Modernization of China National Governance

Institute for Contemporary China Studies, Tsinghua University

September 16, 2020

Abstract
This is not a full translation of the whole book, only a summary of
the points discussed in the book, with the aim of not missing too much.
This is a work in progress, and may not be finished in the future,
depends on how much time I have.
This book is published in Sept. 2014, so it may not express the
current status of the affairs discussed.
TBD: some terms are not cleaned up, e.g. chairman=president,
haven’t decided which one to use yet.
Status: Chapter 1 finished(-ish). I gradually switched to full-text
translation starting section 1.4. Maybe I’ll go back and turn first 3
sections into full-text translation too.
Section 1.1-2, 4.1-2, 5.1 were fully translated now.
Sept.6:I’m currently redoing Chapter1 into full text translation.

Contents
1 The Road to China National System Construction 4
1.1 Mao Zedong: The foundation of China national system . . . . . 6
1.2 Mao’s important institutional innovation . . . . . . . . . . . . . 15
1.3 Mao’s mistake in his last years: problem of governance but not
system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
1.4 Deng Xiaoping: Rework of the party and national basic system 27
1.4.1 Choices between three paths after ”Cultural Revolution” 27
1.4.2 Restoration of the Party and country’s basic system . . 28
1.4.3 Political system reform in early 80s . . . . . . . . . . . . 30
1.5 Jiang Zemin, Hu Jintao: Consolidate and completion of social-
ist basic system . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
1.6 Summary: ”China’s road” better than ”Western road” . . . . . 38

1
2 The Third Plenary Session of the 18th CPC Central Commit-
tee: The New Milestone of China’s Reform 40
2.1 Third plenary sessions are China’s reform milestones . . . . . . 40
2.2 China’s reform: greatness and experiences . . . . . . . . . . . . 40
2.3 Decision’s guiding thinking and overall goal of comprehensively
deepening reform . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.4 ”Five-in-one” system construction and reform . . . . . . . . . . 40
2.5 Summary: Consolidate confidence in the system, deepening the
overall reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

3 Modernization of National Governance 41

3.1 National modernization . . . . . . . . . . . . . . . . . . . . . . 41
3.2 National governance modernization . . . . . . . . . . . . . . . . 41
3.3 National governance ability modernization . . . . . . . . . . . . 41
3.4 National governance system modernization . . . . . . . . . . . 41
3.5 China’s national governance modernization isn’t westernization 41
3.6 Summary: Important historic mission for the future . . . . . . 41

4 Government-Market Relationship 42
4.1 Government-Market:A pair of important relationship and conflict 43
4.2 The historic progress of recognizing the government-market re-
lationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.3 Respect market rules more . . . . . . . . . . . . . . . . . . . . . 57
4.4 Accelerate government transformation . . . . . . . . . . . . . . 57
4.5 Perform government function better . . . . . . . . . . . . . . . 57
4.6 Summary: ”Two hands” always better than ”One hand” . . . . 57

5 The Relationship Between State-owned Economy and Private

Economy 58
5.1 The historical evolution of the relationship between state-owned
economy and private economy . . . . . . . . . . . . . . . . . . . 59
5.2 State-owned and Private:Walking with two legs . . . . . . . . . 71
5.3 Future development of China’s hybrid economy . . . . . . . . . 71
5.4 Summary: ”Two legs” always better than ”One leg” . . . . . . 71

6 Central-Local Relationships 72
6.1 Historic logic of Central-local relationships . . . . . . . . . . . . 72
6.2 Historic transformation of Central-local relationship in Mao era 72
6.3 ... in first stage of open and reform . . . . . . . . . . . . . . . . 72
6.4 Tax system classification reform and Central-local system reform 72

2
 6.5 Further perfect Central-local relationship . . . . . . . . . . . . 72
6.6 Future development of Central-local relationship . . . . . . . . 72
6.7 Summary: ”Two enthusiasm” always better than ”One enthu-
siasm” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

7 Comparison of China and USA Governance Performance 73

7.1 China-US governance performance comparison(2000-2012) . . . 73
7.2 China-US politic system comparison . . . . . . . . . . . . . . . 73
7.3 Summary: Why china governing performance better than US . 73

3
1 The Road to China National System Con-
struction
1

We must organize people all across the

country into politics, military, economy,
culture and other organizations, overcome
the disorganized nature of the old China,
use the great power of the people, to
uphold the people’s government and PLA,
to construct a new China that’s
independent, democratic, peaceful, united,
rich and powerful

Mao Zedong, 1949

What we need to do now is to accelerate

the development of production force by
reform, stick to socialist path, use our
practice to prove the superiority of
socialism. We’ll need two generations,
three generations or even four generations
of people to reach this goal. Then, we can
speak the fact with confidence that
socialism is indeed superior than
capitalism

Deng Xiaoping, 1987

Under the leadership of Mao Zedong, China has realized the transformation
from the old China to the new China, which is also accompanied by the
transformation from a traditional country to a modern country, that is, from
fragmentation to a high degree of unity, from ”scattered sand” to ”high degree
of concentration”, from ”divided mountains” to ”high degree of centralization”.
1 This article is from the lecture notes of ”China’s National Conditions and China’s Road

Special Course” independently selected by Professor Hu Angang for the Department of

Central State Institutions and Bureau-level cadres. Revised on 25 July; It was amended on
9 August 2013; It was revised again on April 1, 2014. As in State of the Nation Report,
2014 (10), May 20, the leading comrades of the CPC Central Committee made important
instructions.

4
 The construction of socialism with Chinese characteristics is in essence an
exploration of China’s modernization path and a transcendence of the western
modernization model. This is a process of constantly taking the best and
discarding the dross from the modernization path of the western developed
countries, constantly summing up experience from the modernization process
of China, and constantly trying and correcting mistakes in the face of various
difficulties, risks and crises, as well as constantly seeking and selecting the
best option. If China is on the right path, we must unswervingly follow it.
On November 8, 2012, In his report to the 18th National Congress of the
Communist Party of China, Comrade Hu Jintao expounded on the importance
of the path: ”The road bears on the lifeblood of the Party, the future of the
country, the destiny of the nation and the happiness of the people.” 2
On January 5, 2013, Comrade Xi Jinping delivered an important opening
speech in the study class of central party school for the new committee and
alternate members, on the seminar on implementing the party’s 18th Nation
People’s Congress’ spirit, once again stressed the importance of the path, he
points out: ”the problem of path is the most important problem regarding
the prosperity of the party, path is the life of the party.”3
Why is the path so important, so critical? What is the relationship between
it and the system construction of China’s socialist country? How can we better
answer these questions?
On June 25, 2013, In his speech delivered at the group study session of
the Political Bureau of the CPC Central Committee, Comrade Xi Jinping
pointed out that history is the best textbook. The history of the
Party and the state is a compulsory course, which must not only
be taken, but excelled at.4 Therefore, it is necessary for us to focus on
the theme of China’s road and national system construction. We need to
2 Hu jintao: Unswervingly Following the Path of Socialism with Chinese Characteristics

and Striving to Complete the Building of a Moderately prosperous Society in All respects –
Report delivered at the 18th National Congress of the Communist Party of China (November
8, 2012)
3 Beijing, January 5, 2013 (Xinhua)
4 The Political Bureau of the CPC Central Committee held its seventh collective study

session on the theory and practice of socialism with Chinese characteristics on June 25,
2013. When presiding over the study, Xi Jinping, general secretary of the Communist Party
of China central Committee, stressed that history is the best textbook. The study of Party
history and state history is a compulsory course for upholding and developing socialism with
Chinese characteristics and continuing to push forward all undertakings of the Party and
state. We should continue to strengthen our study of the history of the Party and of the
state, do our practical work well in our deep thinking on history, better move forward into
the future, and constantly deliver qualified answers in upholding and developing socialism
with Chinese characteristics. (Xinhua News Agency, Beijing, June 25, 2013)

5
understand what China’s path is, where it has come from, where
it has come to, and where it will go in the future. To this end, it is
necessary to understand how Mao Zedong and others innovated the modern
state system in the early days of the founding of new China under the national
conditions of huge population, vast territory but full of turmoils, and truly
realized the unification of the country, liberation of the people, unity of the
people and a peaceful governance of the country. We should also understand
how Deng Xiaoping and others rebuilt the system of the Party and the state
in the early days of reform and opening up, and realized economic take-off,
economic prosperity, social progress, opening up to the outside world, and
integration into the world. It is also important to understand how Jiang
Zemin, Hu Jintao, Xi Jinping and others have continuously improved and
strengthened the institutional building of the Party and the state, so as to
realize China’s rapid rise, all-round opening up and all-round innovation.

1.1 Mao Zedong: The foundation of China national sys-

tem
Before 1949, China was a disintegrated country. In 1924, Sun Yat-sen pointed
out that the old China was ”scattered with individual freedom”. ”People say
that the Chinese people are loose sand,” he says. ”What is loose sand? Free-
dom for all entity and freedom for all people. Everyone expands his freedom
to such a great extent that it becomes a piece of sand. ... Because we have
too much freedom, there’s no group, no resistance, degraded into a field of
sand. Being a field of loose sand, we are now unable to resist the aggression of
foreign imperialists and the oppression of economic and commercial wars by
foreign powers. To be able to resist foreign oppression in the future, we must
break the freedom of every man and form a strong community, like water and
cement mixed into sand and formed into a strong stone. This was the case in
the Party and in the army, each with its own freedom and disunity, unable
to be unified by order. So Yuan Shikai defeated the revolutionary Party. We
are fighting for the freedom of the country and the freedom of the people, not
the freedom of the individual, the freedom of the student, the freedom of the
soldier.”5 Although Sun Yat-sen realized this, he could not solve the problem
of disunity, fragmentation and weakness.
So, how did Mao Zedong solve the problem of fragmented and weak? On
September 30, 1949, Mao Zedong pointed pointed out: ”we should organize
5 Sun Yat-sen: the second Lecture on the Doctrine of Civil Rights (March 16, 1924), see

Three Principles of the People, pp. 69-70, Changsha, Yuelong Book Society, 2000.

6
the whole of China, the vast majority of people into the political, military,
economic, cultural, and other organizations, to overcome the disorganized
nature of the old China, with the great power of people’s collective, support of
the people’s government and the people’s liberation army (PLA), to construct
a independent, democratic, peaceful, united and prosperous new China.”6 Mao
Zedong was very clear: to achieve these goals, we need organization, and to
organize the 540 million people at that time we need innovation in modern
state systems.
On January 8, 1949, At a meeting of the Political Bureau of the CPC Cen-
tral Committee, Mao Zedong envisaged: ”Finishing the national revolution is
digging the foundation, which took us 30 years. But to build the house, will
take us further decades”.7 Figurative speaking, the former is the destruc-
tion of the old system, the latter is building the new system for
the new China. We can say Mao was the innovator, creator of the
new China system. The new system was created with the formation of the
1949 <Common Programme>, 1954 <the Constitution of the People’s Repub-
lic of China>, 1956<the Constitution of the Communist Party of China>,
etc. which not only set forth the fundamental transition from old
system to new system, but also surpassed the USSR’s socialist sys-
tem and the US’s capitalist system, which was considered to be the
best system of all at that time. Mao Zedong started the historical pro-
cess of modernizing China’s modern state system with his powerful system
innovation. He organized the Chinese people, which accounted for
one fifth of the world’s total population, and in a very short period
of time put an end to the 50 years state of bristling with factions,
disintegration of the old China in the first half of the 20th century.
In March 1949, Mao Zedong made the Report at the Second Plenary Ses-
sion of the Seventh Central Committee of the Communist Party of China.
According to Mao Zedong’s report, the plenum adopted a resolution to shift
the party’s focus of work from rural areas to urban areas with production and
construction as the central task after the complete destruction of Kuomintang’
rule and national victory. It lays down the general tasks and main ways
for China to transform itself from an agricultural country to an in-
dustrial country and from a new democratic society to a socialist
society.
6 Mao Zedong, Long live the Great Unity of the Chinese People (September 30, 1949),

see Collected Works of Mao Zedong, Vol. 5, p. 348, Beijing, People’s Publishing House,
1996
7 Jin Chongji, Editor: Biography of Mao Zedong (1893-1949), pp. 945, Beijing, the

Central Literature Press, 2004

7
 In September 1949, the Communist Party of China and the democratic
parties jointly formulated the founding program of a new democratic soci-
ety, namely the Common Programme, which became the guiding document
for the construction of a new democratic society. According to the Com-
mon Programme, China’s building a new democratic country, form-
ing a government consisted of four classes(worker, farmer, petty
bourgeoisie, national bourgeoisie),8 building a political consultation
system of multiple-party cooperation that is under the leadership
of CPC, implementing people’s democratic dictatorship.9 China’s
people’s democratic dictatorship is different from USSR’s dictator-
ship of the proletariat, and China’s political consultation system is
different from USSR’s strictly one party system.10 Which created the
China’s three basic political institution:
• Multi-party cooperation and political consultation system under the
leadership of the Communist Party of China(1949)
8 preface of the Common Programme stipulates that the Chinese people’s democratic

dictatorship is a people’s democratic united regime with unity of the Chinese working class,
peasantry and the petty bourgeoisie and the national bourgeoisie and other patriotic demo-
cratic factions, which is based on the alliance of workers and peasants, with working class
as the leadership. [See The Common Programme of the Chinese People’s Political Con-
sultative Conference (adopted at the first Plenary session of the Chinese People’s Political
Consultative Conference on September 29, 1949), see Selected Works of Important Docu-
ments since the Founding of the People’s Republic of China, Vol. 1, p.1 Beijing, Central
Documents Publishing House, 1992.]
9 As Liu Shaoqi explained: because of the threat of imperialism in China, the bourgeoisie

is cooperating with us, and we’re going to cooperating with the bourgeoisie for quite a
long time, so China can’t establish a dictatorship of the proletariat but only a people’s
democratic dictatorship. This dictatorship is based on the alliance of workers and peas-
ants under the leadership of the proletariat, which is a people’s democratic dictatorship
that also unites petty bourgeoisie and the national bourgeoisie[See Record of Liu Shaoqi’s
Speech at the Cadre Meeting of Northeast Bureau(Aug. 28 1949), quoted from Jin Chongji.
Editor:Biography of Liu Shaoqi, pp. 655, Beijing, Central Literature Publishing House,
1998]
10 Zhou Enlai in the report ofAbout the Drafting Process and Characteristics of <China’s

People’s Political Consultative Conference’s Common Programme> pointed out that the
regime of new democracy is the people’s congress system of democratic centralism, it is
completely different from the old democratic parliamentary system, but within the scope
of socialist Soviet Union congress system. But meanwhile it is not entirely the same as
the Soviet system, the Soviet Union has wiped out the class, but we are still an alliance of
all revolutionary classes. [see Zhou Enlai, the Characteristics of the Draft of the People’s
Political Consultative Conference’s Common Programme(September 22, 1949), as shown
in the Central Committee of the Communist Party of China’s Literature Research Office,
Editor: Selected Works of Important Documents since the Founding of the People’s Republic
of China, Vol. 1, pp. 17-18, Beijing, Central Literature Publishing House, 1992]

8
 • Regional ethnic autonomy system(1952)
• The system of people’s congress(1954)
From the perspective of historical comparison, Mao Zedong’s founding
concept was fundamentally different from the economic foundation, political
system and social structure of all feudal dynasties, and also fundamentally
different from the bureaucratic capital route of founding a new country by
the big landlord class, represented by the Kuomintang government led by
Jiang Jieshi.11 From the perspective of international comparison, it is neither
the capitalist economy based on private ownership in European and Ameri-
can countries, nor the socialist economy based on public ownership in Soviet
Union and Eastern European countries, but the third way, namely the new
democratic economy in China. To be exact, it is a mixed economy,
which has both capital and socialist economic components. Accord-
ing to the basic national conditions of China’s backward economy
at that time, Mao Zedong creatively and pragmatically put forward
the new concept of founding a nation.
How did Mao created the new China national system? There was
a progress of unify and centralize first, then continuous institutional
innovation.
The founding of new China, is a transition period from divided to united,
from scattered to centered, from distributed power to concentrated power.12
Starting from 1948, the party began to strengthen the centralization of power,13
gradually established the basic system of party’s leadership over the country,
military and the whole nation, which was continuously improved and reformed
with practice.On the one hand, this system inherits the unified leadership of
the Party formed during the Anti-Japanese War; On the other hand, the
development of party organizations at all levels provides an important orga-
nizational basis, leading methods and working system for leading a national
11 See Mao Zedong: On Coalition Government (April 24, 1945), Selected Works of Mao

Zedong, 2nd Ed., Vol. 3, pp. 1047-1049, Beijing, People’s Publishing House, 1991
12 Zhou Enlai explained: now we are in a transitional period from basically overthrowing

the Kuomintang to completely overthrowing the Kuomintang, and we are moving from
decentralization to unification. This is not a matter of months but a matter of years. The
transitional period is a characteristic, and we must grasp this characteristic, or we will
make mistakes…the guideline for unification is: on the basis of partitioned management,
moving to unification with steps and focal points. [See Zhou Enlai’s Speech Record at the
Second Plenary Session of the Seventh Central Committee of the Communist Party of
China (March 13, 1949), as in Jin Chongji, Editor: Biography of Zhou Enlai Vol.2 , p. 914,
Beijing, Central Literature Publishing House, 1998]
13 See Wang Shaoguang; Central and local relations in New China, lecture, School of

Public Administration, Tsinghua University, October 14, 2009.

