Created: 5/1/1986

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China's Second Revolution

china's second revolution




Origins ol ll,,-

The Pdillcal

Revitalizing (Aina's Eamomy and


A ccocipluhnicnli




China's Future: The Moat Likely

A Leas Likely Alternative: The Reforms

Can China Dtamatlcally Succeed or Fail Beyond

Our ExvecMkim?

Implication* for the United

scope note

ChlTww leader Deraj Xiaoping in9 chgractrmrd the reforrru COtiducted since the Third Plenum of ihe llth Central Committee In8 as a, "secondhich "fat an unprccedenled thing in China's history ol thousands olhese reforms Involve fundamental polilical, economic, and social changes, probably the most comprehensive and systematic ever underlakenommunist regime This Estimate exessders what the second revolution is. how It Is affecting Chinese irsstftuttons and society, and bow It isto develop ewer the nestears- It also considers various courses tbeae reforms might take and how they gre likely to affect US interests

(reverse blank)


China's far-reaching reformin Communistalready achieved certain notable successes and is likely to continue, albeitomewhat reduced pace, over the neil decade. This means thai In the broader overall contextower and in Bue nee willxcapect that will offer both sigrilpfarit new long-tenn opportunities and challenges for the United Stalest.[

The principal goals of the reformwhich in their totality clearlysecond Chinese

To restructure, reorient, and rejuvenate the politicalThis entails reorganizing and reforming the party;party and state functionsi revamping Ideology along more pragmatic lines; estabUshing stronger legal and institutional structures, and bringing younger, better educated, and more qualified personnel into positions of responsibility.

To expand the economy. This entails narrow ing the scope nf central planning and gradually allowing market forces tomore economic activity; improving efBcVncy.and quality in production; raising the standard of bvinsj; developing more effective financial Institutions; graduallygovernment involvement; promoting developmentelatively unregulated tertiary sector; opening China's economy lo foreign participation; and giving priority to existing industrial bases.

Toeaner, more professional military establishment. This entailsounger and more educated officer corps; reducing ihe overall size of the armed forces; constricting the role of the military in the economy and In politics; reorganizing military regions and commands; and acquiring and deploying improved weapons and equipment from domestic and foreign sources.

Toociety leu constrained by political and social controls.

To expand ties to the outside world lhal wilt assure China breathing space that will enable it to cttrtcentrale on Itsefforts to modernize and provide access to economic, scientific, and lechnical support

In seeking these ends, there will be significant constratnli that will fashion, slow, and under certain circumstances, possibly halt certain of the reform effortsime:

Deng Xiaoping and his tupporxers face th* extremely difficult talk of loosening certainorder to stimulate the 'cirphv.iy. creativity, and flexibility rrecessary to achieve the goall oftn the process, losing their own monopoly of power. Thii buic contradiction may prove to be the smalt- most vexing problem these leaders will confront. Inasmuch as they believe they can establish far-reachingreform and yet maintain the leadership of the Party and the Mar till- Leninist character of the society.

Sharp differences exist among the leadenhip on some issues of the toope and pace of reform. While we believe that the broad thrust of reform will continue, the imrjlernenlation of various policies will be highly uneven, owing to these internal difficulties;

Traditional mccmic systems of guenxt (personal reUtion&hip) networks, favoritism for relatives, going through the "back door" and other traditional methods of doing business will not speedily be abolished. If at all.

Senior officials who fear that retlremenl will bring loss of power, prestige, and porki will continue to resist someof reform.

Concerns will abide, especially among lower ranking cadres, that the reforms will not endure.

There will also be concerns that the raped opening to the West will allow "unhealthy Influences" to enter China and will also make it too dependent on foreign countries.

A myriad of technical, financial, and managerial obstacles will impede the ability of China,meet its reform goals. Some of these problems are not wholly within China's own ability to control and are cruciallyInfrastructure gap* in energy and transportation

Finally, the effort to modernize will create disruptive economic and social problems such as Inflation, corrupt Ion. Incomeregional inequalities, and occasional outburst! of social discontent

How the party approaches these Issues, and the particular scope, character, and pace of reforms over the next few years, will be influenced significantly by bow well the succession to Deng takes ptace-




We now believe that ihe mechanisms ire In placeairlyand lhal the? leadership thai follows Deng, for the mostshare Ihc goals and priorities he has set. These successors willwhere necessary to adjust the pace of reforms, from timewhen faced by marked polilical hratance and economiccortstraint

Tbe maintenance of reforms will also be affected significantlyforces. China's ambitious revolution will not be taking placevacuum butroad context of interacting outside pressuresmost notably from the USSR, the Unlled States, and Japan.setting we believe lhat the Chinese will continue to perceiveare not imminently threatened by the Soviet Union and willto concentrate resources on economic modernization. Chinacontinue to value its economic ties to the West andwill continue to push strongly for infusions of foreign

Despite the many hazards that wilt confront China's rncde?rnizalion effort, we believe the most likely outcome over the next decade willeneral continuation of reform and an unecrn but gradual growth of China's economic strength, stability, and power. This means that, in broad terms:

The| for the most part bring reasonable prosperity and will give most of thelake In the continuation of reform.

An avowedly centrally planned economy will attempt to make increasing use of both market forces and political intervention and will encourage flexibility and competition within certain carefully prescribed sectors.

The economy and the society will in many respects be opened up still more than at present but without the parly losing itsand control or the society losing Its distinctively Chinese Communisl character.

The pace of reform will be uneven, progress will be start and stop, there will be Incessant disputes over priorities and scope, and leadership shifts will occur as various members of the second generation attempt to strengthen their respective power and authority. Bul. we believe such developments will not lead to major turmoil, as occurred during the Cultural Revolution, and will be more or less confined to the type of political struggle we have witnessed over the last eight yean or so.




China will develop an extensive web ol interlocking trade, technological, and financial relationships with othermainly Western countries andthis will include markedly expanded ties to the USSR.

China willoreign policy that is more activist, including competing more assertively with newly industrialized countries to sell to foreign markets, maintaining an aggressive policy of arms sales abroad, and playing one country off against another in order to obtain the best possible terms for foreign markets and investments. Belling's foreign policies willseek above all to avoid such external conflicts as might Interfere seriously with Chinas primary focus

Should this "most likely" protection prevail, with China'seffort meeting modest success, the significance for the United States will be profound. Among the principal consequences:

The growth of Chinese power will be gradually accompaniedorresponding expansion of Chinese regional and global interests. China will feel more confident and capable nfIts interests In the strategic triangle and probably will genuinely move toward its avowed objective of anforeign policy.

