Friday, July 22, 2005

Revaluation and Deng Xiaoping

Simon has extensive coverage of China's announcement today to revalue the renminbi and move towards a more flexible exchange rate regime based upon a basket of currencies. I'll leave the debate of the implications of that move to others. What I will do, though, is highlight the interesting fact that July 22, 1977 was a turning point in history. It was the date, a year after Mao's death, that Deng Xiaoping was fully 'rehabilitated' (for the third time) and began his mercurial ascent to the top echelon of power in China. Deng Xiaoping, of course, was the most important man of the last quarter of the 20th century (as my old boss would say), because he oversaw the transformation of a ruined Maoist state into a land of prosperity and opportunity, and brought more people out of poverty than anyone else in history. Quite something for a man of Napoleonic stature (4 foot 11 inches) that Nixon ungraciously had called 'a chain-smoking Communist dwarf.'

Deng was born in 1904 in Sichuan province, in the last years of the Manchu dynasty. He met Zhou En-Lai and Ho Chi Minh while studying in Paris, and became an ardent Communist. A survivor of the Long March, Deng quickly rose in the ranks of the Communist Party hierarchy, and was Mao's trusted right-hand man during the aftermath of the 'Hundred-Flowers' campaign of 1957. But he ultimately came down on the side of professionalization over continued revolution, and was purged by Mao and disgraced during the Cultural Revolution. The Cultural Revolution devastated China economically, but perhaps motivated a lost generation of citizens to rebuild their lives. And it was Deng Xiaoping that made it possible, anointing a policy of 'socialism with Chinese characteristics' that encouraged the profit motive and privatization.

I am sure he would have approved of China moving to a looser exchange rate, because it would have meant to him that China was strong enough to do so. Deng after all, had lived through periods of stagflation and collapse of various Chinese currencies, during which people hoarded gold bars. He had been a determined socialist, but a realist, and above all a nationalist. His results-oriented philosophy of politics was best summarized by his famous saying: "It doesn't matter if a cat is black or white, as long as it catches mice." His life, from 1904 to 1997, spanned a century, and many Chinese believe that he, more than anyone else, was able to reverse the humiliations suffered by his country.

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