ABSTRACT
This chapter analyzes Deng Xiaoping's economic reforms of the prior ten years, examines the positive and negative effects of the reforms, highlights their basic contradictions, and explores those economic and political dilemmas that contributed to the unrest. Until 1978, the economic system of the People's Republic of China was modeled primarily on the Soviet Stalinist system. Little attention was paid to the economic performance of the enterprises, which had no bearing on the remuneration of their employees. The mainstay of economic reform, however, rested in the delegation of greater authority to individual enterprises in order to transform them into relatively independent economic units responsible for their own successes and failures. In addition to the reform of the economic system, Deng also initiated an open-door policy to revive the economy. The marked economic growth from 1984 to 1988 was constantly fueled by an excessive expansion of aggregate demand from three channels: rising wages and bonuses; capital investment; and banking credit.