China will continue, and perhaps escalate, its pressure on the United States to reduce arms sales to Taiwan, and willpressure the United States to convince Taiwan to accept Beijing's terms for national reconciliation-

There will be continuing opportunities for US trade and Investment, as China will want to continue its favorableand other ties to the United States and other Western countries. How willing Belling will be to continue to mute some of its more nationalisticas recovery ofachieve these benefits, as It has in the past. Is uncertain.

There will also be some opportunitiesimited expansion of US military cooperation with China, primarily in the regulariza-tion of exchatiges at various levels. However, China will not wish to rapidly expand military hardware acquisitions from the United States.

The gradual growth of Chinese power and influence will complicate US relations with other countries In East Asia. Some countries will increasingly try to persuade the United States to place restraints on its assistance to Chinese military modernization.


China will continue to Ix? wary ol the Soviet strategic threat and of Soviet intentiont. but will likely be increasingly willing to engage in various forms of economic and other exchange with the USSR; China may also eventually be willing to restore party ties However, these improved economic and potitictil lies will not lead lo Chinese cooperation with the Soviets against the United States, because tbe United States and the West will remain more important than the Sovietsource ofInvestment, and other economic advantages.)

Though less likely than iht protection posited above, another plausible scenario is one tn which the technical and political problems we have noted gradi-itly overwhelm the reforms. Such an outcome would be one stopping short of total collapse or total failure of reform, but one most likely to resultermanent recent ralizaliun of authorityightening of economicore centralized and repressive regime probably would not be able to resolve Chinas economic problems, and popular support would dwindle over time. This alternative is alto likely to br accompanied by an upsurge in Chinese natiorntltarn. The Chinese probably would blame the developed countries for their problems, but are also most likely to be suspicious and hostile toward the USSR. China probably would escalate rhetoric identifying with various Third World causes and might allow territorial problems with Its neighbors to become more serious. We believe, however, that the political unrest and nationalistic excesses on the scale of the Cultural Revolution would be unlikely

If this scenario were to unfold, there would be greater challenges for the United Slates since China probably would become even more stubborn in asserting Its retjional demands. The Hong Kong settlement could unravel, causing the Taiwan issue to become more difficult. There would likely be setbacks across the board In economic, scientific and technical, and cultural cooperation, though we do noi believe these would be abandoned altogether Suspicion and hostility toward China b> Japan and Southeast Asian countries could increase, and these countries would likely pul greater pressure on the United Suites to avoid policies that had the appearance of strengthening China. Some Chinese Icier* might want lo further reduce tension with the Soviet Union and perhaps even develop closer lies to replace links lo the West, bul others would continue to resist, harboring lingering suspicions of Soviet intentions.

At for other alternative futures, we believe thatlmost no likelihood thatramatically more rosyramatically more pessimistic scenario for China will prevail. For China to succeed in its

reformj well beyond our project ions, it would requite fundamental changes in the political, economic, and social system that are not in the cards during tbo period of this Estimate. Likewise, we believe that the party and people would notew "Culturalven If the reforms failed rniserably. Even if either possibility occurred, the forces that would producehange would be so cataclysmic as to preclude an effective estimate of how US interests might be affected.afe to say, however, thatuch more pcrwerful China, or one that ut wracked by turmoil, would pose greater albeit different cbaJJenges to the United States and would not be in our interest.



ot Iha Reforms

I At the hurt ofecond revolution rrint ton ot how Chtm wiH rttocrcrniae an mar thai hai enlmaled all Chinese polilicalInh century Wuh ihe ending ol ihe Oiilural Revolution and Mao Zedong's deathany Chinese -ere convinced lhat Mao's course had been dlsatt'ou* The Communist Party's leadership was seriouslythe ecoDotrry was In bad shape and artenet of asektate throughout srarsety was growing Trus situation enabled Deng Xiaoping loomeback and lo begin to reeslabllth and consolidate his petition. I

ince the Third Pktnum ofh Central Committee Ineng has effectivelyroup of other reform minded linden bt actstcv-ing malar political and economic rrnovatioot. which are now alto producing fundamental social chengr as wed. These leaders, while accepting and defending the primacy of the Communist Party and the maintenancear list-Leiunsst stale, have resected many of the policies Identified with Mao. particularly the eitrrtn-rtm ol the Cultural Revolution Though not esstlrely In agreement among themselves as to the scope and pace ol change, tbey have Identified key areas in which change Is necessary If China is to cnler the net! centuryodern tied, unified, stable, and powerful state In their view-

The leadership of Ibe Commune* Party and tbe vitality of tbe state can only be assured if authority Is MCeeatlully inttitutlonaliied rather than being vested In one charismatic leader.

Comprehensive economic modernisation and Improvements In the standard of living require material incentives and cannot be achieved by relying princrpaJly on normative eiranrUttoras and coercive campaign!

Modernisation abo requires lhat Ideological pre-cepti endorse scientilic and technical ratlonaliry rather than undermining it as Maoist dictums on "red versus espert" did.

To obtain the neceaser. ingredients forChina must Increasingly Interact with the outside world, particularly the Wesl and fapan

ince the Third llenum, Drug has hadcon* tend with various lorms of oppmltion to his reform agenda lie has covnprorntsrd "hen rwecwarr but has been highly effective In getting much of hit agenda adopted There has been significant change In thr nature of the Chinese policy debate in the pasl seven years Unlike ihc earlier period of Cummin ml rule in which wide policy oaci flat torn "err the norm, the reform program hat peogreasrd lo the point where debate and policy conflict ere over pace, scope, and tactics rather than on whethet reform is needed In other words, even Deng's opponents favor reform. Even If the Cetiawer onK muodlr through' ut ihrrw years, it ts unhkrb lhat there -ill he dramatic leadership or policy shifts over whether reformi are desirable I

The PoHtlcol Agendo

eng and his supporters have said lhal for the entire reform agenda to succeed, both political atrue-tures and key personnel eatsst be clanged They haveumber of irwlltutiorml CrMnee* to enhance the eflactericY and legitimacy of the isarly. These Involve:

RrorgonUIng rhehe key changes la-etude the rerabilitatton of the Secretariat, the abolition of the Chaiimaroir.p. and the reetntc-tunng of eommititoni within the CentralTrie purpose ia to provide more discipline and responsiveness to party organlratlona

Separating parip ana' Hale function There hasajor reorganisation ol tbe stateincluding the restoration of the position ol President of the People'seduction in ihe number ol mlmatilci in the Stale Councilorresponding reduction in the number of Vice Premiers, and an effort to setew tlate military coromissiar. Deng has said lhal thr party should withdrawolicyrole and should (ores on Iradership The pm peer here is to prevent the concentration of power in one organ or presort, an abuse thai Deng believes led lo Ihe escesset of the Cultural Rr solution

Palorin Barte*"narbi

Stiium. t'outthFro-

I I Premlei . gfllal'i rninrt tath

incnned effort* In pramol* ihr "lourolrrdjKr> tttlioaal ckrtrrne and rnrr

Ud IILlatelOgl V FoMbwr.

deleted leipLrrnmuiion ol wrcdic

DeambrrThirdlh CentralDeng Xteoplnf bralm to uumrand Sale Cod aril IVrmtrr

Haa Caa(*ng. rdorn pr"*rarn Initiated

lia Crnr-afir*inolhrrrb) weakening leftlsT IrJiarnce la ihr folllnuro. Parti Secrrtartat nuUiihrd.

Annul0aiion nl

party and eovetmnant funriliuia. rrnphaiimand retirement ol niperaroiuied iaVnb lo open door tor aaorraUed prrvawvrl. Haa rrplaoad a* Premier by Zhaona

Orrsrnrwr IMp. Politburo luiprndt Hua Irooi offl-cirJ duties Drnf assume* Iradenhlp of Central Com. mHirr Military Onmlaalon. Hu Vaobaiia lain chargr of part* bairraocrict

JaaaeI Ilk CrarrW Commit* Hb rrplaort Haa aa Parti Chairman, ovrr nameDeng -no approvil of 'Knoliiliofi on Parr*hich t> ahaiply criticalmamao*

i-'liii andolu. j. precepli

mrrra* Nrstn11iiutmi aboluhri Chair ma mhlp.rrwnaittlMt mm' Um-raVaaented on iMarmal bats

NourmberSnnon. fihk .Voriraaaf Frv-nlrl Congrei Hem stair cnnriMuiwn adopted, wktrb nslored poaime nf Pm Kir in. peoples Resroblac ofin irttaar for mast trap Kateali ran and irptarfi msawn nilla fcmarfiif ai banc adiBanbtratlrr unit

r.if iJih Central- Com. mine* Kicks of( party "trctiBcallon" campeatno wrrd oM "Wm" ard wasnprtrnt cadrrt alWrtk of Ihr nam

* Crn'eef Ctwi-

filer. Rnokillon artoptrd eslrndlne ralorm lo Include tnvernrnrnt cnMrol ol ksduitiypricend cenlral plannrna.

Sratfrwabrro/ Defer*Retire* large number ol aged parti ao-ernmrnl snd militarypprove* ihr principal direct km ol thr Seventh Five-Year Plan.

Max*Aafunai PaststVi Coagaru ^pprovr*jh FWr-TeM Man. -Wii nib lor moaW rra-Donalc frmlb and reafhnti* CttWcommllinrre in reform and the "open door" bul contalm no new la'nrni inMlativet.

tdtoloou. While defendlnia ralirn-Lenin Ism-Mao Zedonghe refcerneri are redefining II to lupport theirpoilcleahe emphaan on "cleanbetter red thanndoirl idtjetteoenl eahorta-tiont rttrn arJeo*Ccy must make acceptableforce* in the economy, foreignnd other policies that "seek Iruth Iromhe legitimacy of party authority Increenogly It ei plained in economic performance term* rather than more obscure theoretical contlruels

EttauViarttrtgntKtoU if Itmtixt, Besides reirr.iterating legal institutiona. xach a* the proc-uiaci (which proaecules cesetl and the count andegal code and new laws aRrcting all facet* of *oclety, Deng and hb astodaies have created the eipectallon Ihat there will be tome fimlti on the exercise of authority by the slate.

Increased predictability and corvtroli on theexercise of authority will enable the regime lo obtain greater commitment from it* cltiiera. "oecially ibe Intellectuals whose willing partkl-pation i* required If modernization Is to work.

ajor rBort I* aho being made lo invigorate Imtiti.indi by reeruitrnent policies that favor younger and more educated people Without completely *bol-ithlng wklespread ftrailt lavoruura and ftaenrl Iprr-tonal rrlationshlp)eng and hb vipnurlcn areersonnel system which-

kUiablUh an age Hmll for utrlotat affitn Innd aoorrnrtienl An age limit ofor government minium and AO for vice mimstert hai been estsblohed The ageA for ordinary Central Committee niembet* but for rotitburo rnembert the age i* uncerialn; prrsi aourev* indicate that It ranges from TO

7 ministersdlrecton of Committee and Stair Council Depettmetrtt have been rr pieced, along withf Iheir deputies. At ihe provincial level.f iberovincial level administrative unit* have hadparti tecre-tariea. andave had new governors Nearly all ol these chanters rrnee* the new age limitation*

Ensures ihml erffe* educe tr a* ewe' morerwnonne' ere eppetarrd io perty endporillow! Morerer-fourth, of theew rnernben of the Certtrel Cornanittee tnpouwed al Ike9 Neatonalof DrlefBies had receivedollege degrer or trainingechnical school or military waff school. Thb emphainttorn now es-tends throughout the intern

Promotes persons who <oill bt tuppence of iht rtformt. The age restrictions have enabled Deng to remove some tensor leaders opposed to his policies, while the new recruitment itiiidrlinei help him to place hit protean in key positions.

Deng and hia rupporten believe that thesechanges are vital if China it not to esperlence the eicesses of ihe Cultural Revolution, wiwti unawet able to manipulate the lev en of power, wreaking great havoc on the nation.

