China was in a deep crisis at the end of the Great Proletarian Cultural Revolution. Production in both industry and agriculture was at a virtual standstill. The per capita grain output in 1977 was roughly the same as in 1957 (Xue 1981). In the urban industrial sector, over one-third of all stateowned enterprises were running at a loss in 1976 (Perry and Wong 1985:4) and the unemployed stood at 5.3 per cent in 1978 (Zhongguo Tongji Zeyao 1996:51), a record high for a socialist country. For both urban and rural residents, the Chinese economy was an economy of shortage marked by scarcity of goods and services and almost every necessity of life. Admittedly China had made advances in health, nutrition and education. Neverthless Maoist policies had left the nation backward and impoverished. In 1978, rural per capita income was only 134 yuan per annum; for urbanites, 316 yuan (ibid.). Such meagre standards after three decades of building socialism was deeply frustrating. Politically, the machinery of governance was in ruins. Ideologically too, people's faith in the party was shaken by constant reversals, power struggles and over-mobilization (Hannan 1985). The death of Mao and the arrest of the Gang of Four, a radical clique led by Mao's wife Jiang Qing, thus saw the country pregnant with strong desires for change.
The reforms that emerged were not merely a result of domestic imperatives. New geopolitical perceptions of China's place in the world, in particular in a smaller international economy, were emerging (Perry and Wong 1985:5-6). Thirty years of economic isolation precluded China from becoming modernized. Meanwhile, the success of Asian countries, notably the Four Little Dragons of Hong Kong, Taiwan, Singapore and South Korea capitalizing on expanding markets in world trade in the 1960s and 1970s, was instructive. China too could benefit from abandoning its autarkic stance. Similarly normalization of relations with Japan and the United States, the end of the Vietnam war, and the advantage of maintaining leverage vis-à-vis the United States and the Soviet Union made the case for rejoining the world community more compelling than ever. Of course, if China was to develop quickly, Western technology, investments and markets would be indispensable.