9
political power.14 During which time, political institution formed un-
der Mao’s leadership including:
The central decision-making power is concentrated. On August
14, 1948, the Central Committee of the Communist Party of China issued
the Directive on the Strict Implementation of the Reporting System, calling
for the strict implementation of a timely and complete reporting system and
regarding this matter as a directive that absolutely no violation is permitted,
so that the central committee can keep abreast of the implementation of the
line, guidelines and policies of the central committee by various localities. In
September, a meeting of the Political Bureau of the CPC Central Commit-
tee adopted the Resolution of the CPC Central Committee on the System
of Requesting Instructions and Reports from Central Bureaus, sub-bureaus,
Military area commands, sub-commissions and commissions of the Central
Military Commission and its front Committees, aiming at strengthening the
centralized and unified leadership of the CPC Central Committee and concen-
trating all possible and necessary centralized power in the hands of the CPC
Central Committee and its representative organs. No one or organization can
place himself or herself on an equal footing with the Central Committee, or
even exert a higher influence within the Party or army than the central Com-
mittee. On September 20, Mao Zedong drafted a decision for the CPC Central
Committee on improving the party committee system. The decision points
out that the party commission system is an important system of the
Party that guarantees collective leadership and prevents individuals
from monopolizing power. All important matters shall be referred
to the Committee for discussion, in which members present shall
give their full views, make a clear decision, and then carry them
out separately. It should also be noted that collective leadership
and individual responsibility should not be biased.15
Unified the financial and economic system. In early July 1948, the
Central Ministry of Finance and Economic Affairs was established, with Dong
Biwu as the minister. In September, after the founding of the people’s gov-
ernment of north China, and then set up financial and economic committee
of north China, issued a About the Decision of the Unified North China Fi-
nancial Work, on December 1, the former north bank, bank of the north sea,
14 See Office of Party History of the CPC Central Committee: The History of the Com-

munist Party of China, Vol. 2 (1949-1976), Subvol. 1, pp. 173. Beijing, The History of the
Communist Party of China Press, 2011
15 See Mao Zedong; On Improving the Party Commission System (September 20, 1948),

Selected Works of Mao Zedong, 2nd Ed., Vol. 4, pp. 1340-1341, Beijing, People’s Publishing
House, 1991

10
northwest farmers bank merged and founded the People’s Bank of China, and
established unity of currency in all the liberated areas. RMB will be issued,
as the functional currency of the People’s Republic of China.16
Unification of PLA’s organizing system and military command-
ing. On November 1, 1948, the Central Military Commission issued the Pro-
visions on the Unification of the Organization of the PLA and the Numbering
of the PLA Units, which clearly stipulated that the people’s Liberation Army
(PLA) should be divided into field units, local units and guerrilla units. The
columns of the field troops were renamed as armies and the brigades were uni-
fied as divisions. There are two levels of command at or above the corps and
field forces, and the below-corps is generally organized in a three-three system.
The designations of all levels above the regimental level shall be arranged in
uniform order according to the PLA. The brigade is the highest combat unit
of the local forces and is subordinate to each military area command. The mil-
itary areas are divided into the first, second and third levels and subdivisions.
A guerrilla unit is still called a column or detachment. In September 1949,
the Common Programme stipulated that the People’s Republic of China
shall establish a unified army, that is, the People’s Liberation Army
and the People’s Public Security Force, which shall be under the
command of the People’s Revolutionary Military Committee of the
Central People’s Government and shall exercise unified command,
system, organization and laws.
Deal with the relationship between centralized power and power
division of local governments.The Common Programme stipulates that
”all local people’s governments throughout the country are subordinate to the
central people’s government.” This system became the fundamental system of
national unification.
Strengthen party leadership responsibility for the work of the
government. On December 1952, Mao Zedong clearly put forward that the
responsibilities of CPC Central Committee and party committees at all levels
of government on the financial and economic work and industrial construc-
tion are: (1) all the main and important guidelines, policies, plans, must be
unified and prescribed by the central party committee, (the party) make the
party’s decisions, instructions, supervise and authorize advises from the rele-
vant authorities and comrades from party groups; the central representative
organs and party committees at all levels shall resolutely ensure the imple-
mentation of all resolutions, directives and decrees of the Central Committee
16 See Office of Party History of the CPC Central Committee: History of the Communist

Party of China, Vol. 1 (1921-1949), Subvol. 2, pp. 771, Beijing, The History of the
Communist Party of China Press, 2011

11
and the Central People’s Government, and formulate their own resolutions
or directives within the scope of not contravening the resolutions, directives
and decrees of the Central Committee, so as to ensure the completion of tasks
assigned by the Central Committee and higher levels. (2) To inspect the
implementation of Party resolutions and instructions.17 The above basic
institutional arrangements have formed the principle of the Party
leading the government and the whole Party subordinate to the cen-
tral committee, which has led to the rapid formation of a system of
political unity, centralized decision-making and centralized power
in China, a country which was very divided.
Establish inner-party supervision mechanism. In November 1949,
the CPC Central Committee decided to establish the Central Commission for
Discipline Inspection with Zhu De as its secretary and the local Party disci-
pline inspection organizations at all levels, whose main task was to examine
and judge violations of party discipline by party organizations, party officials
and party members at all levels.
The system of large administrative regions has been implemented,
established 5 layers of governments: which is province level(43 in 1952),
the prefectural level(259), county level(2762), and township level(275,000).18
After the founding of new China, it was relatively easy to set up the central
government, but the construction of local governments will need a process of
institutional building. A very simple solution used was to establish a system
of government administration by direct reference to the People’s Liberation
Army system. The PLA exercises staffing at its headquarters, field forces,
armies, divisions and regiments in its armed forces, while corresponding gov-
ernments exercise staffing at the central, regional, provincial, prefectural and
county levels. This system transformation greatly reduced the cost
of establishing a new government and reduced the learning process.
It quickly shifted from military management to national and local
governance throughout the country, but it also increased the level
of government management.
Implementing the system of regional ethnic autonomy in areas
inhabited by ethnic minorities to establish a unified and unitary
multi-ethnic state. Mao Zedong and Zhou Enlai put forward the idea of
17 See Mao Zedong: The Party’s Responsibility to Lead the Work of the Government

(December 1952), in Collected Works of Mao Zedong, Vol. 6, p. 252, Beijing, People’s
Publishing House, 1999
18 See Compendia of Comprehensive Statistics of National Economy, National Bureau of

Statistics: Compilation of Statistical Data of 60 Years of New China (1949-2008), pp. 4,

Beijing, China Statistical Press, 2009

12
regional ethnic autonomy and the establishment of a unified republic, instead
of federalism or republic based on alliance.19 New China adopted a unitary
state system and created a new system of ethnic autonomy, which was differ-
ent from the unified multi-ethnic federalism adopted by the Soviet Union in
1922,20 namely the ”pluralistic unity” model. The republics were sovereign
states and reserved the right to withdraw from the Soviet Union. The Com-
mon Programme stipulates that ”all ethnic groups within the territory of the
People’s Republic of China shall be equal”, and the implementation of regional
ethnic autonomy system,21 that is, the ”unity of plurality” model, pluralistic
19 When drafting the Common Programme, Mao Zedong proposed that we should consider

whether to adopt the federal system or the unified republic system and exercise autonomy in
ethnic minority areas. Mao Zedong and the Central Committee of the Communist Party of
China decided to practice regional ethnic autonomy instead of federalism. [see Feng Xianzhi,
Jin Chongji, Editors: Biography of Mao Zedong (1949-1976) Vol.1, page 22, Beijing, Central
Literature Publishing House, 2003] On September 7, 1949, Zhou Enlai in the introduction of
the central committee of the communist party of China about the ethnic regional autonomy
system, said that we advocate for ethnic autonomy, but must prevent the imperialists to
make bad blood within the unity of the Chinese with ethnic problems. (We must) Unite
the ethnics into one big family. Today, the imperialists want to split Tibet, Taiwan
and even Xinjiang. Under such circumstances, we hope that all ethnic groups
will not listen to the provocations of the imperialists. For this reason, the name
of our country is the People’s Republic of China, not the Federation. Although
we are not a federation, we advocate for regional ethnic’s autonomy to exercise
the power of autonomy. (see Selected Works of Zhou Enlai on the United Front page
139-140, Beijing, People’s Publishing House, 1984) In March, 1958, Mao Zedong said: in the
population of the Soviet Union, Russian ethnic accounted for more than fifty percent, the
ethnic minorities accounted for nearly fifty percent, while in China, the total population of
Han ethnicity accounts for 94 percent, ethnic minorities accounted for 6 percent, so China
can’t implement alliance-based republic like the Soviet Union. [see: Mao Zedong’s
Speech at the Meeting in Chengdu (March 1958), Collected Works of Mao Zedong, Vol. 7,
p. 371, Beijing, People’s Publishing House, 1999]
20 In 1922, according to Lenin’s proposal to build a coalition of each sovereign Soviet

republic, which was the Russian Federation, Belarus, Ukraine and the Caucasus Federal, to
form the Soviet Union. In 1924 The first Constitution of the Soviet Union was adopted by
the second Soviet Congress. The Constitution stipulated that the republics were sovereign
states, and that the Soviet Union protect their sovereignty; The republics reserved the
right to withdraw from the Soviet Union; The republics established their constitutions in
accordance with the basic principles of the Soviet Constitution. Later, the Soviet Union
grew to 15 republics, covering an area of 20 million square kilometers. The Soviet Union
formally dissolved in 1991 and was later divided into 15 independent states. Russia now
occupies an area of 17,075,400 square kilometers, accounting for 76% of the Soviet Union
at that time and still ranking first in the world.
21 Article 51 of the Common Programme stipulates, ”In areas where ethnic minorities live

in compact communities, regional autonomy for the ethnic groups shall be exercised, and
various organs of ethnic autonomy shall be established according to the population and
geographical size of the ethnic groups living in compact communities.” Article 53 stipulates
that ”all ethnic minorities have the freedom to develop their spoken and written languages,

13
under the condition of a unitary system. This is an institutional arrangement
that organically combines ethnic autonomy with regional autonomy, which is
conducive not only to ensuring the integrity and unity of the country, but
also to giving play to the initiative of ethnic minority autonomy under the
leadership of the Central People’s Government.
Based on the exploration and practice of the founding process in the initial
stage, Mao Zedong proposed the general route for the transitional period of
”one transformation and three reformation” in 1953. In 1954, the first con-
stitution of the People’s Republic of China, The Constitution of the People’s
Republic of China (1954), formally established and laid the three basic polit-
ical system of the People’s Republic of China, namely, the people’s congress
system, the multi-party cooperation and political consultation system under
the leadership of CPC, national regional autonomy system, successfully es-
tablished a modern state of ”united plurality” in China. It must be
pointed out that in China, unity is the foundation, and pluralism
is based on unity. Look from the history after World War II, the United
Nations was founded with only 50 member countries at the beginning, and
then within 70 years, they divide and evolved into 193 member countries, only
basically developed industrialized countries can remain complete, the vast ma-
jority of developing countries have experienced domestic unrest, civil war and
disintegration of nation, socialist country is no exception, such as the former
Yugoslavia first ”fragmented into five” and then ”cracked into six”, and the
former Soviet Union is ”split into fifteen”, only China and a few countries
maintained national unity.
China’s institutional innovation actually surpassed that of the European
Union, which 50 years later was called ”the strongest economic union with the
highest degree of integration in the world”. It was also a historical choice and
institutional innovation after two world wars and tens of millions of deaths.
However, compared with China’s modern state system innovation of ”unity of
plurality”, the EU is a ”pluralistic unity”, to be exact, it is a ”pluralistic with
half unity”, and pluralism is the basis. EU countries are sovereign states with
the freedom to withdraw, and it is a ”quasi-super state”. The ”unity” of the EU
is a combination of pluralism, market integration and economy integration, but
it’s still ”quasi unity” and ”half unity”, such as the currency is half united (16
countries adopt euro as currency), official language diversification (24 different
maintain or reform their customs and religious beliefs.” [The Common Programme(adopted
at the first plenary session of the Chinese People’s Political Consultative Conference on
September 29, 1949), see Literature Research Office of the CPC Central Committee; Selected
Works of Important Documents since the Founding of the People’s Republic, Vol. 1, p. 12,
Beijing, Central Literature Press, 1992]

14
official languages), political diversification, financial diversification, defense
diversification and diplomatic diversification. Once crisis happens (such as
the international financial crisis), the phenomenon of most countries appear
”opportunistic” and free riding ensues. For example, the Maastricht Treaty,
which came into effect in 1993, stipulates that the fiscal deficit of member
states shall not exceed 3% of GDP and the government debt shall not exceed
60% of GDP. The Stability and Growth Pact came into effect in 1997, proposed
that in 2004, member states shall realize basic balance in finance or achieve
slightly budget surplus, and stipulated that, if member states deficit for three
consecutive years of over 3%, maximum penalty equivalent to 0.5% of GDP
may apply, but most countries in the euro zone have a budget deficit more
than 3% of GDP, and government debt over 60% of GDP. The future does
not rule out the possibility of some countries quit or be expelled from the
European Union, the possibility of EU’s fiscal integration is very small.

1.2 Mao’s important institutional innovation

During the Mao Zedong era, a number of important principles and institu-
tional arrangements took shape within the CPC:

• The organizational principle of whole party obeys the central committee

• The party commands the gun: ensures that the PLA and other armed
forces obey the command of the CPC Central Committee
• Placing cadres under party supervision

These basic systems have been continued to ensure the unity of

the Party, the army and the country. These principles and arrangements
are directly reflected in the party’s organizational structure adjustment and
institutional building, including:
It not only strengthened the political and economic power cen-
tralization of the central government, but also greatly strength-
ened the political leadership of the CPC Central Committee over
the Central People’s Government, forming the unique ”reporting
system” and decision-making system in China. In November 1949,
the Central Committee of the Communist Party of China adopted the Deci-
sion on the Organizing of the CPC Party Committee in the Central People’s
Government and the Decision on the Establishment of Leading Party Mem-
bers’ Groups in the Central People’s Government, which came into force in
all government departments at the central and local levels. It also adjusted
the system of leadership of the CPC Central Committee by setting up the

15
secretary-general of the CPC Central Committee and the regular working
meetings of the secretary-general, which were responsible for assisting the Po-
litical Bureau of the CPC Central Committee and the Secretariat of the CPC
Central Committee in studying and dealing with the daily affairs, which be-
came the transitional form and predecessor of the system of conference work of
the Secretariat of the CPC Central Committee implemented after the Eighth
National Congress of the CPC.
Gradually weaken and abolish regional administrative bodies and
strengthen the central government’s direct political and administra-
tive leadership over provinces and municipalities.In March 1950, the
Administrative Council began to take over part of the region’s financial power
in the Decision on the Unification of National Financial and Economic work.
In December 1951, the personnel authority of the Region was taken in the
Draft Decision on the Restructuring of the Institutional Structure and Com-
pacting of the Quotas. In November 1952, the Central Government decided
to change all the people’s government committees (or military and political
committees) of the major administrative regions into administrative commit-
tees, and designated the administrative and political committees of the major
administrative regions to be the organs exercising leadership and supervision
over local governments on behalf of the Central People’s Government in the
respective regions, and to take the administrative power of the major regions.
In 1953, the CPC Central Committee decided to assign secretaries of central
bureaus, chairmen of regional administrative committees and other leading
officials to work in the Central Committee.22 In April 1954, the Political
Bureau of the CPC Central Committee decided to cancel regional administra-
tive organs; In June, the decision will be implemented by the Central People’s
Government. Accordingly, the CPC Central Committee decided to abolish six
central bureaus and directly lead the party committees of all provinces, au-
tonomous regions and municipalities directly under the Central Government.
This is a major reform of the party and government system.
Adopt the system of unitary state and innovate the system of
ethnic regions. This is different from the ethnic federalism adopted by the
Soviet Union in 1922. In August 1952, the Central People’s Government issued
the Outline for the Implementation of Regional Ethnic Autonomy, establishing
autonomous areas and organs of self-government at different administrative
levels according to the number of people living in compact communities and
the size of their areas. It also stipulates that all ethnic autonomous regions
22 See Pang Song: China in the Mao Era (1949-1976), p. 212, Beijing, The History of the

Communist Party publishing House,2003

16
shall be integral parts of the territory of the People’s Republic of China. The
organs of self-government of the ethnic autonomous regions are under the
unified leadership of the Central People’s Government at the local level and
are subject to the leadership of the people’s government at a higher level. It
clarified the right of self-government enjoyed by the organs of self-government.
This is a kind of institutional arrangement that organically combines ethnic
autonomy and regional autonomy, which is not only conducive to ensuring the
integrity and unity of the country, but also conducive to giving play to the
initiative of autonomy of the local ethnic minorities under the leadership of
the central government. By 1956, two autonomous regions, 27 autonomous
prefectures and 43 autonomous counties had been established. This system
was the institutional innovation of Mao Zedong and others, which greatly
promoted the leaping economic development and social progress of ethnic
minorities, and also ensured the unification of the country and the unity of all
ethnic groups.
The military has also undergone structural reform, with the Central Mil-
itary Committee abolished the six major military commands based on field
armies and established 13 major military commands under the direct leader-
ship of the CMC.
Gradually established a system of hierarchical management of
party cadres. In the cadre and personnel system, implement the principle
of the party shall exercise the power of cadre management. With the military
departments under separate management, all the rest of the cadres shall be
under unified administration by the department of organization of the central
committee and party committee at all levels. In November 1953, the CPC
Central Committee issued the Decision on Strengthening Cadre Management,
proposed to gradually establish a hierarchical cadre management system under
the unified leadership of the CPC Central Committee and party committees at
all levels, and under the unified management of the Organization Departments
of CPC Central Committees and party committees at all levels.
Starting from 1948, with the establishment of PRC in 1949, to 1954, CPC
successfully and swiftly established a basic system of party leads
over the country and military, thus created the most powerful, most
typical centralized political and economic system in China’s history.
Its main features including:
• One single party centralized and controlled national politics
• Central government controls nationwide people,asset, finance and eco-
nomic management
• Military command concentrated to the central