These rnengwa do notat the systern of favoritism (or rrs and fuaitil networks endemic lo Chineae political life will be speedily abolished. Evidence susjaests thai children of high-rankingare heavily favored In recruitment for desirable position! in governnunt and Industry.and guamlery significant role In determining who will be promoted lor rumple. It is strongh believed thai the newly appointed Ministers for Public Security and State Security were chosen not primarily becwuae of (heir (jualiBcat lor* but because ol their personal ties to Hn Yaobang

& Reformrri are not political llbcrali who favor Individual rights and democratic procedures Quite Ihe contrary, they ere deeply committed lo -bit they

'"Socluhsl democracy It in** Individualisticrtnnrjcv lie tbe naunrltv id ueopte. It can be trpirated neither Irom dusaiorthipnnr enemies nor Irom rrntrelbm bawd oo drmorruri We ihoitldursue caprtalist bbrriliratKin Purtulnc capitalist liberali relit* In our countti It rental to lolkmlra tbr eiipitaliit road, which will lnr>-ilably on great damaatP to ihr political srlualion nl uabtlHy and unit, aadtr modernisation! program "

Front an article bin Ifonaol iflrd FIomI Ift November


term "the four basicamely, adheringsocialCommunist) toad, upholding thedictatorship, upholding the leadershipCommunist Party, and adhering toand Mao Zedong thought at Interpreted

RevitoliiLng Ovino't Economy and Society

ft As Deng and hu tuppoiters seek to retcent Chinete polities, they aho recogrUae that the tucceu of the second revolution also hinge* on achievingprogrna Amoral the moal Important areas are-.

the tcopr of centre! planning and gradually allowing market (oreet to determineeconomic activity, while maintaining eco-tornic liability by meana of monelary and fiscal policies

Improving efficiency, productivitv. and quality In (induction by proud ma enleipriw managm and la inters more authority over planning, output aod marketing; by demanding greater hical rriporwibility. and by breaking uporganised relation* and encouragingbetween economic unils

Raising live standard of living by allowing more Individual freedom to esercite entrepreneurial tklllt and accumulate wealth, and by promoting moir production of eonvumcr gnodi whllrrsew policies lo help the economicaDy disadvantaged

DevrtOprra mere effective financial inatiMUxre lo Improve allocation of foods, rnemtre enter-prise activity, and influence ihr rate andof economic development


Gradually eliminating government Intervention thai tllflrt reirtomic growth, tueh at controls on prices,nd wages-

Promoting devebprnentelatively tnsrrtsu-htted tertiary economic sector, (uch a> service InduatrVea sanels-scale transport, and marketing

Openingconomy to foreign partklnar non tn cwder to acquire advanced lecrtrtolugy. investment capital, and martagarnenl ikllhv

Giving priority to existing industrial base*

ID- The pohtlcal end economic reforrru arc being accompanied by socialell Chief social goeJi iin Im le

Revamping the education intern, giving prvwity to scSrotlfic and technlcwl thills Admission! to cesVesea aod wliirdrtai are to be beted on qualifying foauninaliora,yMeea of degrees has been restored.

Esnsna lunltt on artistic and cultural rtpreuion

Givingore prominent role in party and government affairs and extending greater rxaettee to IrrteUectuel endeavors

Eeetssg public restraints over re! igloua observance and over colt oral eipreatlon by national mlnorttlaa

These aocial change* are teen as necessary for creating greater popular support for the parly. Nevertheless, tome key controls will remain In place: birth control migration, and Ubor unions. |

Ml Story Reforms

eng and bat rwformW oo*lcespjea want athat tt learner, more profeetaonal. aad better trained and armed. In pursuit of this obtective they have:

Pushedounger and more educated officer corps withthnical tpccialiratlon Older caffkers have bean forced Into rrttremerJ and younssnr cases promoted

begunedaction In the overallof the armed forces byillion personnel, from aboutillionillion Thli Is being done lo save money and Improve tha quality of recruits

the role of military units in theexample, they have taken ihe Railway

Cotutructlon Corps and the CapitalEngineer Corps out of PLAat the same time using many defense industiies for civilian production

Reorganized military regions and conarnands lo simplify command and control

Acquired and deployed Improved weapon! and equipment from foreign and indigenous sources.

ttrough these changes ia thr PLA. Deagthai Its minion of providing national security can be aocompruaSrd more effectively and arts eapen-ttvely. Al Ihe same Hate. Ihe ouatary as aa loatMatJoo may banana Seta likely toagnificant rJotneeHc political role to the degree It dad during the Cultural Revolution. Thus far. there have not been substantial Increases In ihe militarypubllihedbudget hat actually been somewhat reduced sincethuuld Ihe PLA go forward with an-nounced intentions of Improving weapons leehnotogv. costs could Increase autatantialry. In any case. Ibe auciraat of the military ncaSerruntior. depends on the sasceeat of the economic program We behave lhal the reformers wiH bead lo their policy of sekretivesy and gradually Improving weapons technology, avoiding the mrriv lhal would be entailedapid buildup


he reforms have ahead,uasaaeneustal impact on Chinese poetics, economics, and tociety Moreillion cadres at various levels heve been retiredounger cadres promoted to posts at or above the county level,ercent have college or universityt the most recent party ccaifrrence of delegates In September.lderly members of tbe Politburo resigned and were leplaced by Hi younger rxraooa. andlder membm of the Central Committee resigned In favor of younger and more technically qualified pertom.1

ven mote dramatic have been the economic changes In China. Annual growth over the pa at lew yean hat been running aloercent, -ell above Ihe growth target Belong needs to accomplish its goal of quadrupling the total value of industrial and agricultural output by the0 (see table) The



oals for Economic Development

ioIui* o/ liMrWrufirfiiWrnml

D Willi* gtMUI.

Supwibb- Prim









Ml (IS

' PmkcW Santo- Prnninftv-aiw ton Se-vmrh tlvr-

Yrar Plan. March 1SSB

Pokctni Sower ol unsn lor theTV Central Coawnittee. aoal ol0 CVIAO Coal lamwd ai midpoint bet-em ISOO and SXCareeM of Se>miti Five Tear Plan ate reached (IS4IK. mhwournl anab -il tadvbrnnrd

responsibility system" hai led to anboom in many of China's rural areas, bothof productivity and peasant Irvcorne.

