The Complete End Of China’s ‘Reform And Open-Door Policy’ As A Protracted NEP: A Warning Against Optimism


By Prof. Dr. Masahiro Matsumura

With growing signs of China’s gigantic economic bubble burst, the U.S.-led liberal democratic world is taking breath since it sees China would be unable to keep the dynamic economic powerhouse that has enabled unparalleled arms buildups, aggressive military policy, and coercive diplomacy for the last two decades. Evidently, the Chinese economy is undergoing a sharp decline of consumption, foreign trade, and investment, complicated by anti-market laws and its arbitrary enforcement, as typified by the new Counter-espionage Law. The current circumstances present acute economic aggravation, unemployment and other socio-economic problems. This is ascribable to the policy actions and inactions under the Xi Jinping dictatorship, not directly to the internal systemic dynamics shaped by the interplay of demographic and other endogenous factors[2].

1.  China repeated a NEP

To grasp the nature of these developments, it is critically important to put them in the context of the start and end of Deng Xiaoping’s development strategy, known as “Reform and Open-Door Policy”, from a bird’s-eye perspective of the People’s Republic of China’s overall approach to national development over time. The strategy in Chinese is “Gaige Kaifang Zhengce”(改革開放政策), but the established English translation of it is misleading due to its positive ideological connotation associated with U.S. Secretary of State John Hay’s Open-Door Note of 1899. This has to be reminded because impoverished China, with little primitive accumulation right after the Cultural Revolution (1966-1976), desperately needed foreign capital and technology transfer from the U.S.-led West and putting the national economy on the sustainable trajectory of socio-economic rehabilitation and reconstruction toward full development[3]. 

Given Beijing’s communist regime and its intellectual-ideological emulation from the early Soviet Union, it makes great sense to comprehend Deng’s strategy as the Chinese version of the Soviet’s New Economic Policy (NEP) from 1921 to1928. 

The early Soviet regime had suffered a depleted and war-ravaged economy due to the protracted instability of wars and revolutions, including the 1905 Russian Revolution, Russia’s entry into the First World War, the 1917 Russian Revolution, and the Russian Civil War (1918-1922), together with the Allied intervention to it. To weather the total breakdown of the national economy, the regime had to tackle mass impoverishment by expediently making a temporary retreat from extreme centralization and doctrinaire socialism to partial introduction of capitalism (1921-1928): New Economic Policy (NEP). The regime adopted tax-in-kind for agricultural products and free market trade of the remaining products after tax, while controlling not only the banking and foreign trade sectors but also other large state-owned enterprises in key heavy industries. The regime reimposed state control over all industry and commerce in the country by 1931[4].

Intriguingly enough, there is a strong parallel between the Soviet and Chinese cases. Yet, the latter spans for more than 60 years with of persistent instability of wars and revolutions from the early Republic of China to the end of the People’s Republic China’s Cultural Revolution, followed by some 40 years of an extended NEP to overcome similar mass impoverishment and industrial divestment in pursuit of rehabilitation, reconstruction, and development. Also, China has also followed a mixed economy under the robust political control of the communist regime, with partial but extensive introduction of market mechanism. This heteromorphic market system is self-contradictorily dubbed as the “socialist market economy”. With substantial foreign capital and technology transfer, China had long continued high growth rates until recently, turning itself to the World Factory by subcontracting manufacturing and becoming the second largest economy after the United States. 

2. Strategic Goals

From a hindsight perspective, it is obvious the United States and China had long “slept in the same bed but had different dreams” (同床異夢: tong chuang yi meng), manifested by their different understandings on the nature of “Reform and Open-Door Policy”. It is well known that the United States initially aimed to utilize China as a strategic counter-weight against the Soviet Union, by taking advantage of the Sino-Soviet split caused by their doctrinal and geostrategic divergences. To keep incentivizing China’s geostrategic alignment with the United States as well as out of their economic self-interests, the U.S.-led West had provided China with ample capital, technology transfer, and access to the U.S. and other major liberal democracies’ markets, to enable its industrialization and development. This has been done with the wishful thinking that China would become a “responsible stakeholder” and eventually a newly democratizing country, if not a full-fledged democracy[5]. Sure enough, the expectation has been thoroughly betrayed, even leading to a hasty generalization from a core member of the established U.S. policy circle, Michael Pillsbury, that China had been strategically engaged in a “hund-year marathon”[6]. (The current author of this study sees that such a “marathon” is untenable as a manifestation of instrumental-purposive rationality, consistently in pursuit of strategic goals over three different political systems — the Qing dynasty, the ROC, and PRC– for a hundred years. Rather, Such a behavior pattern can be construed as a reflection of the Chinese collective unconsciousness with Sino-centrism at its core.)

