Deng Xiaoping started to privatize ChinaÍs economy in the late 1970s. Since then, ChinaÍs economy has grown tremendously -- in the last decade the Chinese GNP has been growing at a rate that doubles their economy every seven to eight years.  This privatization has led to numerous political and social dilemmas. Nevertheless, this economic growth is a progressive force that is improving the quality of life of Chinese people and it is capable of promoting democracy. For the most part, the government is starting to support a free-market system, although they mask their intentions because capitalistic ideals run contrary to communist ideology. Even so, the government is supporting the privatizing of industry, oversees trade, and the incorporation of western technology. Kenneth Lieberthal even went so far as to suggest that party cadres ñno longer take communism seriously.î These changes have not occurred without some growing pains. Generally, the system is suffering because China, after many decades of upheaval and economic losses, is trying to switch from a communist economy of collective ownership to a capitalistic economy of private ownership. The government has transferred the decision-making authority from the central-government to the local governments.

One of the biggest problems that China is facing today is the dual economy. This phenomenon results when the economy is divided between the modern portion, dominated by capital-intensive firms who are closely tied to the world economy, and the traditional portion, which includes agriculture, small local industry and handicrafts. ChinaÍs coastal provinces are doing extremely well, while the back country is falling farther and farther behind. When the coastal regions started exporting more and more goods in the late 1980s, this split between the modern industrial provinces and the less developed interior provinces became more defined. The hinterland could not compete with the more affluent regions for resources, and so they started protecting themselves by constructing trade barriers. As Dreyer noted, this trend is detrimental for the national economy that the communist government has established. However, liberals would argue that the inequality is a natural element of the development process and is transitory. The existence of a dual economy proves that modernization is beginning and will eventually transform the remainder of the traditional economy.

Another problem is that industry is still inefficient compared to its global counterparts. Corruption still exists, although it is difficult to measure to what extent. From the governmentÍs point of view, it is one thing to subsidize your infant industries until they can support themselves; it is another to hand over tax-money to corrupt factory owners who rather than trying to improve their factories, cleverly pocket the money. The corruption can exist because the Chinese government has not had adequate time to respond to the profiteering, and the economy is not yet a free market. However, as China opens up to free-trade, these factories will be forced to become more efficient or they will close. If China wants to compete on a global level, it needs to start developing high-quality goods more efficiently.

As a correlation, as industry becomes more efficient and more capital intensive, unemployment will increase. The size of the ñfloating populationî, unemployed agricultural laborers, has increased, and this is adding to the general anxiety over job security. The government has responded by subsidizing industry, which encourages industry not to lay-off workers, and thus curbs potential high unemployment levels. However, this policy is costly, and will eventually need to be replaced with a free market solution.

Inflation is also a serious concern. In 1988, inflation percents are somewhere between 18.5 and 50 percent. On the whole, the Chinese banking system has failed to stabilize interest rates. Local officials put pressure on local banks to lend excessive amounts of money, and when the loans are not paid back, the banks either go under, or ask the Center for more money. The Center is under great pressure to print more money, and thus, inflation sky-rockets.

Government policies have addressed these social and economic problems, even though they have not solved the bulk of the problem. The political leadership is most concerned with creating an efficient, growing economy that will bring China great wealth on a global scale and they are not as concerned with calls for abstract right such as freedom and democracy. However, as industry is becoming more and more privatized, and people are becoming more and more wealthy and financially independent, the social system will change. Economic change goes hand in hand with social change, and economic liberalization has already encouraged social liberalization as well.

The political leadership has been somewhat threatened over the last decade. Most notably, the Tiananmen Square incident pointed out that certain social groups within China, namely students, are pushing for faster democratization, although the government is not ready to dismantle or hand over their power any time soon. If nothing else, the Tiananmen Square incident shows that some citizens are not afraid to push for increased social liberalization, which would have been unheard of during MaoÍs leadership. This courage to defy the government is rooted in the growing role of the individual in the economy and also politics.

The liberal platform asserts that increased capitalism will lead to increased democratization. As individuals become more and more important to the economic structure and the social structure, these individuals are going to demand more and more rights within government. As industry modernizes and becomes a global competitor, it will become more and more affluent as foreign money will be reinvested in them. As foreign money is invested in Chinese industry, China has to answer somewhat more to the global community as a whole, and it will not be able to revert into a more centralized government system. In fact, as ChinaÍs population slowly catches up with its ability to produce food and basic necessities, China is becoming more dependent on foreign imports. Thus, China will be forced to respond to pressures from the outside. And those pressures, namely the United States, Japan and Hong Kong, will protect their own interests and discourage China from reverting back into the old communist economic system of collective property and a strong central government.

When looking down the road of ChinaÍs future, many analysts look at South Korea and Taiwan as role-models for the developing PRC. Whether or not China will grow as rapidly as their Asian counterparts is still to be seen, although the PRCÍs plight is somewhat unique. First of all, the PRC is much larger, both geographically and in terms of population, and so it is somewhat less flexible than those countries to control the corruption and other problems that generally arise when a government becomes decentralized. But, most China watchers believe that either from domestic or international pressures, China will continue on its road towards political liberalization, and will eventually become more democratic.