The overall standard of llvins of the Chinese people has Improved considerably Coupon rationing, has ended for clothing and most foods. Rural dwellers have seen their annual per capita Income more than doublep touan. The gap between rural and urban living standards hassignificantly. Thereider variety of prod, ucts and consumer goods available.

The reforms are perceived by most Chinese as having delivered the goods thus far, and the reformers are courrting on popular support to keep thegoing. Chinese leaders repeatedly assure foreign visitors that the reforms are highly popular and for this reason can be sticcewlully continued P

Reform Obstacles

n spite of these accomplishments. Ihe pace of reforms and the degree of implementation have been and will be uneven because of both technical obstacles and political resistance- Among the chief technical obstacles are:

Probltmi in developing rhe managerial lalef Many economic managers have successfully achieved goals based on quantitative production bul are now ei peered to perform in an envtron-meni that demands quality. Innovation,skill, and profits. The educational system will have great difficulty providing the skilledChina needs-

Shortcoming! in financial capabilities. AsS foreign exchangewhich thediscovered iheir reserves were beingmuch more rapidly than anticipated and moved quickly lo regain central control overdemonstrates, China may have difficulty commuting the financial resources necessary for infraslructural development at the appropriate time. AcMUsonally, ihe unleashing of strong Inflationary pressures by the reforms has disrupted both investment and planning.

Difficultiet in acquiring and absorbingCertain technologies are unavailable owing io COCOM restrictions or because Westernrefuse to provide It, fearing thai Ihe Chinese will subeequently use It to compete with them. Even so,Belling has acquired cspenstve technology from abroad only to have it remain unused for want of trained personnel.

Jn/rortrucfurruch crucial areas as energy and transportation. China's short-term


Specie! Economicut of tha

Ike 'irnrj ofithri' il autharlard tin deal ton ol iprclal romantic *onc* aa partolttt diirclad at InVmllilna Ihr forrtgn trade ntttn and oawntni Ihr rvonorni H> ihr Wrt* Fee* aaayr* -err aaUbflaaod to torn aad cmtrewnaan ta-ejlmoet. Xtamm and 9iMw drwaard aa ooecinliaat onhatttiai eaportiratW tnaa and Shrrjhrn and Zhvhal. bordering an llona Kong aad Macao respectively, designed, dlvei iliad development All loan Dane* offered hvrsSSOt*Labor, reduced rerrti and tin and icalrd dean oritomi dulknv Thr*ltfatt forrtan imaUorot In InfiaatrixturrrB a> hi tnetatrtrr ibaa wonM promete eipocti aad "Jam

trrhnoiiapcal dor-lopnwi' Ropoodiiji towin ol

crMra lhal Iha Special Loanonile Zones tSEZal were IA* ike treaty parties* thrhr raforroeri asarrtrd Ihat unlike Ihe illuatioo In iha pail, foreign invofvemni would be on Clalneaeot fenced by the fofetan-

Initially, the development of ihe SKZa -aa itueauh but bralanlrg3 there wu lipid rapanston. parileoWH- bs4 Shansiwaractad TO wit aaa* of the tots!aada In imri bi SEZa and IS percent el iota! laaltaed foraSga Invest arot hs China Tata, tiatettwt with heavy Halt In imiiit in inlianruerural ptotecti. tuuliedajor boon Inlientben and malted thr result* Hat vten ib era ad to allay ccocrm IhM the SEZ rspreteaeet would be abortI*Jul tk great vaJn* of moWrtal aad aarlrsuraisl output in the (our aoott went fromatlton yuan3 lo IS halbon yuan In IVM. with Shiruheo accounting (or aboulercent of the growth. |

Ilo-fin. mm* unlomrrn rrsulli canard Chlneec rsslleyrnakrrs tu haw wmnd ihnuehu Meet ol ihe fflvMimcew baa awnr Maormhrr ihaa la-rrrasrs In fttttfttntttnl mm. oar.oar-tMnl nf aalesthe SEZa ban- been made abranJ. arhtlr tww ibirda have been la China Eicon teat* to* stwrubrn were luppowd la reach2 btatkrnut between IDoO and IBM ihn incrrssedm USmillion toiny fraction of official protect ioru1 ibe four tone*radr deficit oflnon In general ibr SEZ*lbd lo *erve the antlctpatrdfometlrw sad havr lallrd lo attntrtmdattn Aha,aC(Tw*rr im*W* Itwl Uwy haw lednrruOtM tad the (tarred of ipfrHual polhiinaa' an China

Id mhl-lMM Ctriortr leaden arrmrd lo bebet* on ihrrag teUired to tkemI menial" and wuntrd lhal tliry could beIf thrtt inn pur wai not arlilrirrl. Cu Ma.ibr SFZ portfolio In Ibr Srrrrtarlal. pira atilird nrrtew taApril IMS Ca wa* reeaowd fiaea ihe SetirtailalPart*Conference ofeal" m

The SEZ'i lailtuiter record In obtaining key obiec-llves hai probably urnHhrd ihe credibility of Ihe policy. If not Ihe colKrmakrr* Rrfernarri are tumUv awitchlng thrir erateit for China* anederniaation and are now focwMoa on nntramaai lerWdrev mi major iratesUtal crwtm itwcnarh atntnmi aoaweawM. andowtwi. it arems mhhrh tW ihe SEZ concepl wlU be ataarMooed: rather, the* wtl meat ulrery record raodeal aaln* a* the* tomprw atthng Chi new Inalustrial cUas lor lorelan ln*nlinmt

approach Involves dependence on coal-fired plants, which create pollution and place an added rnaden on mining and transportation Tbe long-term plan calb (or cKpentlve nuclear and hydrotarctrtchich will have no payoffs untilrlouj problem, which onlyIrrveatmenl ran help lo solve Chinese railways areat tent ovrrbookod. and port congeitremely severe. Attempts to Increase tiaghway use (or ihort haul commcrcrj wlU be costly and will Increase demand for fueh that ihe energy lector may not be able to

IS Reform polieVei have generated ora hotl of serious dlflkoltiei In China* economy.

Among these problemi are double-dirrtite In eehclal corruption, scdall* duruntive Irvcorne daparitirs. and rttponal inequality These prrsblrrus have generated both social discontent, as measured by student dernonstiathma. and political controversy at the highest levett.ttr kc]

lso political resistance In ihe reforms. Slgnlfscanl bsuet incrudr

Slrensl dujtftnca among iKr fcodmAlp at to thr extent and pice of reform. Some leader' have tried to dow and modify the relorrm becautr they bebeve ihai moving too rapidly and loosnderainiag party aMhceitr.

