Creative Incrementalism: Governance Reforms in China Since 1978

In 1978 when Deng Xiaoping announced China’s reform and opening up, China’s per capita GDP was at the bottom of the world’s countries. Eighty percent of the citizens lived in rural areas, and the economy was controlled by State-Owned Enterprises and government plans. Globally, China had been inactive in international trade and invest framework for decades. After four decades of reform, the backwardness and closeness of China has been fundamentally changed. China is now the world’s second largest national economy and biggest manufacturing power. Its international trade in goods has been the number one for years, and China is now the primary trade partner of more than 60% of the world’s countries. Since the 18th Congress of the Communist Party of China (CPC) was held in 2012, new leaders promoted the China Dream to stimulate Chinese for higher achievements of the nation. The CPC has promised to fully eliminate poverty by 2020.

Despite the many serious challenges faced by today’s China, it is hard to ignore these significant achievements of China in the past four decades. It has been an intriguing subject of political science why China could manage to get through a complex and difficult process of transition that effectively changed the fate of 20% of world’s population. What has been the governance foundation of China that supported such a continuous process of change until today, without triggering fundamental political and social crises and conflicts?

This paper argues that incrementalism, despite being a most important characteristic of China’s reform, cannot explain China’s growth and development by its own right. Gradual reforms happen everywhere and all the time in human’s life. To understand China’s success in using incrementalism to realize its multiple transitions, the most important thing is to notice the internal forces and conditions that created the reform momentum and shaped the reform pace and strategies. This paper proposes the concept of creative incrementalism to describe China’s reform in the past four decades. Creative incrementalism refers to a reform mentality and strategy that aims to change by maintaining status quo, not vice versa. It is forward-looking but only by incorporating important forces and interests into a change-oriented path.

In the following, the paper will first discuss major changes in important governance areas of China. After that, the paper will discuss the factors and conditions that forged the creative incrementalism in China, before conclusions are made.

The key to understand China’s political changes is the change of the CPC. Post-1978 reform highlighted a gradual shift of the CPC’s legitimacy base from revolutionary ideologies to pragmatic competence, demonstrated by the replacement of the old slogan “only the CPC could save China” by the new one “only the CPC can develop China”. China actively participated in the bandwagon of East Asian developmental states, and the state made economic development as its new foundation of regime legitimacy. In 2000, the CPC proposed “three represents”, defining itself as representing advanced productive forces, advanced culture, and the fundamental interests of all the people of China. The following CPC leadership generations continued such a development mandate by proposing political slogans like “Outlook of Scientific Development” and “China Dream”.

The post-1978 developmental state of China did not mean that the CPC paid no attention to economic performance before 1978. Instead, the CPC made serious efforts to industrialize China and improve the citizen welfare. The major difference was that economic forces were basically controlled by China’s planning system before 1978, while multiple forces especially market forces played major roles in the new era. Meanwhile, focusing on economy did not mean to abandon fundamental political ideologies. The Chinese political system, along with the turnover of leaders, will create new slogans and guidelines. While new political directions are proposed, they are always announced to inherit and develop the existing ones. The CPC follows the warning of “no (open) disputes” of Deng Xiaoping and avoids public debates over controversial political issues.

The shift of priority to economic development led to popular performance practices in Chinese politics. A political meritocracy appeared to merge the advantages of both modern performance measurement and China’s tradition of selecting good and capable persons as officials (Bell 2015). Officials at all levels of governments faced both incentives and accountabilities designed to maximize their performance targets assigned from above (Jing et al. 2015). They were given discretion to make local decisions and could benefit in person. Meanwhile, top-down monitoring was imposed on them by measuring their performance on specified targets and exercising rewards and punishments. As this system extended level by level until reaching the grassroots governments, it built the so-called pressure regime that incentivized and forced local governments to be competitive and innovative in achieving policy goals set by higher level governments.

Besides incentivizing and disciplining officials, the party and the government have made policies to keep open to elites and citizens. The CPC formally announced that private entrepreneurs were also laboring persons and could be party members. New economic and social elites were able to be members of various political organizations like the People’s Congress. For example, ICT leaders like Ma Huateng and Lei Jun are both delegates to the National People’s Congress. The CPC now has close to 90 million members who are mostly middle class. In recent years, Chinese government intensified its policy to recruit and promote civil servants with grassroots working experiences, trying to connect itself with the public (Jing and Zhu 2012).

China’s economic reform highlighted a gradual process of tentative changes followed by formal policy making and institutionalization. The acceptance and practice of market rules demonstrated continuous learning, adaptation and expansion. In 1982, the Twelfth Party Congress proposed “planned economy as the main pillar and market economy as a supplementary element”. In 1987, the Thirteenth Party Congress proposed “combining planned and market economies”. Another 5 years later, in 1992, the Fourteenth Party Congress finally decided the economic reform goal as establishing “a socialist market economy”. Although protection of private ownership was enhanced after 1978, only in 1999 the Second Plenary Session of the Ninth People’s Congress passed a third constitutional amendment to legitimate private economic activities and other forms of non-state ownership. In 2007, the Property Rights Law was enacted which equalizes the protection of private ownership to that of state and collective ownership.

