ward off local people unaccompanied by foreigners, and in one Friendship Store that admits Chinese customers, I saw salespeople in the rug department shooing away their countrymen. Many Hong Kong Chinese, who are considered foreigners, take their relatives from the People's Republic to otherwise off-limits hotels, shops, and restaurants.

Most imported goods must be purchased with foreign exchange or "foreign-exchange certificates." Chinese citizens cannot exchange their renmibi ("People's money") for foreign currency unless they turn to the black market. Students need U.S. dollars in order to take the Test of English as a Foreign Language (TOEFL)—required by most U.S. universities. Unless they have good connections, they must rely on the black market or foreign teachers for the funds. When the word got out that I was writing dollar-denominated checks made out to TOEFL in exchange for renmibi at the official exchange rate, I was inundated with requests. I had to turn many students away as my check supply dwindled precariously.

Some improvements are occurring on the campuses. Dances at the university where I was teaching are once again permitted on the weekends, although they must end by 11:00 P.M. (During the week, the dorms are locked at 9:00 P.M.) One particularly precocious coed told me her parents were "feudal" because they disapproved of her desire to party and wear modern clothes.

English is widely taught both at the university and in high schools, and students read a variety of English material brought into the country by foreign teachers. The relatively open access to foreign publications and Voice of America broadcasts keeps Chinese students quite well informed about world events. "I hear Deng Xiaoping is man of the year in Time magazine," one of my students said to me. "May I borrow your copy?" While students may not be able to buy Time or other magazines (expensive, available only in hotels and Friendship Stores, and requiring foreign-exchange certificates), they can easily make photocopies of important articles at the school's central duplicating service; the only serious restrictions seem to be that pornography is strictly forbidden. (I also heard that some restrictions on Bibles exist.) English-language books, printed without regard to copyrights, are relatively cheap.

Students get rock-music tapes from Hong Kong and know quite a bit about American culture. I attended several university-sponsored Christmas parties, where students sang the full range of carols. American folksongs, notably "Old Black Joe" and "She'll Be Coming 'Round the Mountain," are also very popular with students. I suspect that this knowledge of the West helped to fuel the demonstrations starting last December, in which student marchers sought democratic reforms and increased freedoms.

Freedom of speech as we know it doesn't exist in China. Temporary liberalizations appear to be used primarily as a means of identifying dissenters. During the "Hundred Flowers" campaign of 1956, people were encouraged to voice their opinions of the regime, but the resulting information was used to persecute critics. More recently, the "Democracy Wall Movement" of 1978 proved that the current regime is also sensitive to criticism. After allowing the public to air its grievances through posters on a wall in Beijing, the government closed the wall and imprisoned leading activists.

Even when they criticized the government, the students I talked to tended to toe the party line, usually complaining that the state is too "centralized"—the same observation many Party leaders were making at the time. As I left China last July, another "Hundred Flowers" campaign was being encouraged. The students apparently took the government seriously and took to the streets, seeking more democracy and freedom (and, I suspect, better living conditions). Arrests soon followed, and some government and university officials were forced to resign. The government placed a great deal of the blame for the demonstrations on university faculty with Western sympathies.

The Communist Party newspaper, People's Daily, denounced the demonstrations as "the result of the spread for several years of bourgeois liberal thought and the fact that some of our comrades have shown weakness in fighting it." The Economic Daily, another Party publication, criticized "a small handful of people preaching bourgeois liberalism and advocating bringing in capitalism." This ideology, it said, is "in the process of poisoning our youth, imperils our social stability and unity, interferes with our reforms and opening-up policy and obstructs modernization's move forward." So much for the latest Hundred Flowers campaign.

Throughout China there are conflicts between the way things appear on the surface and the underlying reality. For example, many bicycles are equipped with additional seats for children. When an adult who is riding with a child reaches an intersection where a uniformed traffic policeman is present, the adult dismounts and dutifully walks the bicycle through the intersection. Once past the policeman, the adult returns to riding the bike. This ritual is required because riding the bicycle with a child is against the law. People superficially abide by the law, although in substance no one really conforms to it.

While Mao is officially honored and his statues and pictures persist, his policies are being abandoned. And most Chinese homes have replaced their Mao busts with inexpensive pottery replicas of tricolor Tang Dynasty horses.