The fear of toting paver end pert* anions; irnlor official* who are beng retired.


We moil InU-nMlv ideological andrk unci preserve Ibr pmttfeof ihrepartment*.rk There are now xtrnc people. InrludlnR awm- perilhn havr Inrmkm ihr piefaaltitliimmuiir*!and iHineil ihrlr backs on pcrv-iielr- Wirem havr hmmr rich by unlawful mrao*nd iwtctdlr. trail, and arerpUiwrwibn In ihrir drilinrcforeigner* Ihri' haw no cnw-drralmxI or national dranlli Thete problems van be amVnut-ed lo the rrlaiian nf tdroloavil and political work and the decline In ihr function and authorlli of drpartmrnlt in charge ofwork. We thould lake ihba leaaon Parti* orgamialiow at all level* ihould conduct irirokiglcal and polltieal work in rainealauna id ike authority nfrpoilmenta

Chen Tun. apeech al CCP National Conlerrnce5


The concern among tome officiate. tMrlirviarft, lover rankinghal ihe reform* will not endure. These official!wait and tee" attitude and move slowly and caulloutly, if al alL in Implementing directives.

Concent ihat the rapid openinghe Weal will allow unhealthy influence* to enter China and will also make China loo dependenl on foreign countries-

hus far. both Deng and his opponents have sought tohowdown on the Issue that must Inevitably arise: will economic modernizationoosening of Ideological strictures and politicalTo date we lodge that the party remains deeply divided on this Issue The dilemma of trading political control for Improved economic performance willfor the neatean. I

Deng'. Mortollty

he party* ability lo overcome obstacle! lo reform and to continue with tbe arcond revoeUlion hinges on how orderly the succession l-ccomplished. The inechanfsmi are In place for an orderly luccrssloo. but the future of reform depends on the nature, character, and policies of Deng's tuevrs-sort. Deng hasigh priority tn pulling In place those persons he deems moat committed to reform, yet he haa also had lo accept ihe irrntnntlon off other loaders, including those who havepojcdome element! of ihe reforms Reform tucrr-tt ours much toolitical skills and -ability lo iiesrntialr among competing Interests. We doubt ihat hb luecri-voe will havr the Hme commitment to reform or fit* negotiating ability. Nevertheless, we brllese thai ibr leadenhip thai emerges after Deng for the moat port will share hit emit and priorities even Ihough it will includr tome whoifferent approach.|

External Influences

hina's reform effort has been perceptiblyby eaternal force* and -ill continue lo be so over the coming decade Of particular importance has been the shift in Chinese perception* of threatorrriponding shrift In foreign policy rmphatbdemands for"united from" against Soviet "Itegemonism. heard during thr high lidr of Sino-US cooperationave given way lo the declaration of an "Independent" foreign policy that seeks to treat the iiuctpowm more evenhandedly. While there has been no ,i'bilantive Soviet change on key usurs lhal divide Beijing and Moscow. Chinese percept lorn have shifted. They bellevc-

The United State* has increased IU power and vlgllence against the Soviet threat.

The Soviet* are brxoming ovetextended in their activities In Afghanistan and Vietnam and are also dbtracled by their peoblcmi at home and In EattCm Europe.

Avoiding armedssentialhal China will have time and resources toe

New Soviet leadership mlghi be eventually more forthcoming on China* three maior condition* for normalizing trillions.

In the past fewated rationalewith tbe West has progressivelythe strategic countering of Soviel power todesire for financial and tctAnohtglcalfor China**

hina has fostered improved lies lo the Soviet Union, and rapid gain* in trade, perhaps as much atillion annually by the end of the decade, areinrade agreement concluded by ihe two parties. Though far less than China'* trade with the West, thi* trade rspansron Is evidence of

tJilnrwillinatirti in otaeurv or nverlon* tomedifferenceshilr seeking nuttier nl tat ion InIhc Chi neve probably will continue In mc carewith especially wnalllvi- Ittttrs In order notpotential Sovici contribution! Innixatton

he pace and dour re ol Chinese reformsInfluenced hy how tucccssful the Chineseihey wiM br in acquiring modernisationihcprincipally (ram the Unitedurrently ihr Urgentlter Honat Kong, and hat worked totrade aatd economic cooperation ThereChineae students In ihe t> led States,number abroad In any country, and theperceiveew- aludents are ameansrine eipertise We brlievrit Iricreaslngly concerned wtth Issues suchInvestment, tludenl eurhange. and the USCOCOM reilrictloni on China Chinesemilitaryon with the United StatesSome etementt of tlvr leadership favorcooperationeant of promotingwhile othrti want to downplay

China's Futurei The Most Likely Prospect

eng and lilt reformist colleagues have already scored remarkable achievements in reorganliing ihe political infrastructure and improving economic pro ductivtty In certain sectors, such as agriculture, where reform pollcirt have been applied tnost eileroively The economic reforms in China have broughtprosperity and have given thetake in the continuation of reform Reform policin have been Implementedtwo steps forward, one step bstck" (athlon. and we espect Ibis pattern lo continue We believe, on balance, that Iho Chineae leadership has demons rated siifhrx-nt tucrr-it In achievingcfSSSt* united, liable andand lhal thrtrend of rrliamduring thr prrvod nf ihrt Pwimalr

Nevectbrlrai <ae brlievr thai owe thr nesteers thrrr wiD br rontituilng political and economic probiems facing thedrrship thatotential lo threaten reform That is. there will be incessant disputes over Iheace, and side effects of reform, and leadership shifts will occur as various members of Ihe tecond generation attempt totheir respective praitvont But. we do not believe Ihese will lead to ntalot lutmoil as occurred during the Cultural Revolution, and will be confinedthe type of struggle lhal we have witnessed sine* he Third Plenum In

Economicasl likelyontinual ion of reform policies. Despite p_ with escrsstvr growth. inflation, and corr .tion. China't robust economy iter lablrl hai generated popular and polilical support thai probably will earn the leadership through the inevitable otUciIand lean years The reformers ability lo discover and retpond to problems in the economy has been an important factor In their record of success, and ae espect thislo br

Over the neatears, key featureseveloping Chine probably will include

A party leadership thai dominates policyacross the board

A bureaucracy Walled by relatively young,capable personnel

A social system thaienuous between economic liberal nation and polilical cnntrol.

