Chinese Reaganomics: How Neoliberal Market Reforms Cemented Authoritarianism in China

Published by

Luke Drago


October 20, 2021

Inquiry-driven, this article reflects personal views, aiming to enrich problem-related discourse.

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When Nixon opened China to the world, economists and political scientists predicted that a wave of social and political reforms would hit the country. China has remained an authoritarian state despite its liberal economic reforms. With a closer look, it becomes clear that China’s authoritarian tendencies have survived because of their neoliberal economics, not despite them.

My words are not designed to criticize neoliberalism or uphold Mao’s economic theories. The former raised the standard of living in China and throughout the world, and the latter resulted in the death of tens of millions. Fair and robust criticisms of neoliberalism exist, but they are not within the scope of this essay. Instead, I seek to prove that neoliberal economic policies do not guarantee an open and free society. In contrast, when neoliberal economics are coupled with authoritarian regimes, their lucrative profits can cement the power of autocrats and despots.

Normalizing Relations

On the first day of President Richard Nixon’s historic visit to China—just hours after landing in Beijing—the President and National Security Advisor Henry Kissenger entered the living quarters of Chairman Mao Zedong for a private meeting between the two heads of state.

Chairman Mao and President Nixon represented two radically different systems of government and commerce. Mao’s China was in the middle of a cultural revolution that aimed to cement his power and ideology in the Chinese Communist Party. Mao’s revolution failed, but not before it could claim the lives of as many as two million of his perceived enemies. In contrast, Nixon’s America was locked in an increasingly stale Cold War with the Soviet Union, reaching a fever pitch in Vietnam. 

The capitalist democrat and the communist autocrat shared little in common in the eyes of outside observers. Nixon, however, believed the two men were more similar than either initially thought. 

Nixon viewed himself to be an exemplar of the American Dream. His morning peer into the mirror put him face to face with a populist, working-class success story. Unsurprisingly, he aimed to build his GOP into the party of the everyday workingman using cultural conservatism, racist dog whistles, and state intervention to assemble such a base. 

He and Mao shared a common past of poverty. Both rose to power through unlikely means.

“Mr. Chairman,” Nixon said to Mao, “the Chairman’s life is well-known to all of us. He came from a very poor family to the top of the most populous nation in the world, a great nation. My background is not so well known. I also came from a very poor family, and to the top of a very great nation.” 

With their similarities established, Nixon went to work to lay the foundations of a new future for American-Chinese relations.

“The question is whether we, with different philosophies, but both with feet on the ground, and having come from the people, can make a breakthrough that will serve not just China and America, but the whole world in the years ahead. And that is why we are here,” he told the Chairman.

On the second day of the President’s visit, the President opened a joint American-Chinese banquet in Beijing with a familiar toast that kickstarted a new era of American foreign policy. 

“And so let us, in these next five days, start a long march together. Not in lockstep; but on different, roads leading to the same goal the goal of building a world structure of peace and justice in which all may stand, together with equal dignity and in which each nation, large or small has a right to determine its own form of; government free of outside, interference or domination.”

Under the leadership of President Nixon and Chairman Mao, America and China indeed took different roads. Socialist China and Capitalist America used their influence to spread their respective economic systems. There was little reason to believe either would abandon their course. But new leadership has a way of undoing changes designed to survive a thousand generations. 

Following Mao’s death in 1976, Deng Xiaoping began a period of de-Maoization most analogous to Kruzchev’s de-Stalinization. Deng, however, did not abandon the joint efforts by Nixon and Mao to bring the two countries closer. Instead, he finished what Mao started. Following secret negotiations between Deng’s China and Carter’s America, the two rivals announced mutual recognition of each other’s governments and a formal establishment of diplomatic relations. With relations established, Deng had an opening into Western markets.

The Double-Speak of Socialism with Chinese Characteristics

China gradually opened itself to Western markets. Deng rejected Mao’s vision of self-reliance early into his tenure but avoided a rapid adoption of external trade. Rather than shock his country into the neoliberal marketplace like Yeltsin did years later, Deng’s China established special economic zones in a handful of regions. In the fifteen years that followed the special economic zone in Guandong, China fully embraced an export-driven economy.

Chinese Officials were keen to label their economic system “Socialism with Chinese Characteristics.” In reality, the “Chinese Characteristics” of this new brand of socialism were nothing more than double-speak for a full embrace of neoliberalism—an economic ideology built around advancing capitalism through free markets, open trade, economic liberalization, and deregulation. For a state to shift towards a neoliberal ideology, it would need to promote marketplace competition and move away from a centrally planned economy.

