Amid the Cultural Revolution of 1965–1969, Chairman Mao and the Red Guards mobilized the masses, shook up the Communist Party, and created greater social equality (see “The Communist Victory in China” in Chapter 31). But the Cultural Revolution also created chaos and a general crisis of confidence, especially in the cities. Intellectuals, technicians, and purged party officials launched a counterattack on the radicals and regained much of their influence by 1969. This shift opened the door to a limited but lasting reconciliation between China and the United States in 1972.

After Mao’s death in 1976, Chinese leader Deng Xiaoping (1904–1997) and his supporters initiated the “Four Modernizations”: agriculture, industry, science and technology, and national defense. China’s 800 million peasants experienced the greatest change from what Deng called China’s “second revolution.” Rigid collectivization had failed to provide the country with adequate food. Deng allowed peasants to farm in small family units rather than in large collectives and to “dare to be rich” by producing crops of their choice. Peasants responded enthusiastically, increasing food production by more than 50 percent by 1984.

The successful use of free markets in agriculture encouraged further experimentation. Foreign capitalists were allowed to open factories in southern China and to export their products around the world. Private enterprise was permitted in cities, where snack shops and other small businesses sprang up. China’s Communist Party also drew on the business talent of “overseas” Chinese in Hong Kong and Taiwan who understood world markets and sought cheap labor. The Chinese economy grew rapidly between 1978 and 1987, and per capita income doubled in these years.

Most large-scale industry remained state owned, however, and cultural change proceeded slowly. Above all, the Communist Party zealously preserved its monopoly on political power. When the worldwide movement for political liberalization took root in China in the 1980s, the government banned demonstrations and slowed economic reform. Inflation soared to more than 30 percent a year. The economic reversal, the continued lack of political freedom, and the conviction that Chinese society was becoming more corrupt led idealistic university students to spearhead demonstrations in 1989.

More than a million people streamed into Beijing’s central Tiananmen Square in support of the students’ demands. The government declared martial law and ordered the army to clear the students. Masses of courageous citizens blocked the soldiers’ entry into the city for two weeks, but in the early hours of June 4, 1989, tanks rolled into Tiananmen Square. At least seven hundred students died as a wave of repression, arrests, and executions descended on China. (See “Viewpoints 32.2: Dissidents Aung San Suu Kyi and Liu Xiaobo.”) As communism fell in eastern Europe and the Soviet Union broke apart, China’s rulers felt vindicated. They believed their action had preserved Communist power, prevented chaos, and demonstrated the limits of reform.

China became politically Communist and economically capitalist. In 2001 China joined the World Trade Organization, completing its immersion in the liberal global economy. From 1978, when Deng Xiaoping began economic reforms, through 2012, the Chinese economy grew at an average annual rate of over 9 percent, and foreign trade at an average of 16 percent. Average per capita income in China doubled every ten years, and in March 2011 China replaced Japan as the world’s second-largest economy, surpassed only by that of the United States. After 2012 China’s economic growth slowed to near 7 percent — a high rate, but one that has strained the capacity of the government to pursue economic development and that has diminished Chinese imports, slowing the economies of trading partners like Brazil.