An avowed centrally planned economy thatlo make use ol both market forces and political intervention to Influence ilsand encourage! fleaiUhly and competition within certain carefully dearnhed tectnrs.

An ritenavr wrb of intedocklr* trade,and financial ceiatwnthlpt wtth other cramtrira. rnalnly Wralern and Japan

An approach lo foreign powcv issue* that is rocee activist but dominatedesire to avoid unneorssary eatemal conflict lhalontinuina focus on tnockrnitation.

s CJiliiu ln-comee more prmprToiri. il* lordau

poMcy options will IlKTlW It uiB trek In 4

greaterrrnatk.nal .mlIr> "" .ill rttrtortcellyHorU

i**itkms tnMed smkmm .nootherAl Ihe sentr

Inidrrt, resworn Ic. biuncial. and tratk-tfes U> Ibrlihln Asia. Ciena -illugrrteol lis rotrmlonel power, rrcogiilrni* thai Ihe United Steles ami Ihe USSH err actively rtsgegrd In tlte region, but tee king overonger term In reduce lhal Involvement StsrciBroDv.helirte lhal China will-

IncreasinsuS trek irttrar.renti hi ICoerall prospecti for prece and ttabihtt In Ihr

A last likely Alternative, The Reforms Celrspsa

r ht-hrtr lltal anotherVlet*l ual ion -hkl. ledmk-altlrel iW-erm tuadiatl, mrewhrlm .hrTlir. .mildrrttwineMnritiiraaentr ontr*mthl br hriatghl da art In

aerie* ol roain rtma-nk wthuefo,unaway inflation* hurvevtx ag slagiuiul iotluMrUl gnmth for intake pMSusSal ami

l*Jllkal freedom* ii ihrratesi (la-

lurti'i corn" nil

unrrUwmrntv olt dW.aolaav

loJultiai In ihr (ambouui conflictmmklin Chitvctr iatcrvsti and influence in Indochina.

to avokl military action euvpttbe South China Sea where overlappingctjimt mvohr severtl countries,

e beturve that China .ill not rnovecloser lo iheeon Nornsahaatlonno-Soviet relation mayorward,includingrestoration ol party Vo part)ingency. |he Chinese will notIhe Soviets against Ihe United Stales, becauiewill remain more Important In China as ateehncJrjgy. Invettment, and nlher economkChina will Improvr rconnmtc rrtatthbut will meat likely continue lo regardruuor competitor for Influence in Easta strategic mihlary

reater pecdoctwnider ranee aiwill mean lhal China will compete morr aurrtivrly with newly industrialised countries to tell to foerttti. markets, especially In (hr developed countries China will alto maintain nn eggrrolvc policy of arms tain, abroad, which, wllh lechitnloglcal Improvetnenls. will make It irtcrcattirgl, comprllllve bt this market. Chinas increasing economic strritglh will male it even more attractive to forrlgiirrs in 1kmh market and lirvc*frrirot lerms. which In turn niil rvaahlr ihr Chinese lo ptav rase country aaaiml anrabrrrr to obtain the best pceaible term* Prveaopipg (ountrlm In East Aiat all! feel Increasing prr-ourr from Chine', development

W Should thrw.nthr, .Mrtrtblresull In ihr ending ofr -ouU anthipalr llw following uu.iti..ii

infighunH fliiiima party rlittt. avcim-IHUlIrdi iminolHlbm and klo-

logicltl ,

!letrsanii in ihr burr.wear, a> In-hnkal-ll quahbdkarrlorm pant tdk^angurt

A social ststrrn eisafatleriird by itwrnatriatas Ihr regime mmrt lo dtvnantlr rrfornw arkl rrimpiar crntral aulhrirt(|

Tlie hroadrncd anitli. atlim of central planning ii .ui llmlUlkais on market form In theevsHiomi.

An Incrnisttl <tuplkiMt on arlf reliance, prrhapn Including atteniplt lo limit Urttm iMtllcipellim InOiiiBiiecnniiini

orrtgn pnlsr, Uklrtg IllMm ptrrsurdtroculenl miurr

This morr crntraliml anil rrfirrssitrwould nol he alOe Inrnlileins. and poiwlarw.wtkl tluiridlrThis alternative ton I, Ibe ati-omuaiitnl'tpsurgr Iuialionallain. Tl-'Chlm-st'mutt likely In luanic list' ilftelnuetl imuslrlfsunililems bulremain tuiim-kais oflowanl China.lWorhl tbctiirk atal oughtwith li.mllonK Knae: wltlrownlwnravH rausincbaur lo lavmtve mtwr .Irfhewll Wrthai pililwalmi latiorulbtkIhr wish- of the Cullb-volution would


Con China Drornalkolry Succeed or foil Beyond Our E?

Weighly unlikely thai ihr Chtnnw reforms will aurcred dramatic-Hi or fail mbrrahly In oroW for ihr reforms to acoorapiteh much morr lhananlicipatr-

The rear of thr part* wvwld havr to br luethrt diminished and greater polilical pluralism introduced

SUratst-Lanlnbl Ideology vrnulrl have lo crate Iu be thr baali of Iraitlmate authority.

The hurraucracy would have lo brrnmr much morr technically tkllletl and Intulalrd fnun pcJit-Ical

Thr rcormmy would rrrtulrr much Iras govern-mml intervention and would give primacymarket lorcrt

In rtchangc for Waatrrn know-how andChina aoukl have Iu aranl much arralrr foreign accesi lo ill domrtlk- markets.

Over ihr period ol ihb Estimate ll it highlyihe Communln Party would cwunSraaacethai magnitude, prrferring lo maintainihaa ranatUy acceteeat* the pace ot*

t It ante highly unlikely lhat the reform, -illajor economic or political tolkapar with accompanying Cultural Revolution atyle umoohobia. Causes ofol la pee would tndudr

complete breakdown of cotwewtut among the leadership, resulting In violent polllkalpurges, and probebly mililery InlervriHlon.

