Deng Xiaoping recognized the need to restore a sense of “socialist legality” and credibility to a system that was on the verge of breakdown and hoped that rapid economic growth would satisfy the Chinese people and prevent them from demanding political reforms. The post- Mao leaders demonstrated a willingness to place economic performance over ideological purity. To stimulate the stagnant industrial sector, which had been under state control since the end of the era of New Democracy, they reduced bureaucratic controls over state industries and allowed local managers to have more say over prices, salaries, and quality control. Productivity was encouraged by permitting bonuses to be paid for extra effort, a policy that had been discouraged during the Cultural Revolution. State firms were no longer guaranteed access to precious resources and were told to compete with each other for public favor and even to export goods on their own initiative. The regime also tolerated the emergence of a small private sector. Unemployed youth were encouraged to set up restaurants, bicycle or radio repair shops, and handicraft shops on their own initiative. Finally, the regime opened up the country to foreign investment and technology. The Maoist policy of selfreliance was abandoned, and China openly sought the advice of foreign experts and the money of foreign capitalists. Special economic zones were established in urban centers near the coast (ironically, many were located in the old nineteenth-century treaty ports), where lucrative concessions were offered to encourage foreign firms to build factories. The tourist industry was encouraged, and students were sent abroad to study. The new leaders especially stressed educational reform. The system adopted during the Cultural Revolution, emphasizing practical education and ideology at the expense of higher education and modern science, was rapidly abandoned (Mao’s Little Red Book itself was withdrawn from circulation and could no longer be found on bookshelves), and a new system based generally on the Western model was instituted. Admission to higher education was based on success in merit examinations, and courses on science and mathematics received high priority. No economic reform program could succeed unless it included the countryside. Three decades of socialism had done little to increase food production or to lay the basis for a modern agricultural sector. China, with a population now numbering one billion, could still barely feed itself. Peasants had little incentive to work and few opportunities to increase production through mechanization, the use of fertilizer, or better irrigation. Under Deng Xiaoping, agricultural policy made a rapid about-face. Under the new “rural responsibility system,” adopted shortly after Deng had consolidated his authority, collectives leased land on contract to peasant families, who paid a quota as rent to the collective. Anything produced on the land above that payment could be sold on the private market or consumed. To soak up excess labor in the villages, the government encouraged the formation of so-called sideline industries, a modern equivalent of the traditional cottage industries in premodern China. Peasants raised fish or shrimp, made consumer goods, and even assembled living room furniture and appliances for sale to their newly affluent compatriots. The reform program had a striking effect on rural production. Grain production increased rapidly, and farm income doubled during the 1980s. Yet it also created problems. In the first place, income at the village level became more unequal as some enterprising farmers (known locally as “ten thousand dollar” households) earned profits several times those realized by their less fortunate or less industrious neighbors. When some farmers discovered they could earn more by growing cash crops or other specialized commodities, they devoted less land to rice and other grain crops, thus threatening to reduce the supply of China’s most crucial staple. Finally, the agricultural policy threatened to undermine the government’s population control program, which party leaders viewed as crucial to the success of the Four Modernizations. Since a misguided period in the mid-1950s when Mao had argued that more labor would result in higher productivity, China had been attempting to limit its population growth. By 1970, the government had launched a stringent family planning program—including education, incentives, and penalties for noncompliance—to persuade the Chinese people to limit themselves to one child per family. The program did have some success, and the rate of population growth was reduced drastically in the early 1980s. The rural responsibility system, however, undermined the program because it encouraged farm families to pay the penalties for having additional children in the belief that the labor of these offspring would increase family income and provide the parents with greater security in their old age. Still, the overall effects of the modernization program were impressive. The standard of living improved for the majority of the population. Whereas a decade earlier the average Chinese had struggled to earn enough to buy a bicycle, radio, watch, or washing machine, by the late 1980s many were beginning to purchase videocassette recorders, refrigerators, and color television sets. The government popularized the idea that all Chinese would prosper, although not necessarily at the same speed. Earlier slogans such as “Serve the people” and “Uphold the banner of Marxist-Leninist-Maoist thought” were replaced by others that announced that “Time is money” and instructed citizens to “Create wealth for the people.” The party announced that China was still at the “primary stage of socialism” and might not reach the state of utopian communism for generations. Yet the rapid growth of the economy created its own problems: inflationary pressures, greed, envy, increased corruption, and—most dangerous of all for the regime— rising expectations. When the economy failed to live up to those expectations, as in the late 1980s, disillusionment ran high, especially in the cities, where high living by officials and rising prices for goods aroused widespread alienation and cynicism. Such attitudes undoubtedly contributed to the anger and frustration that burst out during the spring of 1989, when many workers, peasants, and functionaries joined the demonstrations in Tiananmen Square against official corruption and oneparty rule. During the 1990s, growth rates in the industrial sector remained high as domestic capital became increasingly available to compete with the growing presence of foreign enterprises. The government began to adopt a serious attitude to the need to close down inefficient state enterprises, and by the end of the decade, the private sector, with official encouragement, accounted for over 10 percent of the gross domestic product. A stock market opened, and China’s prowess in the international marketplace improved dramatically. As a result of these developments, China now possesses a large and increasingly affluent middle class. The domestic market for consumer goods has burgeoned, as indicated by the fact that over 80 percent of all urban Chinese now possess a color television set, a refrigerator, and a washing machine. One-third own their homes, and nearly as many have an air conditioner. Like their counterparts elsewhere in Asia, urban Chinese are increasingly brand-name conscious, a characteristic that provides a considerable challenge to local manufacturers. But as Chinese leaders discovered, rapid economic change never comes without cost. The closing of staterun factories has led to the dismissal of millions of workers each year, and the private sector, although growing at more than 20 percent annually, is unable to absorb them all. Discontent has been increasing in the countryside as well, where farmers earn only about half the salary of their urban counterparts (in recent years, the government tried to increase the official purchase price for grain but rescinded the order when it became too expensive). China’s recent entry into the World Trade Organization (WTO) may help the nation as a whole, but is less likely to benefit farmers, who must now face the challenge of cheap foreign imports. Taxes and local corruption add to their complaints. In desperation, millions of rural people have left for the big cities, where many of them are unable to find steady employment and are forced to live in squalid conditions in crowded tenements or in the sprawling suburbs. Millions of others remain on the farm but attempt to maximize their income by producing for the market or increasing the size of their families. Although China’s population control program continues to limit rural couples to two children, such regulations are widely flouted despite stringent penalties. Chinese leaders must now face the reality that the pains of industrialization are not limited to capitalist countries.