17
 • Unitary politic system, legislative power belongs to the central
Under the leadership of Mao, China realized the transition from Old China
to New China, also accompanied by the transition from a traditional coun-
try to a modernized country, i.e. from divided to united, from ”scattered
like sand” to ”highly concentrated”, from ”numerous factions” to ”centralized
power”. This is what Beiyang Government(1912-1928) and Chiang Kaishek
Government(1928-1949) can not accomplish. The division of country and
”scatter like sand” is the institutional root cause for the downfall of China
in the first half 20 century. The Mao era was the ”most centralized pe-
riod” in China since 1840. It’s under this strong centralized power system
that China is able to mobilize all sorts of social resources and forces from a
backward society background, unite the forces of the entire country to accom-
plish great achievement, realize industrialization under the condition of ex-
treme poverty, urbanization and modernization, and achieved unprecedented
social/economics development. It is all achieved under the Communist Party
of China, especially under Mao Zedong’s correct decision. but this kind
of political system with concentrated power and personal decision
making mechanism have inherent flaws, and it’s this kind of flaw that
leads to the ”Great Leap Forward”, ”Four Purifications”, ”Cultural Revolu-
tion” lines of political movement, and result in the several ”radical rises and
falls” of Chinese economic development.
Party’s leadership system is the foremost of Mao’s institutional inno-
vation, which includes:
• The National Congress of the Party
• The plenary meeting system of the Central Committee
• Plenary meeting system of the Political Bureau of the CPC Central
Committee
• Meeting system of the Standing Committee of the Political Bureau of
the CPC Central Committee
• Meeting system of the Central Secretariat
• Central Commission for Discipline Inspection of the Communist Party
of China
• The Military Commission of the Central Committee of the Chinese Com-
munist Party
Most importantly, it’s under Mao’s creation that the collective leader-
ship system of the CPC Central Committee was established. In 1956,

18
Mao Zedong creatively proposed the creation of the Standing Committee of
the Political Bureau of the CPC Central Committee, and proposed that the
chairman, vice chairmen and the general secretary of the Secretariat of the
CPC Central Committee combined to form this Committee together as the
core of the central leadership.
Mao Zedong believed that a chairman and a vice chairman (referring to
Liu Shaoqi) ”feel lonely” and need to set up several ”windbreaks”. It is easier
to handle, he says, because ”every day has its ups and downs, and people
have their ups and downs”. If only a few people were harmed, or were ill, or
for some reason wanted to see Marx in advance, then there would always be
someone to take the charge, and our country would not be affected, unlike
the Soviet Union, where Stalin could not be brought down after his death.
That’s what we’re going to do. At the same time, add a few more people,
the work will be easier to handle. In particular, he said,this arrangement,
the center’s purpose is for the security of the country, (with) more
people, everyone to take a bit of responsibility. He suggested that the
standing committee (of the Political Bureau of the CPC Central Committee)
be prepared to be made up of the chairman, vice chairman and general secre-
tary. Mao also singled out Deng Xiaoping, then 52, and Chen Yun, then 51, as
”the Young and Strong group”. This arrangement formed two echelons within
the Politburo Standing Committee, within which Deng Xiaoping and Chen
Yun belonged to the ”Young and Strong” echelon that Mao Zedong specially
arranged.23
The seven members of the standing committee of the politburo represents
6 institutions respectively: the Central Committee of CPC, National People’s
Congress, the President, the State Council, People’s Political Consultative
Conference, Central Military Committee. The Standing Committee of
the politburo formed the power core achieving group leadership, personal
labor-division, internal coordination and formation of a combined force.
Mao Zedong’s design is visionary and forward-looking. As the most pop-
ulous country in the world, also a socialist country, if something unexpected
happens to China, it is extremely dangerous to tie the country’s future and
destiny to one or two people. It was precisely because of Stalin’s death and
the succession change that Khrushchev denied Stalin, triggered a huge unrest
within the whole socialist camp, which became an ”eventful autumn”. Mao
Zedong creatively designed this political system, the collective leadership of
the Politburo Standing Committee as the core, to avoid pinning China’s future
23 See Mao Zedong; On the Establishment of Vice Chairman and General Secretary of the

CPC Central Committee (September 13, 1956). Collected Works of Mao Zedong, Vol. 7,
pp. 110-112. Beijing, People’s Publishing House, 1999

19
and destiny on one or two people, including himself.
Mao’s institutional innovation also includes a new socialist national sys-
tem, exemplified by 1954 Constitution. This constitution, according to Mao
Zedong, summed up the experience of constitutional issues since the late Qing
dynasty, also refer to the the good things in the constitution from USSR and
other people’s democratic countries. Mao Zedong also points out that, when
it comes to the constitution, the bourgeoisie had is first. Britain, France,
the United States, the bourgeoisie had their own revolution, and their con-
stitutions were formed in their respective revolution times. We can’t blindly
negate bourgeois democracy completely, and say their constitution have no
status in history. Mao thinks, our constitution is a kind of new social-
ism, different from capitalism. Our constitution is superior to even
their most revolutionary one.24 As a laggard and chaser of moderniza-
tion, (China) have the ”advantage of backwardness”. Here, when making the
constitution of the People’s Republic of China, Mao Zedong consciously or un-
consciously made use of this ”advantage of backwardness”, including, on one
hand, summarizing the experience of positive and negative, progressive and
regressive, and other lessons from predecessors and foreigners (including the
constitution from the Soviet union socialist countries and capitalist countries
such as the United States), on the other hand surpassing the predecessors and
foreigners, thus it is possible to gain advantages in terms of national system
innovation. To this, Mao Zedong was both consciousness and confident, his
conclusion is that China’s constitution is superior to the western constitution.
This bold claim is difficult to be accepted at that time, but under the scrutiny
of practice, history and international comparison, ”Mao’s prophecy” is proven
right. China indeed created an unique socialist national system, which
includes:
Democratic Centralism
Article 3 of the Constitution of the People’s Republic of China stipulates
that the state organs of the People’s Republic of China practice the principle
of democratic centralism. This is neither democracy nor centralism. Only
by combining democracy with centralism can we achieve the goal of political
democracy: ”a lively political situation in which both discipline and freedom,
unity of will and ease of mind are combined”. In this sense, China’s democratic
centralism surpasses western democracy, just as ”walking on two legs” is better
than ”walking on one leg”.
The system of the National People’s Congress
24 See Mao Zedong; On the draft Constitution of the People’s Republic of China (June 14,

1954). Collected Works of Mao Zedong, Vol. 6, pp. 325-326. Beijing, People’s Publishing
House, 1999

20
 In September 1948, Mao Zedong said at the meeting of the Political Bu-
reau of the CPC Central Committee: ”As for the establishment of the system
of people’s congresses at all levels based on democratic centralism ,should the
system of our political power adopt a parliamentary system or a democratic
centralism system? In the past we call it Soviet conference of deputies, but
’Soviet’ literally means conference of deputies, we called ourselves ’Soviet’
and ’conference of deputies’, which become the ’conference of deputies of con-
ference of deputies’. This is dogmatic appropriation of foreign terms. Now
we use the term ”People’s Congress”. We adopt democratic central-
ism rather than bourgeois parliamentary system. The parliamentary system,
as Yuan Shikai, Cao Yin have done, has stinked. It is quite appropriate to
adopt democratic centralism in China. We proposed a people’s congress. Sun
Yat-sen’s will also stated that a national congress should be held. The Kuom-
intang read the will every day, and they could not object this. Neither could
the foreign bourgeoisie, nor did they oppose Chiang Kai-shek’s two national
congresses. Germany and North Korea did the same. I think we can de-
cide this way, and there is no need for a bourgeois parliamentary
system and the establishment of three powers.25 After the founding
of new China, this system officially became the fundamental polit-
ical system of China. It is stipulated in the Constitution of the People’s
Republic of China that all power in the People’s Republic of China belongs
to the people. The organs through which the people exercise state power are
the National People’s Congress and the local people’s congresses at various
levels. The National People’s Congress is the highest organ of state power,
and local people’s congresses at various levels are local organs of state power.
The administrative, judicial and procuratorial organs of the state are all cre-
ated by the People’s Congresses to which they are responsible and under
their supervision. This system is essentially different from the par-
liamentary system commonly used in foreign countries. First, the
parliamentary system is based on parliamentary groups representing different
interest groups. In the system of people’s congresses, there are no parlia-
mentary party groups or sectoral activities. Deputies to people’s congresses
participate in the congresses according to the electoral units (generally orga-
nized according to administrative divisions, except PLA delegations). Second,
the western system usually implements the separation of legislative, executive
and judicial powers. Our country adopts the form of people’s congress and
government, court, procuratorate. Third, members of parliament under the
25 See Mao Zedong; Report and conclusion at the Meeting of the Political Bureau of the

CPC Central Committee (September 1948). See Collected Works of MAO Zedong, Vol. 5,
p. 136. Beijing, People’s Publishing House, 1996

21
parliamentary system are basically representatives of different parties, and
deputies to the People’s Congresses are elected by the people. Fourth, under
the parliamentary system, two or more parties take turns to govern, and the
governing program or policies change in turn. In China, the leadership of the
Communist Party, the participation of multiple parties in politics and politi-
cal consultation ensure the continuity, stability and long-term stability of the
governing program and policies.
PRC Chairman System
The establishment of this system enables the chairman to exercise the func-
tions and powers of head of state, direct the armed forces of the country, and
act as chairman of the National Defense Commission and the Supreme Council
of State. Why does China have the chairman system? This is Mao Zedong’s
design to ensure party and national security. He had an explanation for it:
A President was appointed for the sake of national security. China is a big
country, and the purpose of having a chairman is to make the country more
secure. It is safer to have a speaker, a prime minister and a chairman, so that
all three do not go wrong at the same time. A chairman act as a buffer be-
tween the State Council and the Standing Committee of the National People’s
Congress.26 Mao Zedong personally revised and approved theExplanation on
the First Draft of the Constitution, pointed out that it is completely dif-
ferent from the capitalist countries and the presidential system in
China’s history. The Chairman of the People’s Republic of China is
a symbol of national unity. He is neither the head of the legislature
nor the executive, and has no special powers, but by virtue of his
position and prestige he can make recommendations to the National
People’s Congress, its Executive Committee, and the State Council,
and thus make his contributions to the state. The chairman of the Peo-
ple’s Republic of China was originally established by the 1954 Constitution.
The President is an independent state organ in the political system. He is
both the representative and the symbol of the state.
Due to the political reasons of the ”Lin Biao incident”, the 1975 Consti-
tution abolished the Chairman of the state setting.
The Constitution of 1982 provided for the restoration of the Chairman of
the People’s Republic of China, whose main power and functions are: work in
accordance with the decision of the National People’s Congress and the stand-
ing committee of the National People’s Congress’s decision to publish the law;
to appoint or remove premier, vice-premiers and state councilors, ministers,
26 See Fuxian zhi, Jin Chongji, chief editor; Biography of Mao Zedong (1949-1976), Vol.1,

p.324, Beijing, Central Literature Publishing House, 2003

22
commissions, the auditor-general and the secretary-general; awarding the state
medals and titles of honor; give orders on amnesty; declare martial law; de-
clare a state of war; issue a mobilization order, send and recall diplomats;
approval and abolishing treaties and important agreements concluded with
foreign countries; and on behalf of the state to accept foreign diplomats. The
Chairman and Vice-Chairman of the People’s Republic of China are
elected by the National People’s Congress and must be subject to
its supervision. The activities of the Chairman are carried out in
accordance with the decisions of the National People’s Congress and
its Standing Committee. Thus, the Head of state system in China
is collective, exercised by a combination of the Chairman and the
National People’s Congress and its Standing Committee.
State Council System
State Council is the highest administration institution, established the cen-
tral unilateral government system. The State Council’s collective conference
and standing committee conference is directed by the premier, undertakes
the everyday administrative works of the government, and guides all levels
of local administrative bodies. Local governments are national administrative
institutions under the central leadership of the State Council, responsible and
report to it’s corresponding level of People’s Congress and higher level admin-
istrative institutions; all departments in the local governments are under the
supervision of their respective level of government, also under the leadership
of respect departments in higher-level government(until the State Council).
Thus formed the unique China administrative leadership system of ”vertical
leadership” combined with ”double leadership”.
As put forward by Mao in On the Ten Major Relationships, 1956: Cen-
tral departments can be categorized into 2 types. First type, their leadership
can extend to enterprises, they’re established locally and supervises local in-
stitutions/enterprises. Another type of departments’ task is to giving out
guidelines, working tactics, but the proposed guidelines still need to be imple-
mented locally. As stated in the constitution, the legislation power belongs to
the center, but local’s power to propose rules and regulations (based on their
local needs) are not forbid by the constitution. 27
Thus formed the unique system of ”centralized power” combined with
”decentralized power”. ”Centralized power” is established because to build a
strong socialist country, the strong unified leadership of the central is a must,
the whole country must obey the unified planning and unified discipline. ”De-
27 See Mao Zedong: On Ten Major Relations (April 25, 1956), Collected Works of Mao

Zedong, Vol. 7, p. 32, People’s Publishing House, Beijing, 1999

23
centralized power” is needed because under the premise of central leadership,
expand the power of local levels to give them more autonomy, let local do more
works is more helpful for building a strong socialist country. Mao’s conclusion
is: ”Our country and population is that big, the situation is that complex,
having both ’enthusiasm’ from the central and local is better than having only
one ’enthusiasm’”. But Mao also conceded that on the central-local problem,
we don’t have enough experience, we must summarize the experiences after
every period, to promote the good and overcome deficiencies.28
Later, from the perspective of actual practice, the two enthusiasm can
be further extended to ”the central as leadership and the local as the main
body”. The central leadership means the central government’s leadership,
guidance and instruction to local governments. By local as the main body,
it means that they are the implementer of the central government’s decisions
and assume overall responsibility for local affairs. This constitutes the incen-
tive compatibility mechanism between the central government and the local
government: on one hand, it is the ”great unification” of the whole country,
avoiding ”disunity and fragmentation”, and meanwhile maintains ”unification
without rigidity”. On the other hand, it is the assertion of ”legitimate inde-
pendence” of local governments that allows them to exercise their autonomy,
initiative and creativity, while keep it ”lively but not disorder”
In addition, there is the system of the National Committee of the Chinese
People’s Political Consultative Conference, the system of the Central Military
Commission, the central judicial system (e.g., the Supreme People’s Court,
the Supreme People’s Procuratorate), etc.
Why China can’t implement western-style democracy? This is an
old problem as well as a new one. Mao Zedong answered this question as
early as 1949, when he called the relationship between the West and China
a ”teacher-student” relationship. Imperialist aggression, he said, had broken
the Chinese dream of learning from the West. It’s very strange why teachers
always invades the students. The Chinese learn a lot from the West, but it
doesn’t work. The ideal always fails to come true. Many struggles, including
national-scale movements like the 1911 Revolution, failed. The condition of
the country is getting worse day by day, and the condition is barely keeping
people alive. That’s when doubts arose, grew, developed. He added that the
bourgeois civilization of the West, the bourgeois democracy, and the bourgeois
republic system were all ruined in the eyes of the Chinese people. Everything
else has been tried and failed.29 That is why the new China established by
28 See Mao Zedong; On Ten Major Relations (April 25, 1956), see Collected Works of Mao

Zedong, Vol. 7, pp. 31-33, Beijing, People’s Publishing House, 1999

29 See Mao Zedong; On the People’s Democratic Dictatorship (June 30, 1949). Selected

24
Mao Zedong is not a bourgeois democratic republic but a people’s democratic
republic.
It can be seen that the basic system of modern China was estab-
lished in the Mao Zedong era, which not only removed the founda-
tion of the old China, but also established the foundation of the new
China. Mao Zedong realized the goal of the modern state system
of ”building the house by laying the foundation first” for the new
China. As a new socialist system, the basic system of modern China is not
perfect, and there are still many ”defects” and ”loopholes”, and it is even in-
fluenced by the old system, old ideas and old consciousness in a long-term and
subtle way. In addition, the establishment of a new institutional system also
has a problem of how to implement, how to execute and how to improve. Un-
fortunately, Mao in his last years didn’t uphold some of those systems, even
violate or destroyed some of them, like Central Cultural Revolution Meet-
ing replaced Central Politburo, Standing Committee of Politburo and Central
Secretariat; NPC, National Political Consultation, and all Central Committee
of those democratic parties stopped working; and the national chairman sys-
tem is temporarily abolished. This one important factor of Mao’s mistake in
his last years. As the CPC Central Committee pointed out in its Resolution
on Some Historical Issues Concerning the Party since the Founding of the
People’s Republic of China in 1981, China has a long history of feudalism,
it’s still not easy to clear up the ideological and political legacy of long-term
feudal autocracy in China. For various historical reasons, we have not been
able to institutionalize and legalize inner-party democracy and democracy in
the the political and social life of the country, or, although laws have been
made, but not properly enforced by relevant authority. Thus the ”Great Leap
Forward” and the ”Cultural Revolution” caused major setbacks. All these
expressed the long-term complexity and twist and turns of the building of a
Chinese modern national system. Which, is connected to both objective fac-
tors of domestic/international affairs changes and subjective judgments of the
leadership.

1.3 Mao’s mistake in his last years: problem of gover-

nance but not system
skipped paragraphs promoting a dialectic materialistic analysis of Mao’s achieve-
ments and mistakes, asserting Mao’s contribution greatly overweight his mis-
Works of Mao Zedong, 2nd Ed., Vol. 4, pp. 1470-1471. Beijing, People’s Publishing House,
1991

25
takes.
…Mao’s mistake isn’t his creation and development of the new China so-
cialist system, but in his policy during the practice of exploring the socialist
path.
The failure of ”Great Leap Forward” and ”Cultural Revolution” is not the
failure of socialist system per se, but mistake of leader’s subjective judgment;
not a failure of the socialist path, but a subjectivism mistake that’s a rush
for quick result, disregard of the national condition, overwhelmed national
capability. The party center has introspected over these multiple times.
…thus to inherit the Mao era, we must inherit the basic socialist system
created and leaded by Mao. The counterexample being the USSR reform: its
failure is an failure of subversive mistake, Gorbachev promoted presidential
system, gave up the leadership of communist party, established multi-party
system, disbanded CPSU as the CPSU chief secretary himself, announced the
disintegration of USSR as the first USSR president, ”one divide into fifteen”.
Russia becomes a second-tier country, is because the fundamental change in
basic system. USSR’s failure is in system, but not governance.
Resolutions for Certain Historical Issues of the Party Since the Establish-
ment of the PRC 1981 publicly announced:”Our party dares to face up to and
correct our mistakes, have the resolution to prevent the severe mistakes from
happening again. Seeing the problems from a long-term historical perspective,
the mistake and setback of our party is temporary phenomenon in the end.
But the experience our party and people get from these, the further matu-
ration of backbone teams formed during long-term struggles, our country’s
socialist system’s superiority becoming more prominent, and party, military,
people’s will wanting a more prosperous home country, remains the determin-
ing factors in the long run.”. After that, three decades of reforming practice
proved that, the decisive factor of China’s socialist modernization indeed is
those long-term factors, and the influence of mistakes gradually fades.
”Cultural Revolution” is the direct cause of Deng’s pushing for open and
reform, which becomes the root cause for China’s social/political stability
after 1978. We need to point out that not only Mao’s mistake in his late years
contributed to Deng’s success, the more prominent being Mao’s success and
correctness, i.e. Mao Zedong Thought, is the mother of Deng’s success too.
”Seek truth from fact” is the living soul of Mao Zedong Thoughts, and Deng
revived and uphold Mao’s thought, to promote ”liberation of thoughts”. Open
and reform, is and development of Mao Zedong Thought.