China did just that. The CCP deregulated its markets and slashed its taxes. Government revenue as a percent of GDP plummeted. Socialism with Chinese Characteristics was a full-throated rejection of any previous understanding of socialism. Mao certainly would not have approved of Deng’s embrace of supply-side economics.

The United States and its western allies embraced this new China. The US sponsored China’s membership in the World Trade Organization. It invested in Chinese manufacturing. Western companies moved their production to Guangzhou, Shenzhen, and Tianjin. “Made in China” became more common than speedbumps in suburban neighborhoods. 

By the 2008 Beijing Olympics, no reasonable observer could call China a socialist country. 

Today, China’s economy is built on neoliberal capitalism. It has embraced pseudo-Reaganomics to solve many of its economic challenges; It continues to cut taxes, embrace deregulation, and reduce state spending and ownership of industries. A country that once embraced Marxism now has more billionaires than any other nation on Earth

A few days ago, President Xi clarified his goal of “common prosperity” by 2050. While the plan still entails creating a society with a comparatively smaller gap between rich and poor citizens, Xi warned that other countries attempted to do so through social welfare programs without success. He declared that “the government cannot take care of everything,” and outlined a vision that urged Chinese citizens to avoid “lying flat” while their government steers past the pitfalls of “welfarism.” Pull yourself up by your bootstraps, in other words.

It’s easy to envision Margaret Thatcher or Ronald Reagan making such a declaration. It is far harder to understand such words from a self-declared communist state. Yet both Thatcher and Reagan led nations that prided themselves on individual rights, free speech, and open elections. Neoliberal China lacks these characteristics. What happened to the political liberalization that many expected to follow China’s economic liberalization?

The Lie of Liberalization

Many in the West celebrated China’s economic liberalization at the dawn of the 21st century. Western politicians embraced a grand theory of China that believed neo-liberalizing the Chinese economy would inevitably result in an open, fairer, and freer society. Market pressure would be a foot in the door. Global investment would first incentivize and eventually force China’s single-party regime to open the floodgates of free speech, free assembly, and even freedom of religious affiliation. 

The old Soviet Union’s Glasnost and Perestroika would find an analog in Gaige Kaifang (改革開放). Economists, political scientists, and politicians alike studied data from countries far and wide. In the vast majority of recent cases, modernized economic policy preceded a wave in social progress. Experts achieved a near-universal consensus: economic liberalization would lead to social liberalization.

President Clinton best summarized this position in his October 24, 1997 comments on Voice of America: 

“Chinese leaders believe it is necessary to hold the nation together, to keep it growing, to keep moving toward its destiny. But it will become increasingly difficult to maintain the closed political system in an ever more open economy and society. [...] The more ideas and information spread, the more people will expect to think for themselves, express their own opinions and participate. And the more that happens, the harder it will be for their government to stand in their way. Indeed, greater openness is profoundly in China’s own interest. If welcomed, it will speed economic growth, enhance the world influence of China and stabilize society.”

In the 23 years since those fateful words, the promise of a Chinese social liberalization has failed to materialize. China is undoubtedly less repressive than it was under Mao. Still, much of those changes came about because Mao’s obscene level of oppression is only sustainable in a country as closed as North Korea. When President Clinton spoke of an open China, he compared it to a China that is arguably less open today than it was during his presidency. 

Neoliberals hoped that their economic system would force China to embrace civil liberties. In reality, the rampant profits from this system entrenched the Chinese Communist Party. As the nation grew, so did the need for state control over the country’s political situation. The government needed to hire censors, police officers, and monitors. The CCP set up increasingly complex bureaucratic structures to maintain China’s tight control of information entering and exiting the country. China can afford to invest in institutionalized oppression because of its economic miracle. The Chinese dream is powering a Chinese nightmare.

Compared to the devastatingly effective power neoliberal reforms have at quieting international criticism, the raw cash flow it brings in comes in second place. When Nixon promised China a hope of relations “free from outside interference,” the Chinese Communist Party took him at his word. China has firmly opposed any attempt by foreign powers to address their behavior. Neoliberal economics entrenched China’s place in the center of the world’s manufacturing supply chain. No nation can afford to feud with the party’s leadership without risking necessities. These countries have sacrificed their production capacity for cheap labor overseas. A dispute with the CCP could turn ugly because China could cut off another country’s access to critical resources.

This isn’t a hypothetical situation. In 2010, China cut off Japan’s access to rare earth minerals (REMs) over a fishing dispute. These metals (which aren’t actually rare) are a core element in most technology products, and China has a strong monopoly on their refinement. Without an alternative to turn to, Japan struggled to produce its own technology. Eleven years later, Japan is working to diversify its supply of REMs to prevent further strategic withholding by China.

