The People's Republic of China (PRC) has been a military power for the last several decades. Because of the government's stringent control of virtually every aspect of human rights, politics, and business policies--such as corporate decisions, financial matters, and economic policy--the PRC did not develop like other industrial nations. As a result, the PRC--the world's most populous nation--lagged behind other developing nations in terms of industrial strength and general economic health. Industries were unable to raise sufficient capital to compete with other global powers; however, in the late 1970s several government officials sought to introduce long-term economic reform to ensure that China would become a global market power.(1) In doing so, China borrowed economic theories from capitalist countries, but incorporated them "on its own terms," leaving the communist government in control.(2) Accordingly, the government remains the "chief executive officer" and "controlling shareholder" of the economy and its enterprises. The government continues these practices despite its adoption of a "socialist market economy,"(3) in which the state makes economic decisions that drive the economy(4) and businesses respond to market conditions and act accordingly.(5) Basically, the government believes it can incorporate capitalist functions to allow economic growth while retaining control by implementing underlying social policies.
A. The People's Republic of China: A Brief History
For thousands of years, China was ruled by dynasty after dynasty.(6) Additionally, foreign invaders including Russia, Japan, and Britain often controlled significant parts of the country.(7) During this period the Chinese were susceptible to internal and external pressures that resulted in a less-than-unified nation.(8) China finally became a republic in 1912 following the Wuchang Uprising.(9) Prior to the uprising and through the end of World War II, the Chinese were constantly involved in territorial disputes with neighboring Asian countries and internal disturbances were common.(10) Ultimately, various factions within the country asserted their right to control, and the Communist faction and its armies emerged as the strongest.(11)
In 1949 the Communist People's Republic of China was formed after the defeat of the Nationalist forces.(12) The new government modeled itself after that of the former Soviet Union and established communist control at virtually every level.(13) The two institutional pyramids for the PRC are the Chinese Communist Party (CCP) and the all-pervasive government structure.(14) The CCP consists of the Politburo at the highest level, and the party branches at the lowest level.(15) The top level of the government is the State Council(16) and the bottom level consists of the people's communes.(17) Although there is a level of decentralization for some actions at the provincial level, the economy is centrally planned and the plans are mandatory.(18) Soon after the People's Republic was founded in October 1949, the nation progressed rapidly in the areas of manufacturing and industry;(19) however, the disadvantages of Communist economic policies suppressed this growth.
Starting in 1949, the government began a period of reconstruction in which most industrial and commercial property was socialized based largely upon the Soviet model.(20) The first plan implemented was a five-year program to move China towards socialism.(21) In 1958 Chairman Mao Zedong launched his Great Leap Forward, implemented through the mobilization of labor through communes and characterized by a focus on rapid growth to the detriment of quality and technology.(22) Opposition to the Great Leap Forward grew and the country ended the programs;(23) however, the opposition towards forceful tactics still exists today and is a source of great political unrest.(24)
China's closed economy …