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Deng Xiaoping

In this film, Sir Vince Cable shares how Deng Xiaoping harnessed market forces and capitalism to improve living standards and reduce poverty in China.
We now turn to the man who, perhaps more than any other in history, harnessed the power of radical economic ideas, including market forces and capitalism to improve living standards and reduce poverty. He was a lifetime communist and revolutionary army general. The transformation of China from a desperately poor, inward looking country, with recent experience of mass famine to the modernised highly successful, outward looking, rapidly growing economic superpower we know today, with on some measures the world’s largest economy, is largely due to the reforms he initiated and supervised, especially during his decade as China’s paramount leader after 1978. It’s probable that seeds of the later Deng Xiaoping was sown when he was a teenager.
After growing up in Chongqing in Xiguan, he was sent as a 15-year-old to France on a work study programme. In his two years in France, working in factories as a fitter and studying, he became a communist. But he also appreciated the importance of Western technology and learning from the West to modernise China. It was a lesson he applied in power 60 years later. Some historians have argued that he was never really a committed communist, but a revolutionary Chinese nationalist, for whom the Communist Party was the best vehicle available. Mao and his Maoist enemies certainly regarded him as ideologically unsound, if highly competent.
After further study in the Soviet Union and political activism in China he joined a pro-Soviet, communist, revolutionary army, and spent several years fighting the nationalist government, the KNT in the countryside and in Shanghai. In 1934, age 30, he made a life changing decision to support Mao Tse-tung in faction fighting against pro-Soviet communists. He then joined Mao’s epic Long March to escape the Kuomintang Encirclement, and establish a communist base in the north of the country. After a decade and a half as a leading military commander, defeating the Japanese occupiers, and then the KMT, Deng Xiaoping became one of the leading figures in the new communist government after 1949.
Throughout the war and after the revolution, Deng was a loyal supporter of Mao. And he was at the heart of the Communist Party, indeed fully engaged in the mass purges and massacres which occurred. He could never be accused of being a liberal or a democrat in a Western sense, but there were early signs that he had a pragmatic rather than ideological approach to economic matters. And he consistently supported economic reformers whose influence waxed and waned in Mao’s three decades in power. When Mao’s Great Leap Forward resulted in a terrible famine, which could have killed 10 to 15 million Chinese, Deng was a leading member of a group which reversed the policies of forced collectivisation.
And it was at this time he made his famous pronouncement, it doesn’t matter whether a cat’s black or white. If it catches mice, it’s a good cat. This was widely interpreted by allies and party enemies alike as a defence of private markets and entrepreneurs. This emphasis on pragmatic economic policy, tolerating private peasant farming and markets, tentatively encouraging business, led to his being branded as a capitalist roader during the Cultural Revolution, which Mao unleashed over the decade after the mid 1960s, again causing millions of deaths and the persecution of the educated population. He himself was purged and exiled internally and his son was tortured and crippled after being thrown from a building.
But Deng survived and after Mao’s death, he led the move to terminate the Cultural Revolution and installed leaders who shared his longing for Russian economic policies and for modernising China. He advanced step by step, experimenting initially with economic zones in Guangdong province to open up trade and attract private investment. At the same time, communes were broken up and farmers allowed to manage their own land and trade their produce. He sought to normalise relations with Japan, the United States, and other Western countries as part of this opening up to trade and investment. Other than having an understanding of the importance of economic reform and pragmatism in general, there’s no evidence that Deng took an active role in economic management.
What he did was to provide political cover for reform by arguing that market forces and Western management methods were compatible with socialism. He wanted to learn from successful market economies like Singapore. But his ideas seemed to have come from Soviet experiments with market reform under Lenin. Within that structure, he allowed provincial and local leaders to experiment. Local municipalities started to experiment by encouraging state-owned enterprises to invest in manufacturing for export. And banks were encouraged to finance these fledgling companies. They then reinvested the profits to extend production and to acquire more advanced technology. And within a remarkably short period of time, manufactured exports and light manufacturing in general were booming, initially in the coastal provinces and then internally.
A resurgence of peasant agriculture and manufacturing reinforced each other, with the rapid growth of domestic as well as foreign markets and the accumulation of surpluses for investment. Deng officially retired in 1992, but his influence remained enormous, through a successive generation, which continued his approach to policy. We can now see the results, which are staggering. China now has in purchasing power terms the world’s largest economy, having grown at double digit rates for over three decades. China is now the world’s largest exporter, with over 10% of world trade, up from 1% in 1980. Living standards of the 1.35 billion population have risen rapidly, and life expectancy, 74 for men, 75 for women, is very close to Western levels.
China is however now grappling with a variety of economic problems, trying to slow from 10% to a more manageable 6% growth, trying to diversify from an emphasis on investments in manufactured exports to consumption in public and private services for the domestic market, managing an accumulation of public and corporate debt from Chinese banks and shadow banks acquired in a remarkable burst of infrastructure spending and property development, increasing labour supply from an ageing population. But these are the problems of a sophisticated, modern economy, which China has now become. The central dilemma facing China is how to continue this process of economic modernisation and reform in a world dominated by digital technology and widely diffused information.
While China retains a Communist Party led, one party state, with little space for dissent and political choice, Deng was fully committed to the model of economic liberalisation within a Communist, single party state. And there’s no evidence, for example, that he dissented from the Tienanmen Square crackdown, which occurred as he was beginning to disengage from power. The disastrous consequences of the opposite approach to reform adopted by Gorbachev and the Soviet Union has always been used by Deng’s contemporaries and successors as a vindication of this model. So far it’s worked. Indeed, it is one of the great economic success stories in history.

Deng Xiaoping, perhaps more than any other in history, harnessed the power of radical economic ideas, including market forces and capitalism, to improve living standards and reduce poverty in China. He ushered in economic policies which shifted China from a desperately poor, inward-looking country to the modernized, highly successful outward-looking, rapidly growing economic superpower we know today.

In this film, Sir Vince Cable shares the story of Deng Xiaoping’s extraordinary life and the ways in which he enabled incredible transformations to China. Officially retired in 1992, Xiaoping’s influence remains enormous through a successor generation who continue his approach to economic policy.

Vince also shares that the central dilemma facing China is how to continue this process of economic modernization and reform in an increasingly competitive world while retaining a Communist Party-led, one-party state with little space for dissent and political choice. Share in the comments below what you view as China’s most pressing challenges and how you think China will approach them.

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The Politics of Economics and the Economics of Politicians

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