Zhu Rongji's Four Boons and Four Blind Spots: China's Economic Legacy

Zhu Rongji, the former Chinese Premier credited with steering the nation toward a market economy, passed away at the age of 97. His time in office was marked by remarkable economic achievements, including high growth rates and stable inflation – a combination many economists dream of. This success was attributed not only to Zhu's capabilities but also to four key "bonuses" China possessed at the time: ongoing reforms, opening up to the world, a large young population, and abundant land resources.

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The four bonuses he enjoyed were reform, opening up, population, and land.

China's reforms involved dismantling the rigid socialist planned economy. This meant transitioning state-controlled sectors to market mechanisms, restructuring over 100,000 state-owned enterprises, and unifying prices and exchange rates under market influence. This process of handing over state control to the market proved to be a relatively easy source of growth. Simultaneously, China embraced "opening up," lifting export restrictions previously imposed by Western nations. This culminated in China's accession to the World Trade Organization (WTO) in late 2001, transforming the country into a global manufacturing hub and a significant driver of its economic expansion.

The demographic advantage was undeniable: China's population was young and the world's largest, providing a vast pool of cheap labor. Unlike some communist states that rapidly moved rural populations to cities for industrialization, China initially tried to control this migration. However, the allure of employment and wealth proved too strong, leading many farmers to move to cities despite restrictions. This created a unique class of "migrant workers" (nongmingong) who fueled Zhu's export-driven growth strategy with low wages.

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But there are things Zhu Rongji forgot and missed while enjoying the four bonuses of reform, opening up, population, and land.

Land also played a crucial role. By developing state-owned land, China could easily incorporate it into production, effectively increasing the available land supply. Local governments also benefited financially from selling land use rights, a practice that exploded with the opening of the housing market in 1998, making real estate a significant contributor to economic growth. However, Zhu's legacy is also marked by significant oversights. The aggressive restructuring of state-owned enterprises left an estimated 30 million workers jobless, with inadequate social safety nets in place. This created social instability and suppressed domestic consumption. Furthermore, opening the market to foreign companies stifled indigenous innovation. Zhu's administration sidelined efforts in crucial sectors like semiconductors, prioritizing assembly of foreign components over developing domestic technological capabilities. The challenges of managing the migrant worker population and the consequences of unchecked property development, such as speculative bubbles and housing affordability crises, continue to be pressing issues for China today.

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In the name of reform, state-owned enterprises were drastically reorganized, but in the process, 30 million workers lost their jobs. There was no social safety net to support them.