To build the market economy, one major policy change was to adjust the public ownership structure. In the 1980s and 1990s, state-owned enterprises (SOEs) experienced important reforms. They were first given more autonomy to operate in the market like market players. As it turned out that they could not do well, in the 1990s a grasp-large-release-small policy was adopted. Middle-and-small-size SOEs were mostly privatized. Huge SOEs were kept and incorporated. In 2004, enterprises under state’s ownership control only produced a third of China’s industrial output. Most specialized economic and industrial ministries that supervised the huge number of state-owned enterprises (SOEs) were abolished in these two decades. Now the central government only supervises a few more than 100 SOEs. These are giant corporations such as the banks, oil companies, and electricity companies. Besides, land and natural resources were partially privatized. In the 1990s, commercial real estate market began to appear and became a pillar industry in China. Since land belongs to the state, developers and homeowners only have the right to use the land for a long period of time like 70 years. In rural areas, household responsibility contracting system (HRCS) was first introduced in the early 1980s as spontaneous peasant innovations. HRCS was later made national policies. While rural land was not privatized, HRCS provided quasi-ownership by offering decade-long lease to peasant families and by offering them autonomy in making investment and production decisions. Due to the large-scale rural–urban migration since the 1980s and a demand of economy scale in agricultural production, HRCS has experienced various kinds of reforms such as the further contracting of land among the peasant families.

Another major move was to build the market. China’s economic marketization happened first in rural economic reform that allowed township governments and villages to build Township and Village Enterprises (TVEs) that could produce light-industry products for unsaturated urban markets. Although TVEs were defined as “collective”, many of them were managed by private individuals and families, leading to an ownership reform since the late 1990s to clarify the ownership status of TVEs. Some were changed to be private enterprises. Meanwhile, international investments were invited in the early 1980s. The scope of foreign investments continued to expand. Encouraging policies toward foreign capital were adjusted gradually that highlighted China’s economic changes and evolving priorities of economic cooperation. Meanwhile, domestic private enterprises emerged in the 1980s and grew in high speed. Like foreign-funded enterprises, their scope of business expanded and now could do investment even in weapon production. A vivid example is the prosperity of BAT (Baidu, Alibaba, and Tencent) that leads China’s ICT industry and successfully promoted the “internet+” policy that was recognized by the central government as a national strategy in 2015. BAT owners, unsurprisingly, are among the top ten richest families in China. Along the development of enterprises in the non-state sector, pricing of both products and capital was gradually liberalized.

There was a gradual process of selective social deregulation following China’s economic marketization and social stratification. China’s household registration system (HRS) was only relaxed step-by-step, basically due to the formation of a nation-wide job market. In 2003, the Sun Zhigang Incident finally led to the legal change that recognized citizen’s full freedom to move. HRS is now basically linked to the access of urban residents to services like education, hospital, and social security. Meanwhile, due to the collapse of working units, the government has strengthened its social welfare system. In 2003, the concept of Harmonious Society was proposed by Hu Jintao, aiming at providing basic safety nets for people in a highly marketized society and avoiding government–citizen conflicts.

Social policy evolved. Population policy has been a most important one regarding its impact on citizen life and national development. Since the one-child policy was formally introduced in 1980, it experienced adjustments according to the population changes and policy feedback. Rural families were allowed to have a second child if the first one was a daughter. Families of specific ethnic minorities were allowed to have more than one child. Since the twentieth century, families were allowed to have a second child if husband and wife were both single children. In 2013, families could have a second child if either of the husband and wife was a single child; two years later all families were allowed for two children. Now the policy concern is how to encourage qualified couples to have their second children as socioeconomic conditions are not in favor of having more children and the birth desire is really low.

The symbiotic relation often sacrificed the professional development and service capacities of social organizations. In recent decade, Chinese governments got more positive in developing social organizations that focus on service delivery. Since 2011, industrial and commercial associations, social welfare organizations, charity organizations, and social service organizations in Beijing were allowed to register without having a supervisory agency. In 2012, all social organizations could be built in Guangdong Province without having a supervisory agency. Besides reforms to relax supervision and registration control, governments are providing increasing fiscal revenues for social service contracting and social organization incubation. In 2013, the Office of the State Council Office issued the Circular No. 96, encouraging governments to contract with social forces for services. Relations between governments and social organizations are getting more diverse (Spires 2011).

Administrative reforms have been critically important for China where politics is absorbed by administration (King 1975). Administrative reforms happened in multiple areas of public administration in a more or less coordinated way. The paper provides a brief overview of some important aspects of the reforms.

