Immediately after the death of Mao in 1976, became a power struggle erupted between different parties. Called the Gang of Four, led by the widow of Mao Zedong, Hua Kuo-feng and wanted the power to attract to herself. The ‘Gang of Four’ wanted that the Cultural Revolution continue. Eventually the battle won by Hua Kuo-feng and inside he had the ‘Gang of Four’ arrested. Hua knew the standard of living in China cannot increase and it was felt that he spent too much money to it. In 1978 he was expelled and replaced by Deng Xiaoping. It was that year when Deng Xiaoping launched his major economic reform plan. He went out of “four modernizations”, which will be discussed later in this report. The aim was to improve agriculture, industry, science and the military. The classic Marxist communism was combined with western ideas as private property and a price-based economy.

Deng Xiaoping was the person who put the principles of the present Chinese economy. His economic liberalization policy has led to the current large-scale economic development of China. In the chart below you can see how the GDP in China during various changes and events developed. The GDP, or “Gross Domestic Product”, in the Netherlands (nominal) gross domestic product (GDP) called. This is the sum of gross value added of all firms in an economy and thereby corrected by inflation. In 2004 the GDP compared to GDP in the year 2000 alone doubled.

The Four Modernizations

In December 1978, Deng Xiaoping introduced the four modernizations. This was a plan designed for China, to became a economical power in the world market. This modernizations relates to the military, agriculture, industry and the science and technology. Below the modernizations will be discussed, except the military, because it has no relation to this report.

Agriculture

Also, there was a new system for farmers. This meant that farmers have a contract with the government locks stating how much was expected of them that they minimally produced. Everything they produced more were left to the free market. Instead of working for a corporate company, they could now own an income gain. This measure greatly stimulated the production. The agricultural production increased between 1979 and 1983 by 7.9% annually. In 1984, China was a grain harvest of 405 million tons for the first self-sufficient. At that time, the first village and town enterprises established businesses owned and were the responsibility of a village or a town.

Industry

In the second half of the nineties, the focus was on industrial reforms. The focus was no longer solely placed on heavy industry, but also on the lighter industrial consumables. This change was modernization of the machinery and renewal of management time. These machines and the knowledge had come from the West and Japan, which facilitates contacts between China and the rest of the world more stimulated. Also became increasingly unprofitable businesses closed, there was work on the development of a social security system and the government tried to modernize the banking sector. The government wanted a banking system that allows the economy through monetary policy (measures to inflation and the value of the domestic currency to maintain stable) was to influence and which loans could be granted on the basis of economic criteria such as profit and loss, and not on the basis of political arbitrariness, as previously happened.

In the next phase the goal was the centrally planned economy into an open market, where supply and demand the price of a product is determined. For this plan to succeed was a double system introduced. In the beginning was the price of some goods and services are still regulated by the government, other price was released. Gradually more and more goods and services in the second category go. Thus, the great transition can take place. At the beginning of the nineties, the prices of almost all goods free.