On the other hand, Deng had de-emphatically but steadily followed the strategy of “hide your strength, bide your time (韜光養晦; tao guang yang hui)[7]. This hide-and-bide strategy implies Beijing’s latently hostile intent that it will keep low profile to avoid confronting with the powerful U.S.-led West while enhancing its total national power, and that, once it sufficiently surpasses the opponent, it will challenge all at once. In fact, during the period of “Reform and Open-Door Policy”, Beijing long focused on growth and development, while striving to keep good and stable relations with the U.S.-led West for trade and investment and making it off guard. More specifically, Deng established collective leadership after Mao Zetong’s one man’s rule, given that the communist regime cannot carry out a self-destructive liberal democratic reform. Also, Jiang Zemin and Hu Qingdao, who were hand-picked by Deng as his succeeding top leaders, even introduced experimental local/village elections[8]. In other words, such limited decentralization and liberalization were necessary for Beijing to grasp economic opportunities under the U.S.-led international system.

Based on the “hide-and-bide strategy”, Beijing will naturally make a shift from a low- to high-profile approach to world affairs once the condition of it is met. Obviously, Beijing became increasingly confident in its enhanced national power, especially after China alone played a role as the world’s engine of growth in coping with the international financial crisis consequent on the bankruptcy of Lehman Brother in 2008. Also, Beijing has gradually intensified high-profile coercive diplomacy and compellent public diplomacy, or “Wolf Warrior Diplomacy”, and more increasingly so since the late 2010s[9]. Beijing’s judgement about the timing of the move may or may not be off the mark since it should have waited until it overmatches the United States.

3. Strategic Implications

The eventual success or failure of the “Reform and Open-Door Policy” as a Chinese version of NEP according to the hide-and-bide strategy” remains to be seen. Certainly, it can be inferred that, ceteris paribus, the Chinese economy would inevitably collapse by looking at its ongoing gigantic bubble burst within the socialist system through the mirror image of those historical and recent cases in major modern capitalist economies. But the Chinese bubble is bursting at the time when the United States faces its far more gigantic economic bubble, the burst of which will inescapably lead to accelerating debilitation of the U.S. hegemony toward a multipolar world[10].

A bubble burst in a socialist system has no historical precedent in which little practical knowledge about its mechanism and process is available. It has to be noted that there are effectively no major bankruptcy cases in communist China because the communist regime does not accept to apply its bankruptcy law to major too-big-to-fail cases for liquidation. Such a case is well demonstrated by the already severely insolvent China Evergrande Group, the country’s second largest property developer[11], which the regime has prolonged its existence like a zombie. In addition, the regime exercises tight control over transactions in the domestic stock markets, precluding a crush of them[12]. This means that a gigantic economic bubble burst would lead to a total collapse of the Chinese economy but, with bailouts from the regime, not to a total breakdown of it, precluding a fresh start of new business and only resulting in a total systemic meltdown. Thus, even if a standard view of China’s eventual collapse should hold, it might take much longer time to be realized than expected. 

Notably, regardless of what has triggered China’s ongoing bubble burst, either intentional or not, the communist regime would benefit much more from a burst now rather than later, because, given the strong Sino-U.S. interdependence, the Chinese economy would surely suffer far more disastrous impact from another burst of the historically unprecedented super-size U.S. economic bubble. It is well known that Beijing has studied the case of the Japanese bubble burst in the early 1990s, as reflected in numerous Chinese academic writings. More importantly, the Bank of Japan has gradually developed their official cooperative relations with the Bank of China since 1972, through which to share Japan’s policy experience with the BoC, including the bubble formation and burst[13]. Thus, it is exceedingly difficult to imagine that the communist regime has been totally ignorant of what to do with a bubble, though the top leadership might not have adequately heeded BoC and other policy makers’ advice. Rather, there is some good possibility that the regime dared to have triggered bubble bursting prior to the United States, though now confronting the unexpected magnitude and speed of its shock. 