26
1.4 Deng Xiaoping: Rework of the party and national
basic system
1.4.1 Choices between three paths after ”Cultural Revolution”
Where should we go after Mao era?
3 choices lay in front of Chinese leaders:
One of which is the old way: ”Following the old guideline”, i.e. stick
to the ”Two Whatevers”30 , keep walking the old dogmatic socialist way. Rep-
resentative figure of this choice being successor appointed by Mao personally,
Hua Guofeng; and the man behind Mao: Wang Dongxing. The struggle
between ”Cultural Revolution” leaders leaded by Hua and reformist leaders
leaded by Deng is exemplifying the struggle between the old path or finding a
new path for socialist open and reform. Actually, when Hua declared the end
of ”Cultural Revolution” started and leaded by Mao, this already means the
failure of the ”old path”, also provided political condition for Deng to push
for a reformist new path.
Second choice is the evil way:Renounce the socialist path, imitate and
turn to ”Western Path”. Because Chinese socialist revolution and construc-
tion was faced with a major setback, some voiced for a complete change to
western capitalism path. Because the governance of CPC made some big mis-
takes that were not curbed soon enough, some think we should abolish the
leadership of CPC and adopt a western democratic politic system. Because
the mistake of Mao in his late years, some says we should give up on Mao
Zedong Thought and establish western liberalism. Because ”purist” social-
ism is unsustainable, some thinks we should walk the western capitalist path.
Just like Deng pointed out, there’s a trend in China after the destroying of
the ”Gang of Four”, named capitalist liberalism that worships ”democracy”
and ”freedom” of western capitalist countries meanwhile renounces socialism.
Only few elites hold this position, and gained support of some leaders and
very few party members. They called themselves ”reformist” and have sup-
port from European and US medias, which called them ”Chinese democratic
faction”. Deng openly rejected this proposition by very few people to walk
the evil path of capitalism, and prevented ”big collapse”, ”big disintegration”
and ”big recession” happened in socialist countries like USSR, Yugoslavia and
Czechoslovak.
Last choice being the new way:The path to socialist modernization
with Chinese characteristics created by Deng. While upholding the basic
30 translator’s note: ”Whatever Mao decides, we uphold with resolute, whatever Mao put

forward, we follow it to the end”

27
socialist politic orientation, reform the highly centralized planning based eco-
nomics and political system under gradualism, spontaneously open to the
outside world, and create a new path for China development. …this new path
didn’t start automatically after ”Cultural Revolution” ends, it still need to
undergo a complex and peaceful political struggle within the Party Central
Committee, for the old path to be transformed into new path. The historical
starting point of the new path is the third plenary session of the eleventh
central committee 1978 Dec.

1.4.2 Restoration of the Party and country’s basic system

1981, the Party Central Committee:Resolutions for Certain Historical Issues
of the Party Since the Establishment of the PRC:
gradually building a highly democratic socialist political system,
is one of the basic tasks of socialist revolution. (We) didn’t em-
phasize the importance of this task, which becomes one important
condition for the happening of the ”Cultural Revolution”, this is
a painful lesson. For this reason, Deng Xiaoping introspects over
this past pain as a warning for the future, put gradually building a
highly democratic socialist political system as the most important
political mission.
Thus, China’s reform(including economic system reform and political sys-
tem reform) shows a strong characteristic of being an ”insider’s” reform, but
not an ”outsider’s” reform.
Revise of Constitution of the Communist Party of China(1977)

• Disciplinary action against central committee member must be decided

by the central committee or politburo
• Restored the principle of ”Centralism based on democracy and democ-
racy under the guideline of centralism”
• Stipulated that CPC member and its organization must operate within
the rule of constitution and law
• Canceled ”position for life” that exists.

Rebuild the central leadership institutional system(1980)

Institutionalize the Secretariat of the Central Committee. Formed a 3-
level leadership system consist of the Secretariat of the Central Committee,
politburo and the Standing Committee of politburo. This decentralized power

28
within the party. the Secretariat of the Central Committee works in the
first line, serves as the common working institution under the leadership of
politburo and its standing committee. This restored the leadership system of
the Eighth CPC Central Committee(1956)
Establishment of the Commission for Discipline Inspection of the
Central Committee of the CPC(1979)
Strengthen the construction of inner party system.
• Basic mission of CDI31
• 8 principle of discipline inspection of the party
• Some principles of inner party political life
• Cruel struggle and merciless attack are not allowed within the party
• Stipulated ”Adhere to collective leadership and oppose individual arbi-
trariness” as one of the highest principle of party’s leadership

Adjustment of State Council membership(1978-1980)

names comes and goes
Advocating cadres to be younger, more knowledgeable and pro-
fessionalized(1980)
Restore and reinforce socialist legal system(1978)
Sept. 1979 Instructions on firmly ensuring the effective implementation of
criminal law and Criminal Procedure Law: All legal systems, from the Party
Central Committee to every Party member, must be firmly observed. There
must be no special citizens who are not bound by the law, and no privilege
above the law.
Revise the constitution, rebuild national leadership institutions
including the NPC(1977)

• Passed 1977 constitution

• Reinstitute Central Procuratorate
• Restore local People’s Congress and government system

Streamlining the party and government structure(1980-1982)

downsize, younger workforce
Reinstitute the Chinese People’s Political Consultative Confer-
ence institution(1977-1978)
31 1978 Jan.4 Speech at the first plenary session of the Central Commission for Discipline

Inspection:”Uphold party’s rules and laws,Rectifying the party’s work style”

29
 Reinstitute of other social institutions Unions, Youth Communist
League, Women’s Federation, etc.
…after the ”Cultural Revolution”, China gradually enters a peaceful, united
politic atmosphere.

1.4.3 Political system reform in early 80s

(Deng)…He clearly realized that copying the experience of other countries and
the model of other countries will never succeed. He clearly put forward ”take
our own road and build socialism with Chinese characteristics.”32
After Mao Zedong, Deng Xiaoping carried out the second national system
construction and system innovation. On the one hand, we should rebuild the
basic system of the party and the state. On the other hand, he took a pro-
gressive approach to reform and innovate in view of the shortcomings of the
old economic and political systems. This not only ensures that China takes
the lead in launching economic reform in socialist countries, and takes the
lead in opening up to the outside world among major developing countries,
and successfully creates the ”China Road”, but also ensures that this road will
always advance in the socialist direction.

(1)The construction of the ruling party system: Governing the party

according to the Party Constitution
Formulate Constitution of the Communist Party of China
The Constitution of the CPC enacted in 1982 is an important symbol of
the institutionalization of the Communist Party of China. It answers a series
of fundamental questions: after the Party comes to power, what is its position
in a socialist country? What is its main mission? What does it do?
”Institutional Reconstruction” after 1982
To study, draw on and absorb the Party system formally established by
the Eighth Congress of the Party in 1956; Introspection and absorb the his-
torical lessons of Mao’s destruction of the system in his later years; In light of
the changing environment, exploring and innovating new systems for effective
party governance is itself a practical process of political reform
The holding of important party conferences was institutionalized
The National Congress of the Party is held regularly and defined the im-
portant functions and powers of the Congress. The party Central Committee
shall be reappointed to a five-year term of office. Plenary sessions of the Cen-
tral Committee were institutionalized. The central leadership adopts a term
32 Opening speech of the 12th National Congress of the Communist Party of China

30
guarantee system. The Party constitution makes it clear that no one in the
party is allowed to make ”special exceptions” and that all leaders are equal
before the rules.
Re-configuring the power structure of the Party and the state
Speed up the replacement of the old with the young, implement collective
term handover. …The party constitution abolished the lifelong system and
implemented the normal retirement system. Promote the party’s leaders to
be revolutionary and younger.

(2)Construction of modern state system: governing the country

according to the Constitution
Throughout revise of the constitution
Comprehensive revision of the constitution to make it the fundamental law
governing the country. From the historical process of constitutional amend-
ment since the founding of the People’s Republic of China, it has gone through
a process of affirmation, negation and re-affirmation.
Peng Zhen directly took charge of the revision of the Constitution. He
presided over the meeting of the Working Group of the Secretariat of the
Constitution Revision Committee and was responsible for the drafting work.
When drafting the revised draft of the Constitution, Peng Zhen emphasized
that ”the general guiding ideology is the four basic principles”, and personally
drafted the preamble of the Constitution, summed up the experience and
lessons since the founding of the People’s Republic of China, conducted in-
depth research and discussion on the specific political system and reform of
the political system of the country, and carried out long-term design.
From a historical perspective, China is an ancient civilization but a young
modern country. We can make full use of the advantages of being a latecomer
and draw extensively on the experience of other countries in formulating con-
stitutions. We can formulate a more modern constitution that is more in line
with China’s national conditions and innovate a more modern state system.
The historic significance of the constitution is that it laid a systematized
framework and foundation for China’s reform and opening up, to avoid chaotic
political anarchy similar to the ”Cultural Revolution”, ensure China’s political
stability and social stability, ensure the reform and opening up of China is in
the framework of the constitution along the orbit of democracy and the rule
of law. The Constitution has also been amended in a timely manner as China
continues to absorb new experiences and achievements in the process of reform
and opening up.
Strengthening the NPC and its Standing Committee
After the formulation of the Constitution in 1982, the NPC’s status of ”the

31
highest organ of national power” was established. NPC decide on major issues,
elect, appoint and remove leaders of state institutions in accordance with the
power vested in it by the Constitution, expanded the standing Committee’s
functions and power, meanwhile strengthen the organizational construction…
It has gradually changed the way that the Party leads or manages all state
affairs, shifted to the way that the Party’s leadership is limited to ”political
leadership” (i.e., leadership on political principles, political directions and ma-
jor decisions at home and abroad), and carried out state governance through
state institutions (including the National People’s Congress and the State
Council).
Restoration of the chairman system and institutionalized Na-
tional Military Committee’s chairman system
On March 18, 1981, Deng Xiaoping proposed that the post of President of
the State should be restored. China is a big country. Having a President is
good for the country. In November 1982, Peng Zhen pointed out that prac-
tice since the founding of the People’s Republic of China has proved that the
establishment of the President is necessary to improve the state system and
is in line with the habits and aspirations of the people of all ethnic groups
in China. Peng Zhen also pointed out that the Central Military Commission
should implement the chairman responsibility system. The CMC chairman
is elected by the NPC and is responsible to the NPC and its Standing Com-
mittee. After the founding of the People’s Republic of China, the People’s
Liberation Army, created and led by the Communist Party of China, is the
army of the state. This aptly defines the role of the army in the national
system.
Strengthening the system of political consultation
1983 Jun. Peng Zhen: Since 1954, there has been a question whether the
CPPCC is an upper house. At that time, Mao and Liu Shaoqi both said
that the CPPCC was not the Upper house. We are not binary, but unified,
with power concentrated in the People’s Congress. What good is it to divide
people’s power, to engage in pluralism, to discuss without decision, or to make
decisions without doing anything? Being unified, what the National People’s
Congress has decided will be carried out resolutely, simple and clear. The
bicameral system, which divides the power of the people into two parts, is
asking for trouble. It does no good, only harm. What would our country be
like if, as in capitalist countries, all parties took turns to hold the throne, you
came to power, I work as an opposition party against you, I came to power,
you work as an opposition party against me? How does the country stay
stable? How to maintain policy continuity? The people’s congress, with its
modernization and the leadership of the Communist Party, can maintain the

32
unity and stability of the country. It was the political creativity of Mao Zedong
and Liu Shaoqi not to adopt bicameral system. It also left a deep historical
memory, which later became the political consensus of Deng Xiaoping, Peng
Zhen and others.
Reforming political institutions
The state Council was reduced from 13 vice-premiers to two, and the
post of State Councilor was created. The 98 ministries, commissions, directly
affiliated institutions and offices were reduced or consolidated into about 52.
Of these, 52 ministries and commissions were restructured to 39, 41 agencies
were cut down or restructured to 10, and 5 offices reduced into 3.
Establishing a normal retirement system
In February 1982, the Central Committee adopted the Decision on the
Establishment of a Retirement System for Veteran cadres, stipulating that
vice-provincial and vice-ministerial-level officials should retire at the age of
60, and provincial-level officials at the ministerial level should retire at the
age of 65.

The political structural reform in the first half of the 1980s was the recon-
struction of the ruling party system based on the Party constitution and the
reconstruction of the modern state system based on the Constitution. The
reconstruction of these two systems is complementary and path-dependent,
inheriting the historical experience of the Party constitution and constitution
in the 1950s rather than referring to the western political parties and national
political systems. It is more about ”fixing” than ”starting over” the ills of
the Mao-era system, and it is more about internal political consensus than
artificial widening of political divisions.
The political system reform in the first half of the 1980s was adaptable
to China’s national conditions, practical in practice and agile in adjustments,
prevented the political system from falling into a historical vacuum. They
are not necessarily the best models, but the most appropriate models. They
are not radical but gradualist reforms, which have greatly promoted China’s
political change and ensured its political stability.

1.5 Jiang Zemin, Hu Jintao: Consolidate and completion

of socialist basic system
Jiang Zemin is the defender and successor of the China path pi-
oneered by Deng Xiaoping. Jiang Zemin properly handled all kinds of
contradictions after the large-scale unrest, so that China soon entered the

33
”great peaceful governance of the state” and maintains it till now; In the
face of severe challenges, such as the severe twists and turns of world socialist
movements, the drastic changes in Eastern Europe, the ”seven divisions” of
Yugoslavia, the collapse of the Soviet Union into the ”fifteen divisions”, and
western countries led by the United States imposing sanctions on China, ”We
have safeguarded socialism with Chinese characteristics.”
During this period, (we) strengthened and improved the basic socialist
systems, such as the system of people’s congresses, the system of multi-party
cooperation and political consultation under the leadership of the CPC, and
the system of regional ethnic autonomy. We established and formulated the
objectives and basic framework for the reform of the socialist market eco-
nomic system, and innovated and improved the basic economic system in
which public ownership plays a dominant role and economic entities under
various forms of ownership develop side by side, and the distribution system
in which distribution according to work plays a dominant role and multiple
modes of distribution coexist. We made innovations in and implemented the
tax distribution system between the central and local governments, which
greatly increased the country’s ability to absorb fiscal resources, strengthened
and improved the macro-control system, maintained economic stability, im-
plemented the policy of ”expanding internal pressure”, and successfully dealt
with the Asian financial crisis. Put forward and implemented two ”fundamen-
tal transformations” of economic system and economic growth pattern, put
forward and implemented two strategies of ”rejuvenating the country through
science and education” and ”sustainable development”; According to Deng
Xiaoping’s ”two big situations”, the strategic decision of ”western develop-
ment” was made, and a large number of infrastructure and ecological protec-
tion projects were built. We resolutely decided that the army, armed
police force, political and legal organs would no longer engage in
business activities, and that Party and government organs will be
detached from operational corporations, and that major decisions such
as separating income from expenditure, bidding for projects, and government
procurement would be implemented, in an effort to prevent and curb corrup-
tion at its source33 . We made the decisive decision to join the World Trade
Organization, ushering in a new phase of opening up and integrating into the
world economy. The second strategic goal of China’s modernization drive was
realized as scheduled. The people in China lived a moderately prosperous
life, and China made historic progress in reform, opening up, and socialist
33 see Jiang Zemin’s speech on the ”Three Lectures” by the Standing Committee of the

Political Bureau of the CPC Central Committee (January 20, 2000),Selected Works of Jiang
Zemin vol. 2, p. 550.

34
modernization.
During this period, the Party central Committee was very sober and re-
sisted all kinds of ideological trends of capital liberalism. To resist the west-
ernization and differentiation of hostile international forces and prevent large-
scale unrest like the political turmoil of 198934 ; It is clearly stated that we
should never diversify on guidance thinking, adhere to and strengthen Marx-
ism’s guiding leadership in the field of ideologies;We must uphold the dom-
inant position of the public sector of the economy, make it clear that
we must not engage in privatization, and oppose any individual’s public ad-
vocacy of privatization. We should resolutely resist such erroneous political
views at home and abroad as ”de-party-ization”, ”de-politicization” and ”na-
tionalization” of the armed forces. We dealt decisively with the Falun Gong
incident and resolutely fought against separatist forces such as ”Tibet inde-
pendence” and ”Xinjiang independence”. China will adhere to the principle of
”two-for-two, struggle and cooperation with western countries, and promote
cooperation through struggle”, so as to ensure that China will always continue
to reform, open up and advance along the socialist road.

