Zhu Rongji and China’s Lost Developmental Alternative: Statism without National Economic Integration
Jianyong Yue challenges the conventional view of Zhu Rongji as a successful developmental reformer, arguing that his reforms strengthened state capacity without completing national economic reintegration. By prioritizing external integration over internal consolidation, China became locked into a path of dependent development—one that continues to shape debates over economic rebalancing and industrial policy today.
In both China and the West, Zhu Rongji has long been portrayed as an iron-fisted reformer—restoring financial discipline, restructuring SOEs, and steering China into the WTO—whose record is often credited with laying the foundations for China’s subsequent rise and is often invoked as a benchmark against which later departures from market-oriented reform are judged.
Yet decisive marketization should not be conflated with developmental success. As the chief economic policymaker of a late-developing transitional economy, Zhu Rongji enhanced state capacity without transforming China into a developmental state. As Robert Wade has argued, development hinges less on external integration than on internal integration. Zhu largely bypassed an alternative path centered on national economic reintegration and instead anchored China’s reform strategy in deep external integration into global capitalism—thereby placing the country on a trajectory of structurally dependent, semi-peripheral development.
China’s Lost Alternative: Internal versus External Integration
Zhu Rongji was a hard-nosed statist reformer who believed in a strong state as the instrument for enforcing market-oriented reform. During the 1990s, the Chinese state under his leadership substantially strengthened its capacity to stabilize the macroeconomy, discipline local governments fiscally, and restructure SOEs. On this institutional foundation, Zhu pursued an ambitious reform agenda combining large-scale SOE privatization, welfare retrenchment, and sweeping trade and investment liberalization. China thus moved decisively away from the market-socialist trajectory of the 1980s toward what may be described as market Leninism.
This shift reflected regime priorities rather than developmental logic. Shaped by the post-1989 political settlement and deep anxiety over Soviet collapse, Zhu embraced economic liberalization under tightened authoritarian control. In the absence of institutional checks and balances, near–Washington Consensus reforms facilitated a close entanglement between China’s crony capitalism and global capitalism—an arrangement widely regarded by the leadership as politically stabilizing.
From a developmental perspective, however, marketization alone does not constitute development. Successful late developers historically consolidated unified national markets, coordinated industrial upgrading, and expanded domestic demand before integrating into global markets on strategic terms. As Wade warned, more external integration does not necessarily lead to more internal integration. Premature exposure instead risks locking late-developing economies into dependent trajectories. India’s experience further suggests that internal integration alone is insufficient without effective state coordination.
Wade also emphasizes that successful development typically blends export promotion with selective import substitution. For a late-developing, continent-sized economy with a diversified industrial base and a substantial scientific community, China was particularly well positioned to pursue such a strategy through deeper internal integration rather than premature liberalization.
In the early 1990s, however, China faced severe internal fragmentation. Provincial autarky, industrial isomorphism, and segmented factor markets—legacies of Maoist decentralization compounded by reform-era fiscal federalism—undermined economies of scale and national productivity. Overcoming these constraints required more than fiscal recentralization. It demanded a transformation of the state’s economic role: converting planning institutions into a national industrial policy authority capable of coordinating production, investment, and technological upgrading across regions under a strong central state—in effect, a Chinese equivalent of Japan’s MITI.
Compared with his predecessors, Zhu Rongji possessed unusually favorable political conditions to pursue such a strategy. He enjoyed the trust of both Deng Xiaoping and Chen Yun, commanded personal authority, and operated during a brief window in which the central government could plausibly reassert economic coordination without provoking systemic resistance. Yet rather than prioritizing national economic reintegration, Zhu’s reform logic increasingly substituted external integration for internal consolidation.
This substitution was deliberate. Zhu’s policy approach reflected a growing conviction that expanded access to global markets could compensate for unresolved domestic structural weaknesses. Export-oriented growth strategies—initially developed under highly specific conditions in Shanghai—were extended nationwide and became the organizing principle of reform. Industrial upgrading was no longer pursued primarily through national coordination and protected scale economies, but through competitive exposure, foreign capital inflows, and anticipated technology spillovers.
The 1992 Sino–US Market Access Memorandum markedthis strategic turn. By committing China to extensive trade and investment liberalization and explicitly abandoning import-substitution strategies, the Chinese state effectively redefined development as successful insertion into global markets. The policy of “exchanging market access for technology” institutionalized the expectation that foreign firms would voluntarily transfer advanced capabilities—an assumption at odds with both historical experience and the practices of successful East Asian developmental states.