Last not least, amid the accelerated decline of U.S. hegemony toward a multipolar international order, the world is apparently entering a semi-wartime, neither a Third World War nor a second Cold War as yet, in which the U.S.-led West geo-politically confronts the Sino-Russia alignment, with the Global South unsupportive with the West and rather opportunistically dealing with China, Russia or their alignment to their own parochial interests. This is well demonstrated by the protracted war in Ukraine as a de facto surrogate war between the U.S.-led West and Russia, the Gaza conflict that could evolve into a region-wide war in the Middle East and a plausible war over the Taiwan Strait between the U.S.-led coalition and China that would easily turn into a Third World War. Under the evolving realities, it makes sense for China to make a transition to wartime economy, particularly because it has already obtained sufficient manufacturing and technological power while securing sufficient access to markets, foods, and natural resources & raw materials in Russia and major Global South countries. Notably, the newly revised Counter-espionage Law of 2023 and a series of other anti-market legislations makes some sense if Xi Jinping’s dictatorship should prepare to enter a war economy that demands stronger social control, destitution and mobilization.

On the other hand, the U.S.- led West only retains the precarious financial hegemony ridden with the growing structural vulnerabilities consequent on latent ultra-excessive insolvency after the financial crisis ensuing the bankruptcy of Lehman Brothers in 2008. Also, the insolvency would be worsened because, given the interdependence with China, its bubble burst will exert severe adverse impacts on China’s imports from the U.S.-led West. In addition, U.S. financial power would at least be significantly reduced because the United States as the “World Investment Bank” would no longer be able to earn huge profits accrued from intermediation of capital flows to satisfy Chinese needs for foreign capital that constitutes the dollar’s imperial circulation. 

4. Conclusion

Hitherto, this essay has inquired into the geopolitical and geoeconomic significance of China’s on-going economic bubble burst in the context of the start and end of “Reform and Open-Door Policy.” The study has presented a bird-eye’s perspective on the policy as the Chinese version of NEP, as Mark Twain once said that “history doesn’t repeat itself, but it rhymes.” Then, it may be comprehended that, as the Soviet Union under Stalin entered a war economy after the brief NEP, communist China under Xi has followed an extended NEP under the “hide-and-bide strategy”, plausibly, as the prolonged prelude to a war economy. Such an understanding is highly arguable on the ground that a new socialist/communist country comes into existence as an enclave in the predominantly global capitalist system, involving the ups and downs of the visibility of hostility between the two according to the relative power relations. In this sense, such a country would enter a war economy, when it finds itself to have satisfied necessary conditions, especially economic power and technological capabilities.

The world now faces growing uncertainty about the impact of China’s on-going bubble burst on the evolving global international relations. First, the optimistic scenario is that the burst will overall be isolated in the world economy only to lead to the collapse of communist China. The scenario entails the international security problem that the U.S.-led West might have to deter and, if necessary, defeat China’s aggression aimed to divert socio-economic contradictions and popular discontent against the communist regime. Second, the pessimistic scenario is that, given the Sino-U.S. interdependence, the burst will lead not only to the collapse of communist China but also to concurrent debilitation of the U.S. hegemon, which may accompany a protracted transition from a G-Zero to a stable multipolar order. Third, the scenario in-between is that the post-burst world order will settle on a protracted Cold War between the declined U.S.-led West and the reinforced Sino-Russia alignment with which major Global South countries expediently make deals with according to their own national interests. 

It is high time that the West prepare itself to face the above worse and worst scenarios.

  • About the author: Prof. Dr. Masahiro Matsumura is Professor of International Politics and National Security at St. Andrew’s University in Osaka, and currently a 2024 ROC-MOFA Taiwan Fellow-in-Residence at NCCU-IIR Taiwan Center for Security Studies. He is Member of IFIMES Council.
  • The views expressed in this explanatory note are the author’s own and do not necessarily reflect IFIMES official position.

[1] IFIMES – International Institute for Middle East and Balkan Studies, based in Ljubljana, Slovenia, has Special Consultative status at ECOSOC/UN since 2018. and it’s publisher of the international scientific journal “European Perspectives”.

