"This nation rather the politicians in particular must accept the concept of 5 Year plan initiated by Ayub Regime was a visionary step tthat had put the narion on the path of progress. If we have the conviction and the courage to return to it, Pakistan will bounce back. Many countries including China adopted it but we destroyed it." Raja Mujtaba

By S. M. Hali

The friendship between Pakistan and China, which has withstood the test of time, has been equated to a solid concrete edifice and been the envy of many in the region as well as the world. It is interesting to note that Pakistan won its independence two years before China but due to improper planning, has lagged far behind it. There are a number of lessons, which Pakistan can learn from the Chinese experience in executing reforms and assimilate them if it too wants to progress.

China’s glorious past, extremely rich culture and a very advanced civilization, had to face trials and tribulations due to its occupation by Japanese and European forces; circumstance, which are similar to what the Muslims of the Indian Sub-Continent faced. In early 20th century China was subjugated by various powers. Opium was smuggled by merchants from British India into China in defiance of Chinese prohibition laws. Open warfare between Britain and China broke out in 1839, in which China was defeated and forced to sign humiliating and unequal treaties, including the cessation of Hong Kong and Macau. During the Second World War, Japanese forces overran Mainland China and slaughtered thousands of Chinese. During the 1930s, China had developed a modern industrial sector, which stimulated modest but significant economic growth. Before the collapse of international trade that followed the onset of the Great Depression, China’s share of world trade and its ratio of foreign trade to GDP achieved levels that were not regained for over sixty years, mainly owing to the vicissitudes it faced, enumerated above.

Similarly, the Indian Sub-Continent was ruled in glory by the Moghuls, till the British, through their machination occupied this jewel in the east and plundered its riches and subjugated the Muslim population. It was not till 1947 that the British departed, leaving the Sub-Continent divided and ravished. Independent Pakistan comprised territories, which were already impoverished and to make matters worse, India usurped most of the assets which were designated as Pakistan’s share after the Partition. The frail economy of Pakistan took a further pounding because of the mass exodus of millions of Muslim refugees headed towards it from India, compounded by the 1948 Pak-India war over Kashmir.

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Let us look at the Chinese economy, which was heavily disrupted by the war against Japan and the Chinese Civil War from 1937 to 1949, after which the victorious Communist Party of China (CPC) installed a planned economy. Later, the economy was disrupted by the 1958-1961 famine which killed between 30 and 40 million people. Urban Chinese citizens experienced virtually no increase in living standards from 1957 onwards, and rural Chinese had no better living standards in the 1970s than the 1930s. At that juncture, the economic performance of China was poor in comparison to other East Asian countries, such as Japan, South Korea, and even rebel Chiang Kai-shek's Republic of China, which was artificially propped up by the west.

The remarkable turnaround came with the advent of the Chinese economic reforms that were started in December 1978 by reformists within the CPC, led by Deng Xiaoping. These economic reforms, taking advantage of market principles, were carried out in two stages. The first stage, in the late 1970s and early 1980s, involved the decollectivization of agriculture, the opening up of the country to foreign investment, and permission for entrepreneurs to start up businesses. However, most industry remained state-owned. Farmers were able to keep the land's output after paying a share to the state. This move increased agricultural production, improved the living standards of hundreds of millions of farmers and stimulated rural industry. Reforms were also implemented in urban industry to increase productivity. A dual price system was introduced, in which state-owned industries were allowed to sell any production above the designated quota, and commodities were sold at both planned and market prices, allowing citizens to avoid the shortages of the earlier era. Private businesses were permitted to operate for the first time since the Communist takeover, and they gradually began to contribute to a greater percentage of industrial output. Price flexibility was also increased, expanding the service sector. PRC was opened to foreign investment for the first time since the Kuomintang era. Deng created a series of special economic zones for foreign investment that were relatively free of the bureaucratic regulations and interventions that hampered economic growth. These regions became engines of growth for the national economy.

