Introduction

The period following Mao Zedong’s death in 1976 marked one of history’s most dramatic economic transformations. In just a few decades, China evolved from a closed, centrally planned economy into a global manufacturing powerhouse and technological leader. This remarkable transition raises important questions: How did China embrace market capitalism while maintaining state control? How did China avoid the economic collapse that devastated the Soviet Union? What can David Harvey’s analysis tell us about this unique development path?

In our latest Explaining History podcast episode on China’s Neoliberal Turn , we explore these questions through the lens of renowned geographer and social theorist David Harvey’s work on Chinese capitalism and communism. This blog post expands on the podcast discussion, providing deeper context and analysis for A-level students and history enthusiasts.

Deng Xiaoping’s Economic Reforms: The Pivot from MaoismMaoism Full Description:Maoism (or Mao Zedong Thought) emerged as a response to the specific material conditions of semi-feudal, semi-colonial societies. Unlike orthodox Soviet Marxism, which viewed the urban working class as the vanguard of history, Maoism argued that in colonized nations, the vast peasantry constituted the true revolutionary force. Key Theoretical Shifts: The Peasant Revolution: The rejection of the Eurocentric Marxist view that peasants were reactionary; instead, they are mobilized as the engine of socialist transformation. People’s War: A military-political strategy aimed at mobilizing the rural population to encircle and eventually capture the urban centers of power. Anti-Imperialism: The framing of the class struggle as inextricably linked to the struggle for national liberation against foreign colonial powers. Critical Perspective:Critically, Maoism represented a “sinification” of Marxism that de-centered the West. By asserting that the path to socialism did not require waiting for Western-style industrial capitalism to develop first, it provided a blueprint for insurgencies across the Global South (the “Third World”). However, this focus often justified the militarization of social life, where society was permanently organized on a war footing against real or imagined imperialist threats.

When Deng Xiaoping emerged as China’s paramount leader in 1978, the country faced immense challenges. The Cultural Revolution had left China economically stagnant, politically fractured, and internationally isolated. Deng, a pragmatist who had himself been purged twice during the Mao era, recognized that China needed fundamental economic reforms to survive and prosper.

Unlike Soviet leaders who would later implement “shock therapy” privatizationPrivatization Full Description:The transfer of ownership, property, or business from the government to the private sector. It involves selling off public assets—such as water, rail, energy, and housing—turning shared public goods into commodities for profit. Privatization is based on the neoliberal assumption that the private sector is inherently more efficient than the public sector. Governments sell off state-owned enterprises to private investors, often at discounted rates, arguing that the profit motive will drive better service and lower costs. Critical Perspective:Critics view privatization as the “enclosure of the commons.” It frequently leads to higher prices for essential services, as private companies prioritize shareholder returns over public access. It also hollows out the state, stripping it of its capacity to act and leaving citizens at the mercy of private monopolies for their basic needs (like water or electricity).
Read more, Deng adopted a gradual, experimental approach captured in his famous phrase: “crossing the river by feeling the stones.” This cautious methodology allowed China to test market reforms in controlled environments before expanding them nationwide.

The initial reforms included:

• Agricultural decollectivization: The household responsibility system replaced communal farming, allowing families to lease land and sell surplus crops at market prices
• Special Economic Zones (SEZs): Beginning in Shenzhen, these zones attracted foreign investment through tax incentives and relaxed regulations
• Township and Village Enterprises (TVEs): Collectively owned rural enterprises that drove industrialization outside major cities
• Dual-track pricing system: Gradually introducing market prices alongside state-controlled prices

These reforms unleashed tremendous productive forces. Between 1978 and 1989, China’s GDP grew at an average annual rate of 9.5%, and over 170 million people were lifted out of extreme poverty.