Official pronouncements extol the virtues of communism and decry the evils of capitalism, but free markets are introduced and stock ownership of factories is being discussed. One newspaper article reported that stock ownership is actually a beneficial socialist tool: It provides broad-based control of society's means of production. According to the article, capitalism has merely altered and abused this useful financial invention. Nominally, the Marxist ideology persists. But reality tells a different story.

If capitalism by definition requires private ownership of the means of production, then China is not on the capitalist road. Land will continue to be owned by the state and leased. When stock issuance is discussed, it doesn't include ownership rights. The official Chinese policy is to develop "market socialism with Chinese characteristics." If so, China is more likely to develop into a big version of Yugoslavia or Hungary rather than a big version of South Korea.

Yet the Chinese are well aware of the economic miracles that have occurred in South Korea, Hong Kong, and Singapore. These huge successes and the dismal results of a command economy at home have fueled the drive for modernization and opening to the West. On a boat traveling down the Yangtze River, I met a young Shanghai worker whose work took him to foreign ports. Voicing strong support for the modernization drive, he noted that his city had once been more prosperous than Hong Kong.

Of course, nothing succeeds like success, and if the Chinese economy continues to remain strong, resistance to further change would likely weaken. Deng Xiaoping is reported to have said: "A cat of any color is good if it catches mice." The linguistic manipulations that are occurring in China may one day result in the Chinese declaring that the United States is a "modern" Marxist country worthy of emulation. On the other hand, those who denounce "bourgeois liberalism" may be speaking plainly, and a totally different ideology could dominate. History gives reasonable Chinese cause for caution.

Burton Abrams is a professor of economics at the University of Delaware.

Capitalist Revolution? Consider the Context.

October 1, 1949: Mao proclaims China a communist state.

1949–53: Communists consolidate power.

1954–57: Transition to socialist, collectivized economy, Soviet-style industrialization through central planning.

May 1956: Collectivization largely accomplished. Mao urges flourishing of ideas: "Let a hundred flowers bloom together, let a hundred schools of thought contend." Little immediate effect.

May 1957: Hundred Flowers period. Intellectuals criticize Communist Party and socialism. "Flowering" lasts five weeks. Mao clamps down.

June 1957: Antirightist Campaign to squelch criticism of socialism.

1958–60: Great Leap Forward. Attempt to instill and implement Communist ideology—with disastrous economic consequences. Man-made famine kills 20 million to 30 million people.

1961–65: Economic development reemphasized. Merit systems and small-scale private plots permitted.

1966–76: Cultural Revolution. Mao mobilizes masses in Communist fervor. Intellectuals purged, all revisionism denounced under leadership of Red Guards and People's Liberation Army.

April 1969: Cultural Revolution declared ended but continues. Educational institutions almost cease operation. Economy stagnates. Cultural Revolution power base remains intact until Mao's death.

April 4, 1976: "Tiananmen incident." First mass demonstration. Demonstrators support the late Zhou Enlai (believed to have tried to end the Cultural Revolution), rally against the ruling "Gang of Four," headed by Mao's wife.

September 1976: Mao dies. Power struggle between the Gang of Four and moderates, including Deng Xiaoping.

October 1976: Gang of Four arrested.

August 1977: Deng Xiaoping begins to consolidate power.

March 1978: Deng urges intellectuals to "liberate thought." Pledges they will not be discriminated against.

Mid-1978: Democracy Wall created. Posters affixed to it criticize Mao, call for political and economic change.

October 1979: Contradictory actions—leader in democracy movement sentenced to 15 years; Deng calls for "freedom of creative speech."

November 1979: Democracy Wall closed down. Liberalization opponents begin "spiritual pollution campaign."

February 1980: Deng announces Four Modernizations—of agriculture, industry, science, and the military.

1982: New constitution adopted, further consolidating Deng's power.

1983: Opponents campaign against "bourgeois liberalization."

1984: Communist Party Central Committee endorses Deng's Four Modernizations program, with its liberalizations.

1985–86: Student democracy movement flourishes, appeals for political reform.

1986–87: Backlash against political reform and student democracy movement. Spiritual pollution campaign revived in the press.

—Lynn Scarlett