From Revolution to Reform: China's Unintended Economic Transformation

Few anticipated that the “socialist modernization” launched by China’s post-Mao leadership would, within three decades, evolve into what scholars now call one of the most significant economic transformations of the modern era. This complex evolution shaped by the actions of peasants, workers, intellectuals, and policymakers forms the core of the story we seek to recount.

China’s progress remains uneven. Despite remarkable growth, widespread poverty persists. More Chinese citizens today have access to mobile phones than to clean water. Legal rights and personal freedoms remain constrained. Yet, over the past 35 years, the country has been fundamentally transformed. This transformation is not just a national story but a global one. China's development reflects, and in many ways defines, the broader struggle for economic and social progress in the 21st century.

The End of the Leap Outward and the Rise of Reform

With backing from Deng Xiaoping and other senior leaders, Hua Guofeng launched an ambitious economic modernization program in the late 1970s. Labeled by critics as “the Leap Outward,” the plan prioritized heavy industry through a state-led, investment-heavy model reminiscent of the “big-push industrialization” strategy in development economics. However, the program was short-lived. By early 1979, it was abandoned, undone by both internal flaws and a shift in political leadership. At a pivotal 1978 Central Committee meeting, Deng Xiaoping and Chen Yun returned to power, sidelining Hua.

Deng Xiaoping, well known in the West and the subject of Ezra Vogel’s detailed biography, is often credited with spearheading China’s economic reform. Yet, Chen Yun played a critical if more understated role. As the architect of the first Five-Year Plan in 1953 and a staunch advocate of central planning, Chen nonetheless recognized the strategic value of limited market mechanisms. Having grown up in Shanghai and trained in business before joining the revolutionary movement, he saw room for private enterprise within socialism. Chen had opposed Mao’s Great Leap Forward and was purged as a result. Upon his return to influence in 1978, he became instrumental in crafting China’s new economic path. He argued that the Chinese economy suffered from structural imbalances—an overemphasis on heavy industry at the expense of light industry and agriculture, and a dominance of state planning over market activity. Convinced that Hua’s program exacerbated these problems, Chen decisively terminated the Leap Outward. Despite opposition from the State Council, he implemented a new reform agenda, initiating what became the second wave of state-directed economic restructuring.

This phase focused on two fronts: macroeconomic adjustment and reform of state-owned enterprises (SOEs). Investment was redirected from capital goods to consumer goods, and support for agriculture increased significantly. In 1979, Beijing raised agricultural procurement prices by over 20 percent and expanded grain imports. Reforms also decentralized foreign trade and granted provincial governments more fiscal autonomy. At the enterprise level, the government sought to incentivize SOEs by allowing them to retain part of their profits and exercise more operational autonomy. These efforts would dominate policy through the 1980s.

The Quiet Revolution in the Countryside

Private farming, not official policy, catalyzed the real agricultural transformation in China. Though agriculture had been forcibly collectivized under Mao and remained so officially after his death peasants, disillusioned by two decades of failed policies and famine, began returning to private plots. Despite Beijing’s initial insistence on reinforcing the commune system, the momentum proved unstoppable.

By September 1980, authorities conceded, legalizing private farming in areas where public trust in collectivization had collapsed. By early 1982, the practice had become national policy. Official narratives later credited the state with initiating rural reform. However, the reality is that genuine transformation came from the ground up. Beijing's contribution raising grain prices and increasing imports was minor compared to the fundamental shift toward private land use.

A History of Mixed Economies and Persistent Contradictions

China’s economic evolution cannot be fully understood without revisiting its earlier history. The Communist Party did not only rise to power in 1949; it had governed sizable regions well before then. In the 1930s, Edgar Snow described the Communist-held Northwest as an economy blending private capitalism, state control, and cooperatives. Private land ownership and trade coexisted with state-run industries in oil, salt, and coal. Cooperative enterprises operated alongside both private and state sectors.

This model of mixed ownership persisted in places like Yan’an, where Mao Zedong directed the anti-Japanese resistance and began shaping China’s future. As one historian notes, the Communist Party did not attempt to dominate every aspect of the economy there. A significant private economy, including large landholdings, continued to operate. Mao’s 1940 essay, On the New Democracy, further clarified this duality. While revolutionary in nature, Mao's vision for early-stage socialism included the development of capitalism under proletarian leadership as a strategy to lay the groundwork for future socialist construction. The revolution would be led by the proletariat but rely on a coalition of revolutionary classes, allowing for multiple forms of ownership and economic activity.

Even in 1957, eight years after founding the People’s Republic, Mao acknowledged the role of capitalists. In a speech to provincial leaders, he discussed paying fixed interest to capitalists for seven years as an act of political, not economic, expropriation. The aim was to strip capitalists of political influence while preserving their economic roles if they contributed to national development. Mao believed the political power of the bourgeoisie must be eliminated, but their economic utility retained when necessary.

A Return to State Control Then Reform Again

This pragmatic coexistence endured until the twin disasters of the Great Leap Forward (1958–59) and the Cultural Revolution (1966–76), when mass mobilization, collectivization, and political upheaval derailed economic progress. Material incentives were discarded, ownership diversity suppressed, and central planning intensified. Factories descended into chaos, and production stalled.

By the 1970s, China’s economic dysfunction mirrored that of the declining Soviet Union. Reports described a workplace culture of apathy and absenteeism. Public sector workers received salaries regardless of productivity. Private sector employees, many formerly from the state sector, retained these habits, defying managerial discipline with both resistance and, at times, violence. Amid this stagnation, Deng Xiaoping rose as the reformist counterweight to Maoist populism. He rejected the notion that socialism should equate to poverty. “To get rich is no sin,” he famously declared. Deng emphasized that socialism must deliver rising living standards and efficient production. Echoing Marxist ideals, he argued that socialism should outperform capitalism not merely in equity but also in developing wealth and productive forces. Remuneration, he insisted, must reflect effort and merit.

The reforms Deng championed were not a radical break but a return to a model familiar in Communist-held regions since the 1920s: a hybrid economy under firm political control. The real anomaly, in this view, was not the post-1978 reforms but the tumultuous decades of the Great Leap and the Cultural Revolution.