Hu Jintao is the China’s road’s upholder and re-innovator. Con-

tinues innovation on ideas, practice, theory and systems. Especially the in-
novative concept of scientific development, making it the guiding ideology for
the ”Chinese way”, completed the 21st century China’s socialist moderniza-
tion ”five in one” overall object, made China rapidly growing into the second
largest country in economy, science, technology and overall power, and greatly
reduced the relative gap with the United States, which also fully shows the
unique feature of ”Chinese way”, and its success. The report to the 18th Na-
tional Congress of the CPC is a historic and innovative integration of the
practice, theories, viewpoints and strategies of the ”China path”. (We) have
expounded the problem of what is China’s path. Road to socialism with Chi-
nese characteristics is under the leadership of the communist party of China,
based on the basic national conditions, taking economic construction as the
center, adhere to the four cardinal principles, adhere to the reform and opening
34 Jiang pointed out that the central politburo standing committee believe that as long as

we always adhere to the leadership of the communist party of China, execute the correct
route policies, the country’s economic development, people’s living standards continue to
improve, events on the scale of 1989 unrest can be avoided, [see Jiang Zemin: speech on the
”Three Lectures” by the Standing Committee of the Political Bureau of the CPC Central
Committee (on January 20, 2000), as shown in the Selected Works of Jiang Zemin, volume
2, page 553]

35
up, the liberation and development of social productivity, the construction of
the socialist market economy, socialist democracy, an advanced socialist cul-
ture and a harmonious socialist society, the socialist ecological civilization,
promote people’s all-round development, gradually achieve common prosper-
ity for the all the people, a prosperous democratic, civilized and harmonious
modern socialist country. How should China explore its path? There is no
precedent for building socialism and achieving modernization in a big country
with a population of over one billion, let alone any successful experience to
draw upon. We can only rely on China’s independent practice and creative
exploration. The construction of socialism with Chinese characteristics is in
essence an exploration of China’s modernization path and a transcendence
of the western modernization model. This is to constantly draw on the best
and discard the dross from the modernization path of the western developed
countries, and to constantly sum up experience from China’s modernization
process. In the face of various difficulties, risks and crises, we have constantly
tried and corrected our mistakes, it’s a process of constantly finding the better
alternative. We did something right on our ”China’s path”, then we should
stick to it.
Different paths lead to different results.
International climate, i.e. the western leading the tide of political democ-
ratization, economic privatization, and ideology, culture under the dominance
of western. That affect not only China, but also greatly influenced the Soviet
union and eastern European socialist countries, diverted these countries into
the great transition, given up the socialism direction, to take the capitalist
road, and then into a big crash, big disintegration and big recession.
Here we take China and Russia as examples to see the different results of
their different paths. In 1990, Russia, still in the Soviet system, accounted
for 2.4% of the world’s GDP, higher than China, which accounted for 1.6%
of the world’s GDP at that time. China’s GDP was only two-thirds that of
Russia. The Soviet Union was the world’s third-largest economy, after the
United States and Japan (which overtook it to become the world’s second-
largest economy in 1968). Yeltsin put forward a westernized ”Democratic

36
Platform” and quit the CPSU35 , later won the Russia election36 , got onto
the Time front cover instantly, the title being ”Russian Revolution”. In late
1990, Gorbachev won the Nobel Peace Prize, and shortly after he announced
the disband of the Soviet Communist Party and the disintegration of the
Soviet Union. Under Yeltsin, Russia’s GDP share in the world continued to
decline, reaching a nadir of 0.6% in 1999, while China’s rose to 3.5% in the
same year, equivalent to 5.8 times Russia’s. In 2011, Russia accounted for
the proportion of total world GDP increased to 2.7%, only 0.3% higher than
in 1990, China has reached 10.4%, equivalent to 3.9 times that of Russia.
According to Sorokin, deputy director of the institute of economics in the
Russian academy of science, calculated at comparable prices, sets the data
of GDP in 1991 to 100, by 1998 GDP was only 60.5, down nearly 40 points,
that’s a far worse decline than the 20% decline in Soviet GDP during World
War II. The GDP growth index of Russia only reached 118.0 in 2011, and the
average annual GDP growth rate from 1998 to 2008 was 6.8%, half of which
was caused by the sharp increase in international energy prices. By 2011, the
GDP growth index in comparable prices was only 18 percentage points higher
than that in 1991, the per capita income was 25 percentage points higher, and
the industrial added value was less than that in 1991.
This shows that the reform in Russia, whether economic reform or polit-
ical reform, is a typical process from the old road involuntarily into the evil
road. First they push political openness, ”political democratization”37 , then
full privatization. The result has been a free fall from the world’s third-biggest
economy to a second-tier economy with a historically low share of world econ-
omy. This reflects the fact that in the fierce international competition of
35 In January 1990, Yeltsin (then alternative member of the Political Bureau of the Central

Committee of the Soviet Communist Party, the first secretary of the Moscow Municipal
Party Committee) formed the ”democratic platform” within the Soviet Communist Party.
In July of the same year, at the 28th Congress of the Communist Party of The Soviet Union,
the ”Democratic Platform” openly proposed that the Communist Party of the Soviet Union
should give up Marxism-Leninism as the guiding ideology of the Party, give up the struggle
goal of communism, give up democratic centralism, and transform the Communist Party of
the Soviet Union into a social party. They also strongly advocate the abolition of primary-
level Party organizations in the army, political departments and state organs. Not all of
these propositions of Yeltsin and his ”democratic platform” were fully accepted by the
congress, so Yeltsin publicly announced his withdrawal from the Soviet Communist Party
at the end of the conference.
36 On 12 June 1991, The Russian presidential election was held and Yeltsin was elected.
37 Here ”political democratization” refers to the Soviet Union and the East Europe during

the period of upheaval, the Soviet Union and the East European countries blindly imi-
tated the western political system, gave up the socialist democratic political system, and
implemented western-style parliamentary democracy system

37
economic globalization, if one does not advance, one will inevitably fall back.
To retreat is to go backwards in history, and any country taking a wrong path
will have disastrous consequences. The former Soviet Union (Russia) is a good
example of what not to do.
In China, by contrast, major economic indicators have continued to grow
substantially. It can be seen that different paths lead to different outcomes.
Is that why we call it the China’s road the ”Correct Path”.

1.6 Summary: ”China’s road” better than ”Western road”

This chapter mainly discussed the construction process of a modern ruling
party and a modern state system since the founding of new China. In general,
China has experienced several stages of development: the first stage is Mao
Zedong as the main representative of the Chinese communists who leaded the
innovation of the basic system of the People’s Republic of China, first they
achieved national unity from a divided country, then innovated a modern
ruling party system based on the Constitution of the CPC(1956), created a
modern state system based on the Common Programme(1949), the Constitu-
tion of the People’s Republic of China (1954),which laid the foundation system
of contemporary China.
The second stage, the Chinese communists represented by Deng Xi-
aoping is not only the designer of reform and opening up, who also serve to
rebuilt the systems, which was exemplified in the Constitution of CPC(1982),
the Constitution of the People’s Republic of China(1982), especially the basic
system of democratic centralism, meanwhile reformed the political systems
from a pragmatic perspective, eliminated all sorts of malpractices. He has
made a significant contribution to the construction of China’s national sys-
tem.
In the third stage, the Chinese Communists with Jiang Zemin and Hu
Jintao as the main representatives consolidated and improved the basic social-
ist system, established and improved the basic socialist economic system and
the distribution system, as well as various specific guidance on these systems.
It is on the basis of more than 60 years of national institutional construc-
tion, with the third Plenary Session of the 18th CPC Central Committee as
the symbol, China has entered a new stage of modernization of national gov-
ernance system and governance capacity, and realized the institutionalization,
standardization and procedure of governance of various affairs of the Party,
state and society. This also shows that China’s socialist system has formed
a unique ”China’s road” through the historical process of continuous inno-
vation, continuous construction, continuous trial and error and continuous

38
improvement.
As Deng Xiaoping said, ”What we really need to do now is to accelerate
the development of production force through reform, adhere to the socialist
road and prove the superiority of socialism with our practice. It will take two,
three or even four generations to achieve this goal, and then we will be able
to say with real facts that socialism is superior to capitalism.”38
The ”China’s path” is the path of socialism with Chinese characteristics.
It is the only way to realize the ”China’s dream” and the great rejuvenation
of the Chinese nation. Only by adhering to the path of socialism with Chi-
nese characteristics can we ensure the people being the principal part of the
great rejuvenation of the Chinese nation and ensure that the fruits of the re-
juvenation of the Chinese nation will be Shared by all Chinese people. And
only adhere to the socialist road with Chinese characteristics, can we ensure
the adaptability of China’s political system to the situation of China and the
superiority over the western system, safeguard the steady progress of national
modernization, realizing the rapid surpassing of the developed world and be-
yond. The road of socialism with Chinese characteristics is the ”Correct Path”
for achieving complete modernization, and is the only way for achieving the
great rejuvenation of the Chinese nation.
China’s road is very unique in the entire human history, which didn’t
walked the old way of the west, crawling step by step after others. We suc-
cessfully caught up with developed countries(especially the United States),
more importantly, we transcend beyond the western model, innovated our
own path.
The ”China’s road” is constantly verifying the ”Deng Xiaoping prophecy”,
which is why the ”China’s road” is superior to the ”Western road”. As Com-
rade Xi Jinping has said, ”We have an incredibly broad stage to follow our
own road, with an incredibly profound historical background, and with an
incredibly strong determination to move forward.”39

38 Deng Xiaoping, Our undertaking is a brand new undertaking (October 13, 1987), see

Selected Works of Deng Xiaoping, 1st Ed., Vol. 3, pp. 256, Beijing, People’s Publishing
House, 193.
39 Xi Jinping,Speech at the conference commemorating the 120th anniversary of The birth

of Mao Zedong, Beijing, Xinhua News Agency, December 26, 2013

39
2 The Third Plenary Session of the 18th CPC
Central Committee: The New Milestone of
China’s Reform
tbd

2.1 Third plenary sessions are China’s reform milestones

2.2 China’s reform: greatness and experiences
2.3 Decision’s guiding thinking and overall goal of com-
prehensively deepening reform
2.4 ”Five-in-one” system construction and reform
2.5 Summary: Consolidate confidence in the system, deep-
ening the overall reform

40
3 Modernization of National Governance
tbd

3.1 National modernization

3.2 National governance modernization
3.3 National governance ability modernization
3.4 National governance system modernization
3.5 China’s national governance modernization isn’t west-
ernization
3.6 Summary: Important historic mission for the future

41
4 Government-Market Relationship
40

More planning or more market is not the

essential difference between socialism and
capitalism. Planned economy is not equal
to socialism, capitalism also has a plan;
Market economy is not equal to
capitalism, socialism also has the market.
Planning and markets are both economic
instruments.

Deng Xiaoping, 1992

On the role of the market and the role of

the government, we need to make good
use of both the ”invisible” and the
”visible” hands. We need to make sure
that the roles of the market and the role
of the government are organically
integrated, complementary, coordinated
and mutually reinforcing, so as to
promote sustained and healthy economic
and social development

Xi Jinping 2014

The government and the market are the two core instruments for China’s
development, and they play different roles in different fields and at different
levels. We figuratively call these two means the ”two hands” of China’s eastern
giant, namely the visible hand of the government and the invisible hand of
the market.
We should make good use of the visible hand of the government and the
invisible hand of the market. We should have both hands in their proper place,
both hands should be strong and both hands should be agile. ”Both hands
should be strong”, which means they should be firm but not inflexible. We
40 This article is one of a series of manuscripts in which Hu Angang interprets the CPC

Central Committee’s Decision on some Major Issues concerning Comprehensively Deepen-

ing the Reform. Xiao Tang helped to organize it. As shown in State of the Union Report,
Special issue no. 1, 2014, January 13.

42
should respect the role of the market more and play the role of the government
better. ”Both hands should be agile,” which means they should be lively but
not in disorder. They should be given full play to their respective strengths
and play a mutually reinforcing role. At the same time, they should avoid or
mitigate their respective weaknesses, and they should also act as checks and
balances.

4.1 Government-Market:A pair of important relationship

and conflict
The Decision of the Central Committee of the Communist Party of China
on Some Major Issues concerning Comprehensively Deepening the Reform
(hereinafter referred to as the Decision) adopted at the Third Plenary Session
of the 18th CPC Central Committee put forward the major theoretical view-
points and practical guiding ideology of ”deepening economic restructur-
ing closely around making the market play a decisive role in resource
allocation”. This means that The reform of China’s economic system has
entered a new period. How to understand the new orientation and interpreta-
tion of the relationship between government and market in the Decision? How
to understand the relationship between government and market in the era of
comprehensively deepening reform? What will the government and market
reforms involve? What will be the impact on China in the future?
Economic structural reform is the focus of comprehensively deepening re-
form. As comrade Xi Jinping said in the Note on the CPC central commit-
tee’s decision on several major issues concerning comprehensively deepening
reform(hereinafter referred to as the Note), ”the core issue of economic struc-
tural reform remains to properly handle the relationship between the govern-
ment and the market”41 . This is because the government and the market
are the two core instruments for China’s development, and they play different
roles in different fields and at different levels. We figuratively call these two
means the ”two hands” of China’s eastern giant, namely the visible hand of
the government and the invisible hand of the market.42
41 Xi Jinping, Note on the ”Decision of the CPC Central Committee on Some Major Issues

concerning Comprehensively Deepening Reform”, Xinhua News Agency, Beijing, November

15, 2013.
42 See Li Keqiang: 2013 Government Work Report, March 5, 2014. In the face of a complex

domestic and international environment and a dilemma faced by macro-control, we have

worked hard to deepen reform and opening up as the fundamental policy for development.
We have opened up the invisible hand of the market and made good use of the visible hand
of the government to promote steady economic growth.

43
 So how do these two hands play their respective roles? How to make two
hands interact, complement and unify with each other, forming a combined
resultant force to promote development? Or are they mutually exclusive, con-
flicting and in contradictory? All these will directly affect China’s economic
development.
How to play the role of these two hands, the key is to understand and
play the role of the government, and then how to build the relationship of
benign interaction between the government and the market in specific practices
and policies. What needs to be pointed out in particular is the relationship
between government and market, and the boundary between government and
market aren’t rigid nor invariable, which not only depends on the positioning
of government function and market function itself, but also depends on the
stage and history of national development. China is a country with vast
territory, great differences in different regions, which are at different stages
of development. Therefore, the boundary between the government and the
market should be adjusted according to local conditions, times and events.
In fact, since the founding of the People’s Republic of China, the gov-
ernment and the market have been a pair of major relations and prominent
contradictions, and they are also the core issue of ”how to understand and
how to deal with” considered by Chinese leaders, which has gone through a
relatively long and repeated trial and error process. Since the reform and
opening up, there has been a significant change. In the top-level design and
the exploration and practice of crossing the river by feeling the stones, we
have been constantly innovating and improving the socialist market economy
system.43

4.2 The historic progress of recognizing the government-

market relationship
The first stage was the establishment of a planned economy after
the founding of the People’s Republic of China and the implemen-
tation of the first five-year plan until 1978. The leaders also realized the
disadvantages of this system in practice, and reformed the planned economy
many times. They adjusted the relationship between the plan and the market
constantly, and the boundary between them also changed constantly.
Before and after the founding of New China, Mao Zedong, Liu Shaoqi and
others all proposed that the new democratic economy should be a planned
43 See Hu Angang, Top-level Design and ”Crossing the River by Feeling the Stones”, as

in People’s Forum, 2012 (6).

44
economy.44 Mao Zedong was explicitly opposed to free trade and free compe-
tition.45 From October to December, 1948, Liu Shaoqi pointed out that the
difference between the new-democratic economy and the ordinary capitalist
economy lies in the fact that the new-democratic national economy should be
organized and planned to some extent. He believed that all the economic
lifeline of the country, such as big industry, big transportation, big com-
merce, banks, credit agencies and foreign trade, should be in the hands of
the state in order to implement the national economy and keep it organized
and planned.Meanwhile, he also proposed to limit the scope of the planned
economy.46 This is a mixed economic model of ”big plan and small mar-
ket”, that is, large industries are planned economy, while small industries are
market economy, in which large and small industries complement each other
and take large industries to lead small ones, to coordinate with each other. It
should be said that this is a more suitable economic system model for China’s
national conditions. It should be noted that Liu Shaoqi’s views have been
reviewed and revised by Mao Zedong.47
The Common Programme of the Chinese People’s Political Consultative
Conference stipulates that China should develop a planned economy. Article
33 stipulates, ”The Central People’s Government shall strive to work out at
an early date a master plan for the restoration and development of the major
public and private sectors of the national economy, stipulate the scope of the
division of labor and cooperation between the central and local governments
in economic construction, and unify the interconnections between the central
and local economic sectors.”48 At that time, China still had a free market econ-
omy component, and the planned economy followed ”big plan, small market”
guideline. This situation lasted until 1953.
44 See Dong Fuchu, Economic History of the People’s Republic of China, vol. 1, pp.