The emergence of regional power center*with Beijing for polllkal autlwcUy.

Extreme aocial polarliallon and the emergence of Ideological fanaticism.

Bureaucratic paralysis leading to failurr topolicies effectively.

StagrUllon. Increesed unemployment crop lait-oret and famine, or other distant lorn of such magnitude that the rrforma are totally dUcrrdrtcd

Wc behave lhal having come rtoer lo the* type ol political and economic collapse daring thr Cultural Revolution. Chi near kaden. rrgardkw of iheirtoward reform, will (ry to undertake whatever steps are rircessary to prevent this degree ot* svMrmk break down J

Implications for the United States

ur must likely alternative fur Cliilm's fnlurvind Uit bosk-ally favtirabh' situation fin tW Unltedore politically stable undprutperous Chine with increased Ik's lu uml inlrractioiys wllh ihe I'nllnl Stales, la pun.t her Westernasoal nl I'S nolrev" decade or more In this respect, ihc prngirss of Chtnu'y reforms cornplltnent US policy. Neverdieiew. the very success of these reforms will bring, both opportunities and challenges for I'S policy makers as ihey dealore capshle mid cimBclrnt China in ihe decade* ahead. |

P believe lhat ihe key opporlunities fur ihe United Stales will he:

A potential for tlie etponsion 'if mutual Irade and Investment

Continued areas of nolltlcel cooperatloii: ipecifi-cully. both sides villi wish to limit Soviet power and iiyQnence in ihe region and will want peace and stability on ihr Korean Peninsula.

Some limited espanskwi of mill!in cooperation, primarily In the regultrlzallon of exchanges at various levels; however, we believe lhat China will rrot wisli lo rapidly expand military acQuHl-Ifemi from ihe United Stales.

Better cultural lies and unoVrstandlng because China wiO wish toroad level of Wiulent. cultural, and scientific exchange

vf Mitfw tntn iite try crmingtei inr ine Unitedll bri

Continuing prrwure un the Urritrd Stairs to reduceev In Taiwan.

lncreaairar lavteure on Ike United Stales loTaiwan lo accept rVittng's terms forrecoea-iluiioai

Onlinuuig andcalatiiar. drmaiKb lhat the United Statestttivr Ircrnxl-Ogy to CI-jij and reduer ihard-party Irarofer restrict tora

Conllnuing pressure Inr US conception! on trade and investment

Crowing Chinese cnmpclilUcneti in East Asian markets. P



be gradualol Chlnete powerwill cwtiplicele US relotior* withIn Ihe region Many Soulvianview China aa an eeoeieeole eornprtlinr andalarmed as China Increases lasloother Western market* Increasing Chlnesrpower will be viewed wilh concern by *ome1 thai wtll try to persuade tbe United Stale*ratlralnls on Us aaalMance to Chinesethese countries do not apprecialeof US kainence on

norJerately nice awful reiormm hwdmbip wfll teek to maintain or enhance China'* position within Ihe Urateglc triangle The attitude of clcee, itralegtc coc*peratlon with the UnKed State*he Soviet Union thai China evcauraj inot likely lo reoccur during the period of ihii Eatlmale. Rather. China will mcaa HkeiyIn tad srayi to csplott cUBerersces between the United Stela and ihe Soviet Union |o_ enhance Its own position In triangle. |

n uVrihat our fen III, r, bul plouiibte. icenorio unfokU. China wouldore *erk>us challenge to USould probably be even mere Mubborn In asserting itse wonld tnlsctpals thai:

Cooperative St no-US' ecoeaaenic lies would be redssced

Beillng would meet likely ctcakite II* demand* that the United State* stop arms talca lo Taiwan.

Military cooperation with the United Slates would he cut back.

Escbsnge. In *cienti6c. lechnical. cultural, and other areas would falter.

China would Increasingly adopt an anti-USIn international fora and in propaganda.

Under their clrcumitanrct we could eipertina would be more auwellve on regional Issues China might renew moral and political ties lo pei> Beljlng Soethrstt AsianseawewarraU and underr clrcumstancrs might be willing lo Aghth upgrade lie* to thesehile seme leaders might also want to reduce tervtion wtih the ussr and develop closer tie* lo replace link* to the Weil, thi* tendency would be mitigated by Ungering tuipkion* of Soviet Mention toward China.

Refoanplei rxeMlcsu.and meial rjhenssesenon whose future course cannot be peectielv predicted. The contlnaHy or ebruv donment of the pohWs and *truetural change* ihat ernerge from themvofullon" will haveUcplication* for US Interest* in Ask andWe believe, however, thai Harming Mccess or tgnominautanly highly unlikely, but are tied lo ao many imponderable! a* to mlllgair aaairut prokctlDB ipeciltc implication of these olternatirei lor the United States.!




tat dor.-rwrW wot dhaemexeed by thef Inteafrttnte. TMtor rh.

know boat- AtMHwndJaeoaaaaaaton waybrarntioli watte.rrwitWMi ii Ih

o Matter, mmm of brlwTgMci and UmaroV. lor tar Owaartatasri ol Matt)dor. Detsnae IHiaVaiPin Af/tncy. fora ofertiary of Dal am*o^ ol Srofl AaiitlaiM Chiwf of Staff forof tho Array Mreclor of Novo! for Iba Department of Iha Novy Anlilonl Chiel of Storr. Inrefllcjanu. <or mo Dtporrmarrl of tha Air Faroe Dtreeter of hieaigarieo. forAerineAiatlml UvWy (or Imsflkjawa. lor tba Oipairiiiiiil of Ciwrpy Aaahaoo*ftt. for tha 'lowal kraai ofDa-actor af NSA. krrwi SacvntyeweM XmlUmi to ma Secretary far Moolone* Socaerty. (or tba Dapof fha

b Tha DsfttOy Qtrtxtoi for IrriaObaanca lor any ceher Dtcatrtmee* or

bo rarolned, or detrroyarj by burning in nod to Iha Ot-tKtorerl* ot InlalUflmta.

H for o

dcxumanl mould be daiiroyad requeued ofr wording


hen mil document It porlod not in atcttt of one year. At or rtrturrrad lo Iba lorwnrdlng agency, or agency lo raloln ii in occoedooc. with2

he lllle of thi document whan inod aoporatety from 'he Mil ii

Original document.

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