David Harvey’s Analysis: “NeoliberalismSupply Side Economics Full Description:Supply-Side Economics posits that production (supply) is the key to economic prosperity. Proponents argue that by reducing the “burden” of taxes on the wealthy and removing regulatory barriers for corporations, investment will increase, creating jobs and expanding the economy. Key Policies: Tax Cuts: Specifically for high-income earners and corporations, under the premise that this releases capital for investment. Deregulation: Removing environmental, labor, and safety protections to lower the cost of doing business. Critical Perspective:Historical analysis suggests that supply-side policies rarely lead to the promised broad-based prosperity. Instead, they often result in massive budget deficits (starving the state of revenue) and a dramatic concentration of wealth at the top. Critics argue the “trickle-down” effect is a myth used to justify the upward redistribution of wealth. with Chinese Characteristics”

In his influential book “A Brief History of Neoliberalism ” (2005), David Harvey provides a compelling framework for understanding China’s economic transformation. Harvey characterizes China’s approach as “neoliberalism with Chinese characteristics” – a hybrid system that combines market liberalization with strong state control.

According to Harvey, China’s model differs from Western neoliberalism in several key ways:

1. State ownership of key sectors: Unlike Western privatization, China maintained state control over “commanding heights” industries like energy, telecommunications, and banking
2. Controlled capital markets: China strictly regulated foreign investment and currency flows, avoiding the financial volatility that plagued other developing economies
3. Authoritarian governance: The Chinese Communist Party maintained tight political control while liberalizing the economy
4. Gradualism over shock therapy: China’s step-by-step approach contrasts sharply with the rapid privatization in post-Soviet states

Harvey argues that China’s approach represents a distinctive path to neoliberalism – one focused on economic growth and global integration while preserving political stability and state power. This hybrid model challenges Western assumptions about the necessary connection between market economies and liberal democracy.

The 1980s: Balancing Economic Reform and Political Stability

The 1980s were a period of both rapid change and significant tension in China. Deng’s reforms unleashed new economic forces that transformed Chinese society:

• Urban areas saw the emergence of private businesses and foreign joint ventures
• Consumer goods became increasingly available as state price controls relaxed
• Special Economic Zones like Shenzhen transformed from fishing villages into booming industrial centers
• A new entrepreneurial class began to emerge alongside the traditional party-state elite

However, these economic changes created new social pressures. Inflation, corruption, and inequality increased, leading to growing public discontent. By the late 1980s, these tensions culminated in the pro-democracy protests that ended with the Tiananmen Square crackdown in June 1989.

This pivotal event marked a critical juncture in China’s development path. While many Western observers expected China to abandon economic reforms after Tiananmen, Deng instead doubled down on market liberalization while reinforcing political control – a pattern that continues to define China’s development model today.

China vs. Soviet Union: Why China Avoided Economic Collapse

One of the most striking aspects of China’s transformation is how it avoided the economic collapse that devastated the Soviet Union and Eastern Europe during their market transitions in the 1990s. Several factors explain this divergence:

1. Gradualism vs. shock therapy: China’s incremental approach allowed institutions to adapt gradually, unlike the rapid privatization in post-Soviet states that led to economic chaos
2. Agricultural reform first: By beginning with rural reforms, China created a foundation of improved living standards before tackling more complex industrial reforms
3. Maintaining state capacity: China preserved a strong, functional state apparatus that could guide development, unlike the institutional collapse in the former USSR
4. Pragmatism over ideology: Deng’s famous dictum that “it doesn’t matter if a cat is black or white, as long as it catches mice” reflected China’s practical approach to reform
5. Leveraging global trade: China strategically integrated into global markets, becoming the “workshop of the world” through export-oriented manufacturing

As our A Level History Study Zone materials explain, these differences in approach had profound consequences. While Russia’s GDP contracted by over 40% in the 1990s, China’s economy continued to grow rapidly, setting the stage for its emergence as an economic superpower.

Legacy and Contemporary Relevance: China’s Economic Model Today

China’s neoliberal turn under Deng Xiaoping laid the groundwork for its rise as a global power in the 21st century. Today, China stands as the world’s second-largest economy and a technological leader in areas from artificial intelligence to renewable energy.