228-229, Beijing, Economic Sciences Press, 1999

45 Mao Zedong said at the Meeting of the Political Bureau of the CPC Central Committee

in January 1949: ”On the one hand, it is extremely wrong to think that the new democratic
economy is not a planned economy or developing towards socialism, but that it is free trade,
free competition and developing towards capitalism... On the other hand, we must be careful
not to rush to socialism.” (Quoted from Bo Yibo, Review of Some Important Decisions and
Events, vol. 1, p. 24, Beijing, Party School Press of the CPC Central Committee, 1991
46 See Liu Shaoqi on the Economic Construction of New China, pp. 30, Beijing, Central

Documentation Press, 1993

47 See Dong Fuchu, Economic History of the People’s Republic of China, vol. 1, p. 229,

Beijing, Economic Sciences Press, 1999

48 ”Common Program of the Chinese People’s Political Consultative Conference” (adopted

at the first plenary session of the Chinese People’s Political Consultative Conference on
September 29, 1949), see Selected Works of Important Documents since the Founding of
the People’s Republic, Vol. 1, p. 8, Beijing, Central Documents Publishing House, 1992

45
 In fact, since the founding of the People’s Republic of China, the Chinese
government has been faced with the problem of how to handle the relationship
between the government and the market, which is essentially to determine
the status, means and scope of planned management. Wu Li et. al.
believe that before 1953, China took planned management as a method of
national economic management. As a mean of managing economy, planning
method can be divided into two specific methods: mandatory plan and di-
rective plan.49 It is actually a ”dual-track system” : mandatory plans for
large and medium-sized state-owned enterprises and national basic construc-
tion, and directive plans for the general individual economy, private economy
and cooperative economy.50 They believe that the ownership structure with
multiple economic components developing side by side under the leadership
of the state economy, and the economic operation mechanism based on mar-
ket regulation strengthening the planned management of the government have
promoted the fast recovery of the national economy.51
In 1952, with the recovery of the national economy, the CPC Central Com-
mittee began to set up the State Planning Commission, which was formally
established in November of the same year. In December of the same year, the
CPC Central Committee issued the Instructions on drawing up the 1953 Plan
and the Outline of the five-year Construction Plan. Subsequently, with the
help of experts from the State Planning Commission of the Soviet Union, the
”1st Five-year Plan” was revised. It was not until July 1955 that the second
session of the National People’s Congress officially approved the ”One Five”
plan.52
After 1953, China formally established a planned economy system, which
not only expanded the scope of planning management, but also greatly re-
duced the scope of market regulation. At the end of 1952, the financial sector
was brought into the scope of the state planned economy. In October and
November 1953, the state implemented the state monopoly for the purchase
and marketing of grain and oil, and the state monopoly for the purchase and
marketing of cotton in 1954. Since 1953, the state has carried out unified
distribution of important materials.53
49 see Wu Li et. al.; China’s Development Path (ii), pp. 821, Changsha, Hunan People’s

Publishing House, 2012.

50 see Wu Li et. al.;China’s Development Path (ii), pp. 851, Changsha, Hunan People’s

Publishing House, 2012

51 see Wu Li et. al.;China’s Development Path (ii), pp.843-844, Changsha, Hunan People’s

Publishing House, 2012

52 see Wu Li et. al.;China’s Development Path (ii), pp.851,912-914 Changsha, Hunan

People’s Publishing House, 2012

53 see Wu Li et. al.;China’s Development Path (ii), pp.851,922, Changsha, Hunan People’s

46
 The first Constitution, enacted in 1954, formalized the practice of planned
economy in China in its general program. Article 15 stipulates, ”The State
uses economic plans to guide the development and transformation of the na-
tional economy so as to continuously raise the productive forces so as to im-
prove the people’s material and cultural life and consolidate the independence
and security of the state.”54 Liu Shaoqi said in his Report on the draft Consti-
tution of the People’s Republic of China that ”since 1953, China has entered a
period of planned economic construction in accordance with socialist goals”.55
In other words, since 1953, China officially decided to establish a planned
economy.56 Unitary public ownership economy also must execute planned
economy necessarily. We could say 1949-1956 is the stage of transition from
new-democratic economy to socialist planned economy.57
However, Chinese leaders did not copy the planned economy of the Soviet
Union exactly. They also recognized the problems of this system and creatively
put forward the proposition of mixed economy according to their own practice.
In September 1956, In his speech to the Eighth National Congress of the
Communist Party of China, Comrade Chen Yun put forward the idea of ”big
plan and small liberal” and the famous idea of ”three mainstays and three
supplements”.58 The Resolution on Political Report adopted by the Eighth
Publishing House, 2012
54 Constitution of the People’s Republic of China (adopted at the first Session of the

First National People’s Congress on September 20, 1954), see Literature Research Office
of the CPC Central Committee’s compilation:Selections of important documents since the
Founding of the People’s Republic of China, Vol. 5, p. 524, Beijing. Central Document
Publishing House, 1993
55 Liu Shaoqi, Report on the Draft Constitution of the People’s Republic of China (Septem-

ber 15, 1954), Selected Works of Liu Shaoqi, vol. 2, pp. 144, Beijing, People’s Publishing
House, 1986
56 See Dong Fuchu, chief editor; Economic history of the People’s Republic of China, Vol.

1, pp. 230-245. Beijing, Economic Science Press, 1999.

57 see Wu Li et. al.;China’s Development Path (ii), pp.821, Changsha, Hunan People’s

Publishing House, 2012

58 Chen Yun pointed out that the situation of our socialist economy will be like this:

in terms of industrial and commercial operation, the state operation and collective
operation are the main bodies of industry and commerce, but with a certain number
of individual operation. This kind of individual operation is complementary to the
state operation and collective operation. With regard to production plans, the main
part of the country’s industrial and agricultural products is produced according to the plan,
but at the same time a part of the products are produced freely in accordance with market
changes and within the scope permitted by the state plan. Planned production is the
main body of industrial and agricultural production, and free production within the
scope of state planning permission according to market changes is a supplement
to planned production. Therefore, our market will never be a free market of capitalism,
but a unified market of socialism. In the socialist unified market, the state market is its

47
National Congress of the CPC accepted The idea of Chen Yun that such a
socialist unified market should be dominated by the national market and sup-
plemented by a free market under the leadership of the state within a certain
scope.59 Li Fuchun also pointed out in his speech at the Eighth Congress
that the indicators included in the national plan could be divided into three
categories: mandatory, adjustable and referential.60 This is a major
amendment of the highly centralized planned economy.
In May. 1957, comrade Liu Shaoqi further refined this into the idea that the
socialist economic planning should be diversified and flexible. In particular,
he said, we must be more diverse and flexible than capitalist economies. What
is the advantage of socialism if our economy is not as flexible and diverse as
that of capitalism, but only dull planning? We must make the socialist
economy more diverse and flexible than capitalism, and make the
economic life of our people more colorful, convenient and flexible.61
main body, but with a certain extent of free market leaded by the state. This free market,
under the leadership of the state, is a supplement to the state market, so it is an integral
part of the unified socialist market. [See Chen Yun: New Problems after The Socialist
Transformation is Basically Completed (September 20, 1956), see Selected Works of Chen
Yun, Vol. 3, p. 13, Beijing, People’s Publishing House, 1995.]
59 The Resolution on The Political Report states that, with the victory of socialist trans-

formation, the major parts of the country’s industrial and agricultural products will be
included in the state plan and produced by the production units in accordance with the
plan. However, in order to meet the various needs of the society, within the scope per-
mitted by the national plan, some products will not be included in the national
plan, but will be produced by the production unit directly according to the
conditions of raw materials and the market, as a supplement to the planned
production. The state regulates the production of this category of products only from
the relation of supply and marketing, or it only provides the index for reference. It would
be incompatible with economic development and the needs of the people to place unnec-
essary restrictions on the production of these products if they were forced to be included
in national plans or if they(referential indexes) were treated as indexes of a formal plan.
Similarly, the main body of socialist economy implements centralized operation,
but it also needs to be supplemented by decentralized operation to a certain
extent. [See Resolution of the Eighth National Congress of the Communist Party of China
on Political Report (adopted at the Eighth National Congress of the Communist Party of
China on September 27, 1956), Selected Works of Important Documents since the Founding
of the People’s Republic of China, Vol. 9, p. 346, Central Document Publishing House,
Beijing, China, 1994
60 see Wu Li et. al.;China’s Development Path (ii), pp.981-982, Changsha, Hunan People’s

Publishing House, 2012

61 Liu Shaoqi pointed out that in studying socialist economy, special attention should be

paid to making socialist economy not only planned, but also diverse and flexible. The
lesson of the Soviet Union in this respect is very worthy of our attention. They only assert
the planned nature of socialist economy, only pay attention to planned economy, made
it inflexible, there’s no diversity and flexibility. [See Liu Shaoqi, Talk on Rectification of

48
It was a bold idea by China’s leaders, whose goal was to be more diverse and
flexible than the capitalist economy, and although they did not know what
kind of economic system it was then, Today China’s socialist market economy
has shown great advantages.
We should say, 1949-1957 is not only the transition from a new-democratic
to a socialist society, but also a transformation from the planned operation of
a mixed economic system to a planned economy system62 , which is also the
first golden period of China’s development. During 1952-1957, the average
annual GDP growth rate reached 9.2%, the average annual growth rate of
industrial added value reached 19.8%, but the average annual growth rate of
agricultural added value is much lower, only 3.8%63 ; China’s GDP (measured
with 1990 international dollar prices) accounted for 5.5% of the world’s total in
1957, up from 4.6% in 1950.64 This practice proved that the planned economy
system at that time adapted to China’s stage of development and was quite
successful, although it still had many drawbacks and historical limitations.
China’s leaders will also be very pragmatic about reforming the system.
In 1958, Mao Zedong put forward the new concept of socialist commodity
production. He pointed out that, ”China is a country with very underdevel-
oped commodity production, which lags behind India and Brazil.” ”Now we
need to utilize commodity production, commodity exchange and the law of
value as useful tools in the service of socialism.”65 ”Commodity production
cannot be confused with capitalism. Why fear commodity production? It’s
just fear of capitalism.” ”Don’t be afraid. I think the production of goods
should be greatly expanded.” ”Commodity production depends on what eco-
nomic system it is connected with, and capitalist system is capitalist com-
modity production, and socialist system is socialist commodity production.”66
This is the historical source of the important thought of socialist commodity
economy and socialist market economic system formed at the third Plenary
Senior Party School Students (May 7, 1957), see Selected Works of Important Documents
since the Founding of the People’s Republic of China, Vol. 10, 253-254, Beijing, Central
Documents Publishing House,1994.]
62 see Wu Li et. al.;China’s Development Path (ii), pp.820-821, Changsha, Hunan People’s

Publishing House, 2012

63 See: National Economic Statistics Division, National Bureau of Statistics: Compilation

of Statistical Data of the Sixty Years of New China, p. 12. Beijing, China Statistical Press,
2010
64 See Angus Maddison:Historical Statistics of the World Economy: 1-2008 AD
65 Mao Zedong, On the problem of socialist commodity production (November 9, 10, 1958),

see Collected Works of Mao Zedong, Vol. 7, p. 435, Beijing, People’s Publishing House,
1999
66 On the problem of socialist commodity production (November 9, 10, 1958), see Collected

Works of Mao Zedong, Vol. 7, p. 439, Beijing, People’s Publishing House, 1999

49
Session of the twelfth Central Committee of the Party.
Due to the influence of the Soviet model and the limitation of the national
material conditions at that time, especially the ”great leap forward” and the
”left-leaning” ideological trend of ”cultural revolution”, the dialectical under-
standing about the relation between plan and market, and reforming ideas
were not able to get effectively carried out and implemented. On the con-
trary, China in quite a long time went from the limited market economy to
basically canceled the market part, only partially kept the pedlars’ market
which is very effective. But in the 1960’s adjustment of the national economy,
in order to rapidly improve the effective supply, China has taken some emer-
gency measures, to allow ”underground factory”, proposed the ”three ’Zi’ and
one ’Bao’,67 four big freedoms” in the countryside, namely ”reserved land, free
markets, financial self-sufficiency, contracting output quotas to households,”
”freedom of land renting, loan, worker hiring and trade”, which introduced
market’s power into a highly centered planned economy, to a limited extent.68
This is extremely transient market economy appeared under extremely spe-
cial conditions. Although this rural reform was later killed, it left behind the
memory of the farmers and the historical memory of the leaders, and became
an important source of rural reform after 1978.
During 1961-1964, the State Planning Commission put forward diversified
plan management: directive, guiding and referential. Directive plans shall be
implemented for enterprises owned by the whole people, and indirect plans
shall be implemented for agriculture and handicrafts owned by collectives.

In the second stage, we will continue to adjust our plans and plan-
market relationship within the framework of a planned economy,
the basic trend is to introduce market factors, utilize the law of
value, meanwhile substantially reduce the scope of the planning. The
period during 1978-1992 was not only the launching stage of China’s reform
and opening up, but also the transition period from a planned economy to a
market economy69 . It also marked the beginning of the second golden period
of China’s development. How to understand the plan and the market is an
67 Translator’s note: this is Chinese abbreviation that can’t be literally translated
68 see Wu Li et. al.;China’s Development Path (ii), p.814, Changsha, Hunan People’s
Publishing House, 2012
69 Wu Li et. al. also believe that the period from 1978 to 1992 was a transitional period

from a planned economy to a market economy. Until 1992, when China adopted the market
and the market as the basic economic system, planned management was self-evident as one
of the means. [See Wu Li et. al., China’s Development Path, part 2, pp. 821, Changsha,
Hunan People’s Publishing House, 2012]

50
important theoretical and practical problem in this period.
On March 8, 1979, Chen Yun criticized the drawbacks of the planned econ-
omy. In his opinion, ”For sixty years, the main shortcoming of the planned
working system in either the Soviet Union or China was that there was only
the clause of ’planned according to proportionality’, and there was no require-
ment for market regulation under the socialist system.”70 He put forward that
there must be two kinds of economy in the whole socialist period: the planned
economy part and the market regulating part. Moreover, in the future eco-
nomic system reform, the planned economy and the market economy are not
in conflict with each other, but both should grow correspondingly.71 Later, he
summarized this idea as ”the planned economy is the mainstay, supplemented
by market regulation”.
On November 26, 1979, Deng Xiaoping astonishingly proposed for the first
time that ”socialism can also engage in a market economy”. In his view, it
is certainly not true that a market economy exists only in a capitalist society
and only in a capitalist market economy. Socialism can also engage in a
market economy. We have a planned economy as the mainstay and
a market economy. This is a socialist market economy. Socialism
can use this method to develop the productive forces.72 Deng Xiaoping’s
formulation is similar to That of Mao Zedong in 1958, but it is a step forward
from the socialist commodity economy to the socialist market economy. He
thinks that socialism is not incompatible with market economy, and indeed
can have a market economy. Its purpose is to use the market economy to
develop China’s productive forces and shake off poverty and backwardness.
From November 1981 to January 1982, Chen Yun repeatedly talked about
the problem of ”planned economy as the main part and market regulation as
the auxiliary part”.73 In June 1981, Resolution on a Number of Historical
Issues Concerning the Party since the founding of the People’s Republic of
China was adopted. In the process of drafting, (we) also added in accordance
with the opinions of Chen Yun: ”We must carry out planned economy on the
basis of public ownership, and at the same time give play to the auxiliary role
of market regulation.” Meanwhile, it is pointed out that there is no fixed
70 Chen Yun. Planning and Market Problems (March 8, 1979). Selected Works of Chen

Yun, Vol. 3,244-245. Beijing, People’s Publishing House, 1995

71 See jin Chongji, Chen Qun, editor-in-chief; Biography of Chen Yun Vol.2, pp. 1622 1630,

Beijing, Central Literature Publishing House, 2005.

72 See Deng Xiaoping; Socialism can also have a market economy (November 26, 1979).

See Selected Works of Deng Xiaoping, 2nd Ed., Vol. 2, pp. 236. Beijing, People’s Publishing
House, 1994
73 See Jin Chongji and Chen Qun, Ed., Biography of Chen Yun Vol.2, pp. 1637, Beijing,

Central Documents Publishing House, 2005.

51
pattern for the development of socialist relations of production. Our
task is to create a specific form of relationship of production in
every stage according to the requirements of the development of our
productive forces. This was Chen Yun’s prescience and political wisdom.
Indeed, since the beginning of China’s economic reform, Chen Yun, as one
of the overall designers, has been very pragmatic. China’s economic system
is not a set of fixed models, but has great flexibility and adaptability, and
innovates specific institutional forms at different stages of reform.
On January 25, 1982, Chen Yun invited the head of the State Planning
Commission to have a discussion on strengthening the planned economy.74
Chen Yun said, our country is a planned economy, the industry sector should
be mainly planned economy; After agriculture implements production respon-
sibility system, we still need to give priority to planned economy. The gov-
ernment should get the priorities and importances clear. First, eat, and eat
enough, not too badly, but not too well. Second, we need to build. A nation
that eats up and use up all they got has no hope. There is only hope when
the country is fed and has enough left over to build.75 Later, Chen Yun also
compared the relationship between planned economy and market regulation
to that between cage and bird.76
In September 1982, the 12th National Congress of the CPC wrote the
report of the People’s Congress which including Chen Yun’s propositions of
”first, food, second, construction”, ”planned economy as the mainstay, and
market regulation as the auxiliary”, and confirmed them as the guiding prin-
ciples for economic construction, and as the objective model of the initial stage
of economic restructuring.77
74 Yao Yilin, Song Ping, Chai Shufan, Li Renjun, Fang Weizhong and Wang Yuqing at-

tended the panel discussion.

75 see Tan Zongji and Ye Xinyu, Ed., Records of the People’s Republic of China – Reform

and Great Change – Opening a New Stage of modernization (1977-1983), Vol. 4, (I), pp.
515, Changchun, Jilin People’s Publishing House, 1994.
76 See Chen Yun: Some Problems in Realizing the Strategic Goals set by the 12th CPC

National Congress (December 2, 1982), see Selected Works of Chen Yun, Vol. 3, p. 320,
Beijing, People’s Publishing House, 1995.
77 Hu Yaobang pointed out in the party’s 12th National Congress that China implements

planned economy on the basis of public ownership. Planned production and circulation are
the main body of our national economy. At the same time, the production and circulation
of some products are allowed to be regulated by the market without planning. This part
is a supplement to planned production and circulation and is subordinate, secondary, but
necessary and beneficial. The socialist state economy occupies a dominant position in
the whole national economy. In both rural and urban areas, we should encourage the
appropriate development of the self-employed economy within the limits prescribed by the
state and under the administration of industry and commerce as a necessary and beneficial

52
 In September 1984, Zhao Ziyang, the premier of the State Council, after
listening to various opinions, suggested in a letter to Hu Yaobang, Deng Xi-
aoping, Li Xiannian and Chen Yun, four members of the Standing Committee
of the Political Bureau of the CPC Central Committee, that China’s planning
system should be summarized as follows:
• China is a planned economy, not a market economy.
• Individual economy plays an auxiliary role in the whole national econ-
omy.
• Planned economy does not mean mandatory planning. Our policy now
and for a considerable time to come is to gradually reduce the mandatory
programs and expand the guiding programs.
• Directive plans are mediated mainly by economic means, and mandatory
plans must also consider the role of economic laws, especially the law of
value.
The socialist economy is a planned commodity economy based on
public ownership. The plan should be realized through the law of value, and
should use the law of value to serve the plan. The statement ”plan first, law
of value second” is not accurate and should not be used in the future.78 This
shows that the political consensus at the top of the party was still
”planned economy” rather than ”market economy”, but they were
trying to find a third way, namely ”socialist commodity economy”,
which became the transiting form towards ”socialist market econ-
omy”. The decision of the Central Committee of the Communist Party of
China on The Reform of the Economic System adopted by the Third Plenary
Session of the 12th Central Committee of the Communist Party of China later
put the above viewpoints into writing, which also began the transformation
supplement to the public sector of the economy. We must implement the principle of giving
priority to planned economy and market regulation as a subsidiary. It is a fundamental
problem in the reform of the economic system to carry out the principle that the planned
economy is the main part and the market is the auxiliary part. We must correctly distinguish
between mandatory plans, instructional planning and market regulation and their respective
scope and boundaries, on the premise of keeping prices basically stable while systematically
reform the price system and pricing management, reform labor system and salary system,
set up economic management system suitable for the condition of our country, to ensure the
healthy development of national economy [see Hu; Comprehensively create a new situation
of the construction of socialist modernization,Report on the 12th National Congress of the
Communist Party of China(on September 1, 1982).
78 See Literature Research Office of the CPC Central Committee, Selected Works of Im-

portant Literature since the 12th National Congress, pp. 535, Beijing, People’s Publishing
House, 1986.