The second stage of reform, in the late 1980s and 1990s, involved the privatization and contracting out of much state-owned industry and the lifting of price controls, protectionist policies, and regulations, although state monopolies in sectors such as banking and petroleum continued. During this period, Deng Xiaoping's policies continued beyond the initial reforms. Controls on private businesses and government intervention continued to decrease, and there was small-scale privatization of state enterprises which had become unviable. A notable development was the decentralization of state control, leaving local provincial leaders to experiment with ways to increase economic growth and privatize the state sector. Township and village enterprises, firms nominally owned by local governments but effectively private, began to gain market share at the expense of the state sector. The private sector grew remarkably, accounting for as much as 70 percent of China’s GDP by 2005, a figure larger in comparison to many Western nations. From 1978 to 2010, unprecedented growth occurred, with the economy increasing by 9.5% a year. Resultantly, China's economy became the second largest after the United States, while economic pundits predict that if the same growth rate continues, it may even overtake the US within a decade.

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The remarkable aspect of Deng Xiaoping's policies is that despite his death in 1997, reforms continued under his very able successors, Jiang Zemin and Zhu Rongji, who were ardent reformers themselves. In 1997 and 1998, large-scale privatization occurred, in which all state enterprises, except a few large monopolies, were liquidated and their assets sold to private investors. Between 2001 and 2004, the number of state-owned enterprises decreased by 48 percent. During the same period, Jiang and Zhu also reduced tariffs, trade barriers and regulations, reformed the banking system, dismantled much of the Mao-era social welfare system, urged the People’s Liberation Army (PLA) to divest itself of military-run businesses, reduced inflation, and joined the World Trade Organization. The domestic private sector first exceeded 50% of GDP in 2005 and has further expanded since. 

The most objective aspect of PRC’s economic reforms is that its leaders have adapted to changes in the international environment vis-à-vis the country’s specific requirements. Herein lies the ultimate lesson that even successful reforms, need to be reviewed and a course correction is applied when necessitated. 2005 onwards, the Hu-Wen administration, took the bold step of reversing some of Deng Xiaoping's reforms. At this stage, PRC adopted more egalitarian and populist policies. It increased subsidies and control over the health care sector, halted privatization, and adopted a loose monetary policy, which led to the formation of a Western-style property bubble in which property prices tripled. The privileged state sector was the primary recipient of government investment, which under the new administration, promoted the rise of large "national champions" which could compete with giant foreign corporations. Thus China's economic growth since the reform has been very rapid, even surpassing the East Asian Tigers. China is widely seen as an engine of world and regional growth. Surges in Chinese demand account for 50, 44 and 66 percent of export growth of Hong Kong, Japan and Taiwan respectively, and China's trade deficit with the rest of East Asia helped to revive the economies of Japan and Southeast Asia. Asian leaders view China's economic growth as an "engine of growth for all Asia". After three decades of reform, China's economy experienced one of the world's biggest booms. Agriculture and light industry have largely been privatized, while the state still retains control over some heavy industries. Despite the dominance of state ownership in finance, telecommunications, petroleum and other important sectors of the economy, private entrepreneurs continue to expand into sectors formerly reserved for public enterprise, while prices have also been liberalized.

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The story of Pakistan, on the other hand is one of chasing mirages. In the early fifties, its leaders chose to align themselves with the US, which wanted to use Pakistan in the cold war era to contain USSR. Unwittingly, Pakistan became a sightless ally, remaining oblivious to the consequences for its own future growth. Various US economists used Pakistan as a lab rat to test their economic theories much to Pakistan’s detriment. For example adopting the Harrod-Domar model of development economics and numerous other growth models, which did not provide the necessary impetus to growth, had disastrous results. Improper emphasis on industry vis-à-vis agriculture coupled with poor governance and ill conceived economic policies led Pakistan to become over dependant on foreign aid. The result is the current economic crisis, where international debt from IMF and World Bank on stringent conditions is breaking the back of the average Pakistani.

Even now, Pakistan can take a leaf out of China’s tried and tested economic reforms and adopt them after modifying them to local conditions. Pakistan’s economic condition has reached such a dire state that it needs to totally revamp its reform policies and infrastructure so that dependence on foreign aid as well as international debt can be reduced. These policies need to incorporate both the agriculture sector as well as enhance the industrial base so that the Pakistani nation can stand on its own feet and reach its true potential.     

One of the most famous maxims of Deng states that "It doesn't matter whether a cat is white or black, as long as it catches mice." In other words, he did not worry too much about whether a policy was capitalist or socialist as long as it improved the economy. The same can apply to Pakistan, where lessons to be learnt from the Chinese experience should make our policies result oriented.