[2] Certainly, few developing economies can continue high growth rates after the catch-up phase of industrialization and development. They often become unable to cope with the “Demographic Onus” and fall into the “Middle-Income Trap.” China has been expected to be an exemplar of such an evolutionary change due to the sustained “One-Child Policy” (1979-2014), setting the irreversible dynamics toward rapid greying and low birth-rate and leading to a peace by default with an internally-oriented geriatric China. Given the country’s demographic pyramids, such a turning point is anticipated around the period from 2025 to 2030. See, Masahiro Matsumura, “China’s demographic onus and its implications for the Japan-U.S. alliance: the increasing need for deterring China’s aggression against the Senkaku Islands,” Jebat: Malaysian Journal of History, Politics and Strategic Studies, Vol. 41, No. 2, pp. 3-6,

[3] The change of “One Belt, One Road” (Yitai Yilu) to “Belt and Road Initiatives (BRI)” is a most recent example. See, Masahiro Matsumura, “A Realist Approach to Japan’s Free and Open Indo-Pacific Strategy vs. China’s Belt and Road Initiative: A Propaganda Rivalry,” International Journal of China Studies, Vol. 10, No. 2, December 2019, pp. 146-147,

[4] Anonymous, “New Economic Policy,” Britannica Money, no date,

[5] Robert Zoellick “Whither China?: From Membership to Responsibility,” Deputy Secretary of State’s Remarks to National Committee on U.S.-China Relations, September 21, 2005,; Michael R. Pompeo, “Communist China and the Free World’s Future,” Secretary of State’s speech at the Richard Nixon Presidential Library, July 23, 2020,

[6] Michael Pillsbury, The Hundred-Year Marathon: China’s Secret Strategy to Replace America as the Global Superpower , St. Martin Griffin, 2016. 

[7] The phrase reads: “observe calmly, secure our position, cope with affairs calmly, hide our capacities and bide our time, be good at maintaining a low profile, and never claim leadership” (冷静観察、穏住陣脚、沈着応付、韜光養晦、善於守拙、決不当頭). See, Huang Youyi, “Context, not history, matters for Deng’s famous phrase,” Global Times, June 15, 2011,

[8] Kevin J. O’Brien and Lianjiang Li, “Accommodating “Democracy” in a One-Party State: Introducing Village Elections in China,” China Quarterly, No. 162, 2000; Monica Martinez-Bravo ,, ““The Rise and Fall of Local Elections in China,” American Economic Review, Vol. 112, No. 9, 2022,

[9] Fergus Hunter,, Countering China’s coercive diplomacy: Prioritising economic security, sovereignty and the rules-based order, Australian Strategic Policy Institute, Policy Brief, No. 68, 2023,; Shaoyu Yuan, “Tracing China’s diplomatic transition to wolf warrior diplomacy and its implications,” Humanities & Social Sciences Communications, No. 10, 2023, file:///C:/Users/%E6%9D%BE%E6%9D%91%E6%98%8C%E5%BB%A3/Downloads/s41599-023-02367-6.pdf.

[10] Global Trends 2030: Alternative Worlds, U.S. National Intelligence Council, December 2012,  

[11] Kanis Leung and Zen Soo, “China Evergrande has been ordered to liquidate. The real estate giant owes over $300 billion,” AP News, January 29, 2024,

[12] For example, see, Arthur R. Kroeber, “Making sense of China’s stock market mess,” Brookings commentary, July 13, 2015,; Nargia Salidjanova, “China’s Stock Market Collapse and Government’s Response,” U.S.-China Economic and Security Review Commission, Policy Brief, July 13, 2015,

[13] Sakuya Fujiwara, “NiChu-Chuo-Ginkokan Kyoryoku no Shorai-Zo” (日中中央銀行間協力の将来像: A vision for cooperation between Japan and China central banks), a lecture by Bank of Japan’s Vice Governo Fujiwara, December 9, 2002,


IFIMES – International Institute for Middle-East and Balkan studies, based in Ljubljana, Slovenia, has special consultative status with the Economic and Social Council ECOSOC/UN since 2018. IFIMES is also the publisher of the biannual international scientific journal European Perspectives. IFIMES gathers and selects various information and sources on key conflict areas in the world. The Institute analyses mutual relations among parties with an aim to promote the importance of reconciliation, early prevention/preventive diplomacy and disarmament/ confidence building measures in the regional or global conflict resolution of the existing conflicts and the role of preventive actions against new global disputes.

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