53
from the planned economy to the market economy system, creatively imple-
menting the ”dual-track system”. First, implement the dual track planning
system, greatly reduce the scope of mandatory planning, increase the scope
of planned guiding indexes; Second, we will implement a dual-track pricing
system, substantially reduce the scope of mandatory price planning, increase
price guiding, and gradually open to market prices. Third, we will imple-
ment a dual track system of ownership. On the one hand, we will give more
power and interests to enterprises under ownership of the people. On the
other hand, allow the development of township enterprises, foreign-funded en-
terprises and individual businesses based on the market mechanism. In 1987,
the 13th National Congress of the Communist Party of China approved of the
development of township enterprises and made the urban and rural market
economy more active than ever.

The third stage is to adjust the relationship between the govern-

ment and the market under the framework of creating a socialist
market economy.
Deng Xiaoping said during a visit to the South in 1992: ”A little more
planning or a little more market is not the essential difference be-
tween socialism and capitalism. Planned economy is not equal to
socialism, capitalism also has a plan; Market economy is not equal
to capitalism, socialism also has the market. Planning and markets
are both economic instruments.”79 This idea became the main theme of
the report to the 14th National Party Congress. Report pointed out that ”we
want to establish the socialist market economic system, is to give markets in
the socialist countries a fundamental role in the allocation of resources under
the macroeconomic regulation and control, make the economic activities fol-
low the requirements of the law of value, to adapt to the changes in supply
and demand”, ”meanwhile we need to see the market has its own weaknesses
and negative aspects, must strengthen and improve the state’s macroeconomic
regulation and control of the economy”80
The Third Plenary Session of the 14th CPC Central Commit-
tee held in 1993 adopted the Decision of the Central Committee of the
79 Deng Xiaoping; Talking points in Wuchang, Shenzhen, Zhuhai and Shanghai (January

18-February 21, 1992). Selected works of Deng Xiaoping, 1st Ed., Vol. 3, pp. 373. Beijing,
People’s Publishing House, 1993.
80 Jiang Zemin, Accelerating the pace of Reform, Opening up and Modernization, and

Winning greater victories for the Cause of Socialism with Chinese Characteristics – Report
to the 14th National Congress of the Communist Party of China (October 12, 1992).

54
Communist Party of China on Some Issues concerning the Establishment of a
Socialist Market Economic System in accordance with the objectives and basic
principles of the economic restructuring set forth at the 14th CPC National
Congress. This is the stage of ”building a new system” after estab-
lishing the goal of institutional innovation, that is, the stage of building
a socialist market economic system, rather than the reform, repair and im-
provement over the original socialist planning system. This is the first overall
design and blueprint for a socialist market economy. This decision cre-
atively put forward the theory of socialist market economy, broke
the fog of the question of whether the family name was social or
capital, and for the first time put forward clearly that socialism and
the market economy could coexist, greatly enriching the theory of
socialism with Chinese characteristics. The initial establishment of
the socialist market economy has greatly stimulated the creativity
of the Chinese people.
Then, how to handle the relationship between giving full play to the role
of market mechanism and strengthening macro-control? This was not only
an abstract theoretical problem but also a concrete practical problem when
the economy was overheated and inflation intensified. In this regard, Com-
rade Jiang Zemin proposed: The focus of the work in each period can vary,
depending on the actual situation.Sometimes the emphasis is on the market
mechanisms, while sometimes the emphasis is more on state macro-control,
but we must not neglect or relax the emphasis on either aspect.81 Objectively
speaking, in the early stage of the establishment of socialist market econ-
omy, China’s market development is still immature, the market system is not
perfect, and the market competition is not fair and transparent. Therefore,
it is necessary to appropriately strengthen and improve macro-control while
opening and activating the micro-economy. First, we achieved a soft land-
ing of macro-control for the first time, and then we effectively dealt with the
external impact of the Asia financial crisis.
At the third Plenary Session of the 16th CPC Central Committee held in
2003, the Decision of the Central Committee of the Communist Party of China
on Some Issues concerning the Improvement of the Socialist Market Economic
System was made in accordance with the strategic arrangements for building
a robust socialist market economic system and a more dynamic and open
economic system proposed by the 16th CPC National Congress. The most
important innovation of this decision is to put forward the scientific develop-
81 See Jiang Zemin, Better organizing and Promoting the Establishment of socialist Market

Economic System (November 14, 1993), selected works of important Documents since the
14th CPC National Congress (Part 1), pp. 555, Beijing, People’s Publishing House, 1996.

55
ment concept of ”people-oriented”, which also reflects the reforming concept
of ”people-oriented” for the first time, which becomes a programmatic docu-
ment guiding China’s reform in the first decade of the 21st century. This is the
guiding program put forward at the stage of ”perfecting the new system” on
the basis of initially establishing the new system. The plenum reaffirmed the
principle of ”giving priority to efficiency and giving consideration to fairness”,
and also put forward the idea of ”aiming at common prosperity”, which is
an upgrade of the 1.0 version of the socialist market economy. The
upgrade of this version is mainly aimed at correcting the inherent
defects of the market economy in social justice, social services, en-
vironmental protection and other aspects. It has jumped out of the
traditional ”pure marketization” process of blindly delegating power
and benefits, started to adjust and reposition the government func-
tions, and made adjustments to some drawbacks and problems of
the market. We call it version 1.5 of the socialist market economy.
Throughout the course of China’s reform, since the third Plenary Ses-
sion of the 11th CPC Central Committee, China’s economic restructuring has
been carried out around the adjustment of the relationship between planning-
market and government-market. The third Plenary Session of the 11th Central
Committee still emphasized the adjustment of various proportional relations
by planning, presenting a planned economy system, after the third Plenary
Session of the 12th Central Committee, (we) gradually transformed to a sys-
tem of planning as the mainstay, while market as the auxiliary. By the third
Plenary Session of the 14th Central Committee in 1993, the direction of so-
cialist market economy reform had been formally established. At that time,
the positioning of the relationship between the government and the market
was to ”make the market play a basic role in the allocation of resources under
the national macro-control”. Planning has changed from dominating the coun-
try’s economic development to being a means of government regulation. This
indicated the historical transition from a socialist planned economy
to a socialist market economy, while adhering to socialist political
orientation,but it fundamentally changed the basic means of resource alloca-
tion. The third Plenary Session of the 16th CPC Central Committee improved
the relevant system of socialist market economy, and paid more attention to
the correction of market failure and drawbacks. From a planned economy to a
planned commodity economy to a socialist market economy, the power of the
market has been released step by step. It is the deepening of our understand-
ing that makes us pay more attention to the role of the market in practice

56
 82
and effectively promotes sustained and rapid economic development.

4.3 Respect market rules more

4.4 Accelerate government transformation
4.5 Perform government function better
4.6 Summary: ”Two hands” always better than ”One
hand”

82 See Zhang Gaoli, Comprehensively deepening reform with economic Restructuring as

the Focus, People’s Daily, 201312-20, pp.3

57
5 The Relationship Between State-owned Econ-
omy and Private Economy
83

The fundamental policy of the economic

construction of the People’s Republic of
China is to develop production and make
the economy prosper by taking into
account both public and private interests,
the interests of labor and capital, mutual
assistance between urban and rural areas,
and internal and external exchanges.
…Under the leadership of the state-owned
economy, various social and economic
components should be divided and
cooperated in their proper places so as to
promote the development of the whole
society and economy.

Common Programme of the Chinese

People’s Political Consultative Conference
(1949)

Both the public and non-public sectors

are important components of the socialist
market economy and an important
foundation for China’s economic and
social development.

Decision of the CPC Central Committee

on Some Major Issues concerning
Comprehensively Deepening Reform(2013)

China’s future economic development must be based on China’s national

conditions, adhere to ”walking with both legs”, not only to vigorously develop
state-owned enterprises, ”bigger, stronger and better”, but also to vigorously
83 thisarticle is one of a series of articles on the Decision of the Central Committee of the
Communist Party of China on Several Major Issues concerning comprehensively Deepening
the Reform, interpreted by Professor Hu Angang. Assisted by Xiao Tang, China National
Report, Special issue no. 2, 2014, January 13.

58
support private enterprises, ”do work, do precise, do fine”, so that the ”two
legs” are both strong, so that both types of enterprises can grow healthily.
China will develop a good model of mixed economy.
China’s mixed economic system also has huge positive externalities and
spillovers to the world. On the world stage, Chinese state-owned enterprises
and private enterprises need to cooperate in competition, grow stronger in
cooperation, and strengthen China’s economic voice. The huge development
space at home and abroad is a huge opportunity for any economic component.
So there is plenty of room for growth in all sorts of economic components.
After the founding of new China, what kind of basic economic system will
be established? By what economic ownership composition? How can we find
an economic model that truly conforms to China’s basic national conditions
and adapts to different stages of development? How to handle the relationship
between the public sector and other sectors of the economy? These are the
basic questions that China’s leaders face and need to answer. It is only through
more than 60 years of continuous practice and repeated trial and error that
we have truly established the basic economic system of Chinese socialism,
that is, the basic economic system with public ownership as the mainstay
and economic entities under various forms of ownership developing side by
side. This basic economic system is also unique in the world and has
strong advantages. This is because it gives full play to the respective
advantages of various forms of ownership and gives full play to the
initiative and creativity of all sectors. It is by far the most dynamic
and competitive economic system in the world. However, it was not
all smooth sailing. It also experienced a long and tortuous historical
process of first affirmation, then negation, and then reaffirmation.
It also experienced the historical process of ”walking on two legs”
turning to ”walking on one leg” and then back to ”walking on two
legs”.

5.1 The historical evolution of the relationship between

state-owned economy and private economy
Looking back at the development process of China’s economic ownership struc-
ture in different periods since the founding of the People’s Republic of China,
it has experienced several major institutional innovations and also experienced
the historical evolution of success first, then setbacks, then success and inno-
vate again. It can be generally divided into the following stages.

59
 The first stage is the new-democratic mixed economy at the be-
ginning of the new republic of China. This was the first major institu-
tional innovation, namely the transformation from the traditional semi-feudal
and semi-colonial economy to the new democratic economy. Liu Shaoqi once
made it clear that under the economic conditions at the early stage of the
founding of the People’s Republic of China, China should not adopt a sin-
gle public ownership like the Soviet Union, but should use private capitalism
and allow diversified economic elements to exist. At the time, Mao Zedong
fully affirmed Liu Shaoqi’s views and wished to refer to the discussion at the
second plenary session of the Seventh Central Committee of the Communist
Party. This is the earliest ”mixed economy theory” of Chinese Communist
party leaders.84
After the founding of new China, there were five different economic com-
ponents: socialist state ownership economy,private capitalist economy, indi-
vidual economy of peasants and artisans, cooperative economy, state capital-
ist economy. This was the earliest period of coexistence of mixed economic
components in the Republic, and its economic type was a diversified mixed
economic type dominated by private economy, state-owned economy and co-
existence of multiple economic components. The first land reform and nation-
alization were successful. Among them, nationalization is also quite limited.
The new government only forcibly confiscates the bureaucratic capital and
immediately transforms it into a state-owned economy, but does not restrict
and eliminate the private economy and capitalist economy. The Common Pro-
gramme at that time stipulated in article 26 that ”the fundamental policy
for the economic construction of the People’s Republic of China
is to develop production and make the economy prosper by taking
into account both public and private interests, the interests of la-
bor and capital, mutual assistance between urban and rural areas,
and internal and external exchanges. The state should be, in the scope
of business, material supply and sales market, labor conditions, technology
and equipment, fiscal policy, financial policy, etc., regulating state-owned
economy, cooperative economy, farmers and craftsmen of the in-
dividual economy, private capitalist economy and state capitalist
economy, make all kinds of social and economic composition under
the leadership of the state economy, divide the labor while coop-
erating, (let all of them)properly placed, in order to promote the
social and economic development.” Article 30 also states: ”All private
84 See Bo Yibo, A Review of Some Important Decisions and Events, vol. 1, pp. 47-49,

Beijing, Central Party School Press, 1991

60
economic undertakings that are beneficial to the national economy
and the people’s livelihood, the people’s government shall encour-
age their initiative in operation and assist their development.” The
Common Programme also stated that ”the feudal and semi-feudal ownership
of land should be changed step by step into the ownership of land by peasants”
and that ”the economic interests and private property of the workers, peas-
ants, petty bourgeoisie and national bourgeoisie should be protected”. Mao
Zedong called this the policy spirit of ”taking all factors into consideration”.
He also offered a ”Somewhat different, while non-discriminatory” approach
to the private sector. The so-called ”somewhat different” means that the
state-owned economy is socialist in nature and in a dominant position, but
it is different from the private capitalist economic cooperation economy and
should be distinguished. On other issues, however, we should act in
accordance with the Common Programme and pursue development
in both public and private sectors. It is wrong to discard the pri-
vate for the public, that is, to treat all with non-discriminatory. Liu
Shaoqi also put forward the idea of consolidating the new democratic sys-
tem, believing that the new democratic economy was a transitional economy,
which needed 10 to 20 years, and that the five economic components of the
new democracy should be put into their proper place and developed. 85
These principles are consistent with China’s national conditions
and the stage of economic development, which are different from the
private ownership of western capitalism and the public ownership
of Soviet socialism. Build a new democratic economic system which is
unprecedented in human history, is the biggest institutional change in the
modern history of China, and it still needs 10 to 20 years of gradual adaptation,
continuous consolidation and improvement.
But, just after a few years, the party central committee and Mao Zedong
formulated the ”One Transform and Three Reform” general line of transition
period, put forward ”we’re to expand the socialist ownership by the whole peo-
ple and collective ownership of cooperative, transform the private ownership of
farmers and craftsmen based on their individual labor into collective ownership
of cooperative members, transform capitalist private ownership based on the
exploitation of the working class’s surplus labor into collective ownership of all
the people”.86 In other words, the second nationalization and collectivization
85 See Bo Yibo, A Review of Some Important Decisions and Events, Vol. 1, pp. 58-61,

Beijing, Central Party School Press, 1991

86 to mobilize all forces for the struggle of building our country into a great socialist

country - about the party’s general line for the transition period of learning and publicity
outline (issued by the propaganda department of the central committee of the communist

61
should be carried out in urban areas to eliminate the urban private economy
and reduce the urban individual economy, and collectivization should be car-
ried out in rural areas to eliminate the rural individual economy and private
land ownership. This was largely influenced by Soviet theory.87
The ”Three Major transformations”, which was regarded as the second
major institutional innovation, were intended to be completed in three five-
year plans or more, but were actually completed in 1956, both too ”pure”
and too ”public”.88 Unfortunately, the goal set later was not to make the five
economic components develop harmoniously together, but to gradually carry
out the three major socialist transformations by dividing different economic
components. The transformation was basically completed in 1956. From the
perspective of employment only, the number of individual urban workers rose
from 7.24 million in 1949 to a peak of 8.98 million in 1953, accounting for
32.6 percent of the total urban employment (27.54 million), and then dropped
sharply to 160,000 in 1956, accounting for 0.5 percent of the total urban em-
ployment (32.05 million). Employment in the private sector also dropped
sharply from a peak of 3.67 million in 1953 to 30,000 in 1956.89 After that,
socialist ownership by the whole people and socialist collective ownership be-
came the foundation of China’s national economy.