None of that diversification matters because China can always target the next asset. If Japan diversifies its supply of REMs, China can target another industry. China’s Belt and Road Initiative combined with its manufacturing dominance has assured that all roads lead to China.

Thus, the typical tactics of policing a belligerent nation cannot work. No country would dare to sanction entire swaths of Chinese industry. When sanctions do occur, they are targeted in scope. President Trump’s trade war went as far as it could have, but its impact on the overall global economy was minimal. The trade war hurt Americans far more than it hurt the Chinese government. Market forces within Western nations prevent them from engaging in the sanctions regime set up in countries like Venezuela and Iran. There is no appetite for policies designed to reign in China’s conduct that have any teeth.

Self-Censorship Abroad

The true promise of a neoliberal China was that market forces could compel China to change. The opposite has happened. China’s rapidly growing economy has forced the market to comply with its government’s demands to survive. 

No matter the industry, companies avoid offending the Chinese government. When an individual within a corporation that does business in China dares to speak out, their company seldom fails to apologize. When Daryl Morey posted a picture containing a popular chant in Hong Kong’s protests, the NBA issued an immediate apology. When John Cena accidentally called Taiwan a country, he posted a video on the Chinese social media platform Weibo where he begged for forgiveness in Mandarin. New York’s SupChina maintains a running list of major companies that have given groveling apologies to the CCP. New companies join it every month.

In Hollywood, filmmakers now routinely engage in self-censorship. The multi-billion-dollar Chinese movie market only allows approved films to hit cinema screens. To avoid enraging censors, filmmakers have removed references to Taiwan, white-washed Tibetan characters, and have even created alternative Chinese versions of films with any controversies scrubbed. LGBT characters have been minimized in films premiering in China, as have characters prominently representing minority groups that the Chinese government finds undesirable. 

China is now too big to fail. To compete in China’s market, foreign businesses have no problem succumbing to China’s political whims. Don’t believe me? You can count on one hand the number of companies with a sustained presence in China that have condemned the Uyghur genocide in Xinjiang. 

A Conclusion: For China to Win, the World Must Lose

Human rights groups, US intelligence, and an assortment of non-governmental organizations have all reached a similar conclusion: a genocide is happening in Xinjiang. The Chinese government is systematically targeting Uyghurs, forcing them into camps for “re-education.” China does not deny these camps exist. Instead, they claim that re-education is for the benefit of the Uyghur people. The truth is worse than China’s already-grim characterization makes it seem. Uyghurs are forced to do labor for the state. Women are being sterilized. Many allege sexual assault and torture. One report found that China has violated every clause of the UN’s genocide convention.

America has accused China of genocide, yet America continues to trade with China.

If any other country were accused of genocide with compelling evidence, the West would blockade them. If economic pressures could not work, military intervention would ensue. I am not calling for military action in China—such action would be devastating for all parties involved—but I am calling for moral leadership in a dark world.

The US would be well served to begin the arduous process of economic disentanglement from China. Other nations are eyeing such a challenger. Former Australian Prime Minister and current Trade Envoy Tony Abbot offered up India as a possible competitor in an op-ed titled “India the sensible substitute for belligerent Beijing”:

“Because trade deals are about politics as much as economics, a swift deal between India and Australia would be an important sign of the democratic world’s tilt away from China, as well as boosting the long-term prosperity of both our countries.”

Whatever the solution—a pivot to India, an increase in domestic manufacturing, or targeted, multilateral sanctions against industries that enable China’s worst abuses, to name a few proposals—it’s clear that the status quo cannot hold. The West has a moral obligation to prevent further harm. 

But China is not the only example of this phenomenon. When neoliberal market reforms are combined with authoritarian governing practices, the wealthiest nations shield themselves from criticism. Saudi Arabia welcomes foreign investment. Governments around the world shun each other for actions far less egregious than the human rights abuses found in Saudi Arabia. The same nations have no problem sending their heads of state to bow to the Crown Prince. 

To realize the promise of a liberal world order, we must be willing to put human life above profit margins. The liberal world order should not tolerate the abuse of women, ethnic minorities, religious groups, or LGBTQ+ people just because it enables us to stuff our coffers. I don’t pretend to know the solution to this, but I can acknowledge the problem. The rest of the free world must acknowledge it too.

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Luke Drago

Senior Policy Advisor

Luke Drago hails from Charlotte, North Carolina. He studies Politics & History at the University of Oxford and is a college member of St Edmund Hall. Luke has worked on campaigns at every level of government, from local elections to presidential elections. He has been a successful advocate for numerous policy initiatives, including a historic local investment into attainable housing. He is driven by a conviction that public policy can be a powerful mechanism to change lives and shape the future.

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