As a result, the strengthening of state capacity under Zhu did not translate into the construction of an internally integrated national economy. Fiscal recentralization through the 1993–94 tax-sharing reform enhanced central revenues and macroeconomic control, yet left local governments as de facto arbiters of investment and industrial policy. Intensified interregional competition for investment and industrial projects reinforced market segmentation and generated persistent diseconomies of scale.
Rather than deploying enhanced state capacity to complete national economic reintegration, Zhu used it to accelerate China’s deep integration into global capitalism. This strategic choice foreclosed a viable alternative centered on internal integration and autonomous development—an omission whose structural consequences would become fully visible only in the decades that followed.
WTO Accession as a Desperate Strategy
China’s accession to the WTO is widely remembered as the crowning achievement of Zhu Rongji’s reform agenda. The subsequent surge in export-led growth appeared to confirm this judgment, reinforcing the belief that WTO entry anchored China’s rise within the global economy. Yet this retrospective validation obscures the political and economic constraints under which the decision was made.
By the late 1990s, China’s reform trajectory had reached a critical impasse. Economic growth and reform momentum were increasingly difficult to sustain—not primarily because of external shocks, but as the cumulative result of Zhu’s own reform strategy. Market-Leninist reforms—characterized by nomenklatura privatization, welfare dismantling, and premature market opening—produced a sharp contraction in domestic demand. Tens of millions of workers were laid off without a comprehensive social safety net, while income polarization intensified and household consumption stagnated.
Market opening and privatization reinforced one another in destabilizing ways. External competition eroded the viability of many SOEs, while their decline supplied both economic justification and ideological legitimacy for further privatization. The result was a self-reinforcing cycle of weakened domestic industry, shrinking internal demand, and growing reliance on external markets.
The Asian Financial Crisis of 1997–98 exposed the fragility of this model, yet official recognition of the need to expand domestic demand did not translate into a reassessment of China’s deep integration strategy. On the contrary, the removal of key remnants of the socialist welfare system after Zhu assumed the premiership in 1998—in education, healthcare, and housing—neutralized demand expansion and entrenched dependence on exports and foreign capital.
Under mounting economic pressure and performance-based legitimacy constraints, WTO accession became a desperate strategy rather than a strategic choice. Influenced by prevailing neoliberal policy orthodoxies and facing narrowing domestic options, Zhu treated expanded market access as the only remaining lever to sustain growth.
To secure WTO membership, China accepted commitments that went well beyond those typically imposed on developing economies. These included self-acceptance of “non-market economy” status and the voluntary renunciation of policy tools—such as mandatory technology transfer—that remained permissible under existing multilateral trade rules. These concessions cast a long shadow over China’s developmental autonomy, placing it in a disadvantaged position in subsequent market-access negotiations and complicating later efforts to reverse course toward indigenous innovation.
Although export-led growth surged in the early 2000s, the structural limits of this path became visible after the global financial crisis. As globalization constraints hardened and U.S. efforts to rebalance the international economic order intensified, China’s semi-peripheral ascent encountered clear ceilings—most visibly in technology, finance, and rule-setting power. Deep external integration, once hailed as a solution, has increasingly generated strategic vulnerabilities. In this context, Zhu Rongji’s WTO legacy appears less an asset than a long-term liability.
Beyond the Zhu Rongji Myth
Zhu Rongji was a committed statist, but neither a convinced socialist nor a sustained economic nationalist. He dismantled the market-socialist framework of the 1980s without replacing it with an alternative centered on national economic reintegration or coordinated development. State power was instead deployed to accelerate China’s incorporation into global capitalism, producing rapid but externally driven and structurally dependent growth.
The limits China confronts today—fragmented domestic markets, reliance on external demand, and constrained policy autonomy—are not temporary distortions or the product of recent policy reversals. They are the cumulative outcomes of strategic choices made during the 1990s. Current efforts to rebalance growth, expand domestic demand, and construct a unified national market therefore represent not a continuation of Zhu Rongji’s reform vision, but a corrective to it.
What China ultimately needs may not be another Park Chung-hee or Chiang Ching-kuo, but a transition toward a democratic developmental state capable of reconciling state capacity, domestic integration, and political accountability.
Dr Jianyong Yue is a visiting fellow at the London School of Economics.
Photo by 女子 正真