However, the contradictions of China’s hybrid system remain evident. The tension between market forces and state control, between economic openness and political restrictions, continues to shape China’s development. Under current leader Xi Jinping, China has reasserted state control over the economy while pursuing ambitious initiatives like the Belt and Road program and Made in China 2025.

Understanding China’s unique development path is essential for students of modern history and international relations. As explored in our podcast series on global economic systems , China’s experience challenges conventional Western narratives about markets, states, and development.

Key Figures in China’s Economic Transformation

Deng Xiaoping (1904-1997)

The architect of China’s economic reforms who led the country from 1978 to the early 1990s. Deng’s pragmatic approach and focus on economic development over ideological purity set China on its current path.

Chen Yun (1905-1995)

A conservative economic planner who advocated the “bird cage” theory – the economy (the bird) should be allowed to fly, but within the cage of state planning and control.

Zhao Ziyang (1919-2005)

A reform-minded premier and later party secretary who pushed for deeper market reforms and political liberalization before being purged following the Tiananmen Square protests.

Jiang Zemin (1926-2022)

Deng’s successor who continued economic reforms while maintaining political stability, overseeing China’s entry into the World Trade Organization in 2001.

Timeline of China’s Economic Reforms (1978-1989)

• December 1978: Third Plenum of the 11th Central Committee marks the beginning of reform era
• 1979: First Special Economic Zone established in Shenzhen
• 1980-1982: Household Responsibility System implemented in agriculture
• 1984: Urban economic reforms begin; Township and Village Enterprises expand
• 1986: Provisional bankruptcy law introduced for state enterprises
• 1987: 13th Party Congress endorses “primary stage of socialism” theory
• 1988: Price reform leads to inflation and economic tensions
• June 1989: Tiananmen Square crackdown
• 1992: Deng’s “Southern Tour” reaffirms commitment to market reforms

Conclusion: Lessons from China’s Economic Transformation

China’s neoliberal turn from 1978-89 represents one of history’s most consequential economic transformations. Through David Harvey’s analytical framework, we can understand this period as the emergence of a distinctive Chinese model – one that combines market mechanisms with strong state guidance.

This hybrid approach has produced remarkable economic growth while avoiding the collapse that accompanied market reforms elsewhere. Yet it has also generated new contradictions and challenges that continue to shape China’s development today.

For students studying this period, the key lesson may be that economic systems are not binary choices between state planning and free markets, but complex institutional arrangements shaped by history, culture, and politics. China’s distinctive path reminds us that countries can chart their own development trajectories rather than simply following established models.

To explore this fascinating period further, listen to our full podcast episode on China’s neoliberal turn and check out our A Level resources on modern Chinese history .

Further Reading on China’s Economic Reforms

• David Harvey, “A Brief History of Neoliberalism” (2005)
• Ezra Vogel, “Deng Xiaoping and the Transformation of China” (2011)
• Barry Naughton, “The Chinese Economy: Adaptation and Growth” (2018)
• Isabella Weber, “How China Escaped Shock Therapy” (2021)
• Branko Milanovic, “Capitalism, Alone: The Future of the System That Rules the World” (2019)

---

This blog post accompanies the Explaining History podcast episode “China’s Neoliberal Turn 1978-89” released on March 13, 2025. For more in-depth historical analysis and educational resources, visit our A Level History Study Zone .

Keywords: China economic reforms, Deng Xiaoping, David Harvey neoliberalism, Chinese capitalism, market socialism, post-Mao China, Special Economic Zones, China vs Soviet Union, A-level history China, 1980s Chinese economy

The Cultural Revolution (1966–1976): An Overview

Red Guards and Revolutionary Youth: Agents of Chaos or Victims of Ideology?

The Down to the Countryside Movement: Re-Education or Exile?

Jiang Qing and the Gang of Four: Scapegoats or True Believers?

The Elephant and the Dragon: China’s Pivotal Role in the First Indochina War