China’s Dilemma Amid Economic Modernization: Retreats from Economic Modernization and Political Liberalization in the late 1990s?

For over two decades following the Third Plenum of 1978, China has been at the forefront of implementing a series of economic and political reforms to boost economic growth. However, the trajectory of China’s economic growth encountered unprecedented challenges from both domestic and exogenous variables. The acceleration of state-owned enterprise (SOE) reform, which began shortly after the Third Plenum and intensified as a central component of Prime Minister Zhu Rongji’s reform package following the 15th Chinese Communist Party (CCP) Congress in September 1997, led to unprecedented layoffs among SOE workers. This, in turn, triggered social unrest and posed significant threats to the stability and legitimacy of CCP’s leadership. On the external front, the post-Cold War unipolar international order and the Asian Financial Crisis of 1997 created a shifting landscape of foreign trade and more urgent national security concerns. This article examines two main questions: 1) How did the Chinese government respond to these unexpected challenges during the peak of the “opening-up and reform” period? 2) Did China’s approach to dealing with internal and external crises slow down or cause a retreat from its economic modernization and political liberalization efforts? This article argues that these challenges compelled the Chinese government to modify its economic reform measures and political control over dissidents and protestors by resorting to trade protectionism and a shift of polity toward “soft authoritarianism” to navigate and mitigate both internal and external turmoil.