The second stage is the stage of socialist public economy. From

1956 to the reform and opening up is the second stage, China’s economy was
dominated by two types of public ownership, socialist ownership by the whole
people and socialist collective ownership, which were regarded as the basic so-
cialist economic system, and individual industrial and commercial households
party of China in December 1953, approved by the central committee of the communist
party of China), see important literature since the founding of new China book 4, page 701,
Beijing, the Central Literature Publishing House, 1993.
87 Mao Zedong said that the general line of the Party in the transition period was put

forward by ”the Central Committee on the basis of Lenin’s theory on the transition period”,
which is an important theoretical basis. [See Pang Song: China in the Mao Era (1949-1976)]
(I), p. 307, Beijing, The History of the Communist Party of China Press, 2003.]
88 As Huang Kecheng once said, we know that Mao Zedong meant well and he worried

about the cause of the people all his life. In his later years, Mao Zedong still had a great
ambition. He tried to accomplish in his life what would have taken him hundreds of years,
but within a few years or a few decades. As a result, some disruption happened and he made
mistakes of idealism. From his original point of view, he still wanted to run the people’s
affairs well and push forward the revolutionary cause. He worked hard for this ideal all his
life. Approaching Mao Zedong, as in The Guangming Daily, 2013-12-23.
89 See National Bureau of Statistics, China Statistical Yearbook 1984, p. 107, 111, Beijing,

China Statistical Press, 1984

62
and private enterprises as capitalist. The public sector accounts for nearly 100
percent of the total national economy, and the non-public sector has almost
disappeared. On the basis of ”being penniless” and under the background
of western sanctions blockade led by the United States, China independently
established an independent and relatively complete industrial system and na-
tional economic system. In the early 1960s, the number of self-employed urban
workers in employment once recovered to its 1963 peak of 2.31 million. By
1977, there were only 150,000 of them left. Even in large and medium-sized
cities such as Shanghai, Beijing and Tianjin, which are best placed to create
jobs, millions of new workers have been sent to the countryside. To some ex-
tent, this shows that the single public ownership does not conform to the law
of the development of productivity under China’s national conditions, cannot
create more jobs in urban and rural areas, and the economic efficiency is low,
which affects the economic development.
By 1978, China’s GDP was only 364.5 billion yuan, with 250 million peo-
ple living in poverty in rural areas and over 10 million unemployed in urban
areas. However, it should also be noted that China’s public ownership sys-
tem is not a complete unitary ownership, is still a mixed public ownership
economy. It can be said that the highly public sector of the economy, such
as ownership by the whole people, only covers less than one-fifth of the coun-
try’s employed population. The extremely low level of public ownership in
other public sectors, such as urban collective ownership and rural people’s
communes, is determined by the extremely low level of productive forces at
that time.
However, there were still a number of very active market forces, both in
towns and villages, which were then regarded as ”spontaneous forces of cap-
italism”, such as black (illegal) and grey (quasi-market) transactions. In the
vastness of China, the forces of the market are always ”burning like wildfire,”
and once reforms are made, all sorts of economic components will explode.

The third stage is the transition to a socialist mixed economy.

Since the reform and opening up in 1978, China’s basic economic system has
undergone a gradual but significant transformation from two public sectors
of the economy to the coexistence of multiple sectors of the economy. The
first is the rapid development of township enterprises, originally in the form
of collective ownership of the commune and brigade enterprises, but based
on market mechanism, without planned instructions, no price control, no su-
perior official control, which is is a new type of economic organization with
great market vitality. The second is the individual industrial and commercial

63
households, which accounted for 0.16 percent of the urban employment pop-
ulation in 1978. From the Provisions on Some Specific Policies for Former
Industrial and Commercial Enterprises approved and transmitted by the CPC
Central Committee in December 1979 to the documents on Further Improv-
ing Urban Labor Employment transmitted by the CPC Central Committee on
August 17, 1980, it is clearly stated that ”urban individual economy should
be encouraged and supported”.
In September 1982, the Report of the 12th National Congress of the Com-
munist Party of China for the first time put forward the idea of developing
various economic forms, and made it clear that in both rural and urban areas,
individual workers should be encouraged to develop appropriately within the
limits prescribed by the state and under the administration of industry and
commerce, as a necessary and beneficial supplement to the public sector of
the economy. Article 11 of the Constitution of the People’s Republic of China
adopted by the Fifth Session of the National People’s Congress in December of
the same year stipulates, ”The individual economy of urban and rural labor-
ers within the scope prescribed by law is a supplement to the socialist public
economy. The state protects the lawful rights and interests of the individual
economy.” In October 1984, the Third Plenary Session of the 12th Central
Committee of the Communist Party of China (CPC) issued the Decision of
the CPC Central Committee on Economic Restructuring, which pointed out
that the economy under ownership by the whole people is the leading force of
China’s socialist economy. Collective economy is an important part of socialist
economy. Adhere to the common development of diversified economic forms
and modes of operation. The release of the decision made the urban individual
industrial and commercial households developed rapidly during this period.
By 1985, the proportion of self-employed workers in urban employment had
reached 3.51 percent, and by 1990 it was 3.60 percent.
In 1987, the report of the 13th National Congress of the Communist Party
of China made a profound reflection on the mistakes: starting from the late
50s, because of the ”left”-leaning errors, we were too impatient for accom-
plishments, blindly pursuited the pureness (of public ownership), we thought
by relying on subjective wills and people’s movements were enough for dra-
matically improve productivity, we thought the more public the bigger it is,
the better socialist ownership it will be. In terms of ownership and distribu-
tion, socialist society does not require absolute purity, absolute fairness. At
present, the economic component other than ownership by the whole people
has not developed too much, but is far from enough. This shows that our
Party’s understanding of the basic socialist economic system has made a ma-
jor breakthrough, from the ”absolute pure” socialist economic system to a

64
mixed economic system. To this end, the report clearly proposed to continue
to develop diversified economic sectors under the premise of public ownership.
The development of the private economy to a certain extent is conducive to
promoting production, invigorating the market, expanding employment, and
better meeting people’s various living needs. It is a necessary and beneficial
supplement to the public economy.
To this end, the 1988 Amendment to the Constitution added the following
provision in Article 11 of the Constitution: ”The state permits the private
economy to exist and develop within the limits prescribed by law. The private
economy is a supplement to the socialist public ownership economy.The state
protects the lawful rights and interests of the private economy and exercises
guidance, supervision and management over the private economy.” This gave
a ”green light” to the development of the private sector in the mixed economy
and provided an important legal guarantee. By 1990, the employment of
private enterprises accounted for 0.33% of the urban employed population,
and most of them were converted from individual industrial and commercial
households to private enterprises.
China’s opening to the outside world has become a basic state policy,
which not only breaks the pattern of ownership by the whole people, but also
actively attracts foreign direct investment enterprises with more modernized
elements and more competitive ability, and promotes the formation of a mixed
economy. On May 4, 1984, the Central Committee of the Communist Party
of China and the State Council approved and transferred the Summary of the
Symposium on Some Cities along the Coastline, and decided to further open
14 coastal port cities including Dalian, and proposed to set up economic and
technological development zones step by step. According to the Summary, the
power of examination and approval for foreign-funded construction projects
should be relaxed; Increase the quota for foreign exchange use and foreign ex-
change loans; We will actively support the use of foreign capital to introduce
advanced technologies to transform old enterprises. To grant certain pref-
erential treatment to Chinese-foreign equity joint ventures, contractual joint
ventures and foreign-invested enterprises; Establishing economic and techno-
logical development zones step by step; Vigorously develop import processing
and export; Adjust the open status category of several cities; Strengthening
infrastructure construction; To strengthen the planning and guidance for uti-
lizing foreign capital; We should take the lead in reform. On April 12, 1986,
the Fourth session of the sixth National People’s Congress adopted the Law on
Foreign-capital Enterprises, which provided a legal basis for the development
of foreign-capital economy. The report of the 13th National Congress of the
Communist Party of China in 1987 clearly points out that Chinese-foreign

65
equity joint ventures, cooperative enterprises and wholly foreign-owned en-
terprises are also necessary and beneficial supplements to China’s socialist
economy. The legitimate interests of foreign investors shall be effectively pro-
tected and the investment environment shall be further improved. During the
period of 1979-1982, foreign direct investment amounted to US $1.77 billion;
During 1983-1985, it reached US $4.3 billion; For the period of 1986-1992, it
amounted to $30 billion. The proportion of foreign direct investment in GDP
rose from 0.3 percent in 1983 to 2.3 percent in 1992.90 From 1979 to 1984,
the number of FDI projects amounts to 3,724, from 1985 to 1992, the total
number reached 87,543.91
During this period, China did not privatize the enterprises and units owned
by the whole people on a large scale. Instead, it expanded the autonomy
of enterprise management, promoted the responsibility contract system, and
changed the incentive mechanisms to promote the transform of those enter-
prises. Therefore, the number of employed persons in state-owned units has
actually increased, but its respective proportion of urban employed population
has decreased significantly, reaching 60.71% in 1990, down 17.61 percentage
points from 78.32% in 1978. The percentage of urban population employed
by collective units undergone a process of rise and fall, accounted for 20.83%
at 1990 which is slightly lower than 21.53% at 1978.
In this period, China gradually evolved from a unitary public economy
to a coexistence of public and non-public economy. Figuratively speaking, it
gradually evolved from ”walking on one leg” to ”walking on two legs”, which
gradually formed a new pattern of symbiosis and win-win results, and also
produced the two major driving forces for China’s high economic growth in
this period.
In 1993, my conclusion according to the data from 1978-1992 is: since
the reform, one of the breakthrough and substantial progress is the rapid
development of non-state-owned economy, to break the pattern of the state-
owned economy unifying and dominating the whole country, to change our
country’s economic structure significantly, to form the economy status of non-
state-owned sectors as a major player, while various types of mixed economic
sectors coexist. At that time, China had formed two major types and nine
economic components. Two big types are state-owned economy and non-state-
owned economy. The nine components refer to:
90 See National Bureau of Statistics: China Statistical Abstract 2013, p. 69, Beijing, China

Statistical Press, 2013

91 See National Bureau of Statistics, China Statistical Yearbook 2013, pp. 243, China

Statistical Press, Beijing 2013

66
 • The state-owned economy (refers to the type of economy in which the
means of production is owned by the state)
• Collective economy
• Cooperative venture economy
• Individual economy
• Joint venture economy
• Private economy
• Economy with foreign investment
• Hong Kong, Macao and Taiwan investment economy
• Other economies
But I also raise two core questions: The first is whether private property is
”sacrosanct” at all. Is private property exchanged through voluntary or mar-
ket exchanges, or through forced or non-market exchanges? Have the prin-
ciples of exclusivity and universality of private property rights been openly
acknowledged? The biggest worry for private business operators is whether
their property will be ”confiscated” again, as in the nationalization campaigns
of the 1950s, and their economic activity ”banned” again. The second prob-
lem is whether state-owned enterprises and non-state-owned enterprises ”fair
competition”? Will they have equality in both taxing and interest rates?92

The fourth stage is to develop the socialist mixed economy. In

1992, with Deng Xiaoping’s Talk in the South and the 14th National Congress
of the Communist Party of China, the reform of socialist economic ownership
entered a new stage of development. The third Plenary Session of the 14th
Central Committee of the Communist Party of China the Decision on the
Several Questions of the Establishment of Socialist Market Economic System
pointed out: Adhere to the principle of taking public ownership as the main
body and developing various economic components together. While actively
promoting the development of the state-owned economy and the collective
economy, we shall encourage the economic development of the self-employed,
the private sector and the foreign-invested enterprises. The non-public sec-
tor of the economy began to develop vigorously. In 1997, the 15th National
92 See Hu Angang: From nationalization to denationalization in Hu Angang: Ten Rela-

tions between China and the 21st Century, pp. 405, 419-421, Harbin, Heilongjiang Educa-
tion Press, 1995

67
Congress of the Communist Party of China put forward that ”public ownership
as the main body and the common development of various forms of ownership
is a basic economic system in the primary stage of China’s socialist market”
and that ”the non-public sector is an important part of China’s socialist mar-
ket economy”. In 1999, the Fourth Plenary Session of the 15th CPC Central
Committee issued the Decision on Some Major Issues concerning the Reform
and Development of State-owned Enterprises, which proposed the reform of
state-owned enterprises and developing a mixed-ownership economy.
By 2002, the number of urban private enterprises in China had reached
19.99 million, 35 times that of 1990, with an average annual growth rate of
34.5 percent. The number of rural private enterprises employed also reached
14.11 million, 12.5 times that of 1990, with an average annual growth rate of
23.4 percent.
In urban areas, the proportion of individual businesses in the employment
rose from 3.60% in 1990 to 9.23% in 2000. The share of private enterprises
in employment rose from 0.33% in 1990 to 5.48% in 2000. The proportion of
the number of people employed in state-owned units dropped from 60.71% in
1990 to 35.00% in 2000, and the proportion of the number of people employed
in urban collective units dropped from 20.83% in 1990 to 6.47% in 2000.

The fifth stage is to form a socialist mixed economy. In 2003, the

third Plenary Session of the 16th CPC Central Committee Decision on some
issues of perfecting the socialist market economy system Suggested a system
to consummate the public ownership as the main body, while maintaining
the common development of various ownerships, to develop the state-owned
capital, let collective capital and private capital participating in the mixed
ownership economy, establish and improve the management and supervision
system of state-owned assets. Our assessment report shows that significant
progress has been made in these tasks.
First of all, the modern corporate governance structure of state-
owned enterprises was basically established, more than 90% of the coun-
try’s state-owned enterprises completed company and share reform, most en-
terprises set up the shareholders’ committee, the board of directors, board
of supervisors and managers, gradually standardize the corporate governance
structure, a large number of state-owned enterprises implemented equity di-
versification, formed mixed ownership limited liability company.93
93 See Guidance Book on <Decision of the Central Committee of the Communist Party

of China on Some Major Issues concerning comprehensively Deepening the Reform>, page

68
 After painful and difficult reforms, state-owned enterprises entered a golden
age of rapid rise. Since the reform and opening up, state-owned enterprises
have experienced the development process of first declining stage (1978-1997),
”reborn after death” stage (1998-2002), and re-emerging stage (2003-2013).
During this period, the total amount of state-owned assets increased signifi-
cantly, the distribution and structure of state-owned capital were continuously
optimized, the vitality and competitiveness of the state-owned economy were
constantly enhanced, and the quality of development was greatly improved,
very well fused with the market system. As a result, a large number of state-
owned enterprises rapidly grew into world-class enterprises. In terms of the
number of enterprises, state-owned enterprises account for a relatively small
proportion of the total number of enterprises, but they have become increas-
ingly powerful latecomers, pursuers, competitors and innovators among the
world top 500 enterprises and the World Top 2000 enterprises. In 2000, 9
state-owned enterprises from The Chinese mainland were listed in the World
Top 500. By 2014, 92 enterprises from the Chinese mainland were listed in
the World Top 500, among which 83 are state-owned or state-holding enter-
prises and 9 are private enterprises. State-owned economy evolved from ”big
and comprehensive” to ”strong and refined”, it has made full use of the new
advantages of the socialist market economy in developing strategic industries
with concentrated resources, and represents the collective rise of Chinese en-
terprises.
Secondly, the system of equal participation of the non-public sec-
tor in market economic competition has been basically established,
which has put forward encouraging policies for vigorously developing and guid-
ing the non-public sector, and the private economy has entered a golden pe-
riod of great development. According to the data of the State Administration
for Industry and Commerce, the real enterprises in China have increased by a
large margin. During the period from 2002 to 2013, the average annual growth
rate reached 6.90%, among which the private enterprises grew the fastest, with
the average annual growth rate reaching 15.00%. The proportion of private
enterprises in the total number of real enterprises in China increased from
35.93% to 80.43%. During this period, the number of individual businesses
increased from 23.77 million to 44.36 million, with an average annual growth
rate of 5.84%. The total number of enterprises and individual businesses in-
creased from 31.11 million to 59.64 million, with an average annual growth
rate of 6.09%. From the perspective of entrepreneurship, excluding the rural
agricultural labor force, the total number of market economy subjects
85, Beijing, People’s Publishing House, 2013

69
in China increased from 2.42% in 2002 to 4.38% in 2013, indicating
that various market economy subjects were greatly activated dur-
ing this period, and they became the main body creating economic
aggregation, total trade volume and new employment.
By the end of November 2013, there were 15,038,200 enterprises (including
branches, the same below) nationwide with a registered capital of 95.29 trillion
yuan, with an average of 6.33 million yuan each. There are 14,591,900 do-
mestically funded enterprises, with a registered capital of 82.97 trillion yuan,
averaging 5.69 million yuan each. Among them, there were 12,293,000 private
enterprises with a registered capital of 38.26 trillion yuan, or 3.11 million yuan
each. There were 446,400 foreign-invested enterprises with a registered capital
of 12.32 trillion yuan, averaging 27.6 million yuan each. There were 44,004,100
individual industrial and commercial households with a capital amount of 2.39
trillion yuan, or an average of 54,300 yuan per household. There were 950,700
specialized farmer cooperatives, with a total investment of 1.78 trillion yuan,
or 1.87 million in average.94 Compared with the end of June 2007, the pro-
portion of total registered capital of private enterprises increased from 25.1%
to 40.2%.
Take the development of private enterprises in above-scale industries as
an example. From 2002 to 2012, the number of enterprises increased by 2.84
times, with an average annual growth rate of 14.4%. Even when a large
number of private enterprises withdrew from the market or went bankrupt,
the ”birth rate” was much higher than the ”death rate”, which was the highest
growth rate in the world. The total assets increased by 17.4 times, with an
average annual growth rate of 33.1%. The average assets of each enterprise
increased from 17.88 million yuan to 80.59 million yuan, which may be the
fastest growth record of enterprise assets in the world. Main business revenue
increased by 22.9 times, with an average annual growth rate of 37.3%, which
is also the fastest growth in the world. Total profits increased by 40.2 times,
with an average annual growth rate of 45.0%. Although many enterprises are
loss-making or unprofitable, China’s private enterprises are by and large the
most profitable group of enterprises in the world.
From the perspective of urban employment nationwide, from 2000 to 2012,
the proportion of individual businesses in the employment population in-
creased from 9.23% to 15.21%, becoming the third largest employment chan-
nel. The share of private enterprises in employment rose from 5.48% to
20.37%, making private enterprises the largest source of employment. The
proportion of state-owned units dropped from 35.00% to 18.43%, becoming
94 see the China business news, 2013-12-16

70
the second largest employment channel. The proportion of collective units in
urban areas dropped from 6.47% to 1.59%.

5.2 State-owned and Private:Walking with two legs

5.3 Future development of China’s hybrid economy
5.4 Summary: ”Two legs” always better than ”One leg”

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6 Central-Local Relationships
6.1 Historic logic of Central-local relationships
6.2 Historic transformation of Central-local relationship
in Mao era
6.3 ... in first stage of open and reform
6.4 Tax system classification reform and Central-local
system reform
6.5 Further perfect Central-local relationship
6.6 Future development of Central-local relationship
6.7 Summary: ”Two enthusiasm” always better than ”One
enthusiasm”

72
7 Comparison of China and USA Governance
Performance
7.1 China-US governance performance comparison(2000-
2012)
7.2 China-US politic system comparison
7.3 Summary: Why china governing performance better
than US

73