Preface

In a paper delivered at the Chicago Conference on China’s Economic Transformation held in July 2008, Steven Cheung called China’s economic transition from a communist system to capitalism “the greatest program for economic reform in history.”1 Cheung’s conclusion is doubtless correct, but what is equally extraordinary is that the series of events that led China to become capitalist was not programmed and that the final result was entirely unexpected. Perhaps an even more extraordinary aspect of this whole tale is that this move to capitalism was carried out under the auspices of the Chinese Communist Party. It is a striking example of what Hayek has called “the unintended consequences of human action.”2

In 1982 the Institute of Economic Affairs in London published Cheung’s pamphlet “Will China Go Capitalist?,” a question he answered in the affirmative.3 Cheung’s conclusion was viewed by almost everyone with outright disbelief. Even he himself was cautious in stating his view: “The transition will not be rapid.”4 It is reasonable that he should have thought so. Communist indoctrination over the years would have given people in China an extremely unfavorable view of the workings of a capitalist system. Furthermore, as Cheung points out, a change to a capitalist system would seem likely to encounter the opposition of the army and government officials who would fear that their position would be threatened by such a change. Four years later, in 1986, when the second edition of “Will China Go Capitalist?” was published, Cheung, while acknowledging that he had “underestimated the speed of change,”5 concluded that “economic reform in China can progress only at a considerably slower pace than in the past five years.”6 In fact, the change continued to be rapid. The effect of communist indoctrination on the views of ordinary Chinese proved to be less important and the opposition of the army and government officials weaker than Cheung had thought. China did become capitalist in a relatively short time.7 In this book we describe the series of events that brought about this result.

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Our ignorance of such an involved subject does not allow us to investigate all aspects of this astounding human drama. There is still much we do not know about China’s market transformation. Moreover, many of the reported facts on the subject are actually not true. As new facts emerge, what we say will no doubt have to be modified in detail. But the broad picture sketched here is clear and is not likely to be changed.

In this joint venture, Ning Wang provided information about events in China and their interpretation. The two authors then collaborated fully in discussing their significance and relevance, correcting errors and realigning arguments. The final product is the result of close cooperation.

Our arguments are based on information we have gleaned from interviews and a vast number of Chinese and English sources, which can be found in the Notes and References at the end of the book. Our interpretation of the information may differ from how it is treated in the existing literature, as it clearly differs from the existing literature on a number of important issues. In order to keep our narrative clear, we rarely engaged the existing literature directly, which is immense and keeps growing. What follows is our account of how China became capitalist.