China’s governance reforms happened in many sectors and they were not always successful. Yet on whole these reforms pushed forward China’s fast process of modernization and globalization and made China once again an important country of the world. China’s gradual reforms have important features that supported a peaceful and fruitful transition. This paper generalizes this Chinese way of transition as creative incrementalism. It is a concept based on existing discussions on China’s incremental reforms (Fan 1994; Zheng 1999; Tao and Xu 2006), and it highlights a path of change that emphasizes longitudinal and horizontal balance under an authoritative center with a strong will of change.

More specifically, given a one-party system, a fundamental issue of public governance in China is to achieve a positive balance between development-oriented empowerment as well as firm political control of administrative organs, both from the dominant single party. In other words, good governance is conditioned on two mandates: the political center’s will and capacity to empower, reform, and lead administration for pro-efficiency and pro-development purposes, and its will and capacity to avoid abusing political control over administration. There can be internal conflicts among them as an administrative system enjoying discretion to handle complex economic and social issues may invite more political control which may affect its performance negatively and even fatally. This may explain the general failures of highly politicized administrative systems that finally lost their capacities to handle development and pragmatic issues.

Compared to the planned economy era of China, tensions between politics and administration were much relieved in a time of marketization and Chinese economic miracle. Chinese reformers ever tried unsuccessfully a “separation” reform intending to introduce a relatively neutral administration in the 1980s. Follow-up evolution of politics–administration relation consistently stressed the principle to consolidate and renew political leadership over administration. Various accomplished transitions and developments in China seem to suggest the coexistence of improved administrative capacities and strengthened party dominance. Given the essential political distrust over administration, the self-restraint of a political monopoly to exert its power deserves an exploration of its necessary and facilitating conditions, whose sustainability and change may shed good lights on the future governance of China.

Preliminarily, this paper argues that such a self-restraint is due to two levels of factors—strategic and cognitive. Strategic factors are direct influences, including the rise of performance legitimacy, the subsequent mixed control strategies, and globalization.

Rise of performance legitimacy makes performance, especially economic growth and prosperity, a must that cannot be sacrificed significantly. In the early 1990s, basic values and purposes of the CPC were clarified as reform, development, and stability. Performance was used to justify political legitimacy, gain popular support, and reduce social unrest and political challenges. This well fit China’s cultural and political pragmatism. A series of administrative reforms were carried out to strengthen the instrumental capacities of the administrative system and to modernize bureaucracy. Growth and development themselves became political targets and tenets, and performance priorities continued to evolve. Post-1978 highlighted depoliticization as well as a repoliticization of administration.

Mixed control strategies emerged as a result. Compared to most other countries, China’s history of centralized, large, and complex bureaucracy is much longer. It was a traditional problem how to control and mobilize such a big apparatus which had superior information, professional strength, and complicated internal systems and dynamics. The planned regime, while giving actors in the nomenklatura system privileges to access scare resources, endeavored to deprive them of discretion and self-seeking behavior. Post-1978 history maintained the integrated organizational system, but created new incentives by admitting, formally or informally, innovation and profit-making behavior of governmental agencies on condition that such behavior was aligned with developmental purposes and state building priorities. The welfare created by China’s economic miracle was largely by the administrative system (including party bureaucracy) that could attract and retain elites, and could return with compliance and loyalty.

Globalization was another factor. Unprecedented economic globalization, driven by performance strategy, has pushed forward China to get opener in all aspects of social life. Globalization has significantly influenced China’s public administration, by providing (a) references, examples, standards, (b) theories and perspectives, (c) pressures, demands, resources and incentives, (d) justification and excuse, etc. Modernization in China, despite an emphasis on Chinese characteristics, is deeply linked to the adoption of western models. Major administrative reforms show consistent learning from western models.

Cognitive factors are relatively indirect but exert long-term influences, reflected by the learning (creation, distribution, use and update of governance knowledge) of the regime regarding appropriate politics–administration relation. How could a dinosaur like this effectively identify problems, sort priority, learn, create and disseminate knowledge, and change? The creation, production, distribution, use and update of governance information and knowledge in the political–administrative chain provide cognitive explanations of China’s governance effectiveness.

A comprehensive learning system has been built that, more or less successfully, avoided systematic bias of attention and fatal interruption. Learning sources include not just western references, but history and tradition of China. Radical reforms based on external learning never happened. Learning chain is complete and is both diverse and centralized, thanks to a centralized decision center in China that affords stability and predictability. Learning mechanisms are effective, usually starting from controlled experiments and ending with formal and national policies.

This paper reviews multiple areas of governance reforms in post-1978 China to explain the country’s quick rise in the global map of economy and politics. The paper proposes a concept of creative incrementalism that highlights China’s capacity to maintain a reasonable sequence of reforms and to balance reforms in different sectors. It is argued that China’s changes were driven by a reform mentality and strategy that aimed to change by maintaining status quo, not vice versa. It is forward-looking but only by incorporating important forces and interests into a change-oriented path. The paper argues that both strategic factors (performance legitimacy, subsequent control strategies, and globalization) and cognitive factors exist to explain the effectiveness of China’s political governance of administration that maintains an appropriate balance between the state’s two priorities of development and control.