How a Free Market Economist Saved China

Jason Hartman
5 min readJul 26, 2022


China in the 1980s was in an interesting position.

At the time, China had reform-minded leaders who were ready to break free from the destructive economic policies of Mao Zedong. Paramount Leader Deng Xiaoping was chief among them. Deng was pragmatic and ready to implement economic reforms to get China out of the economic doldrums.

With China normalizing relations with the United States, academic exchanges between the two countries began to take off. This caught the attention of famous economists like Milton Friedman. Friedman made several visits to China throughout the 1980s. The libertarian economist was as practical as they came. He was willing to work with governments in order to have them adopt market reforms.

Zhao Ziyang, the General Secretary of the Chinese Communist Party, was one official who took great interest in Friedman’s work. Zhao was tasked with putting China on the economic map. To do that, Zhao believed that inviting Friedman for a private meeting on economic guidance was of the utmost importance.

The Nobel Prize-winning economist was invited to China specifically for his insights on inflation. During Mao Zedong’s rule, the Chinese state imposed a series of price controls for the purpose of allegedly bottling up inflationary pressures. Once Deng started lifting price controls, many CCP leaders began to worry about the prospects of inflation coming back to China. The problem with this line of thinking is that inflation, as Friedman himself eloquently put it “is always and everywhere a monetary phenomenon.”

During his visit to China in 1988, Friedman gave several lectures on topics concerning monetary policy, while specifically addressing China’s growing inflation problems. Friedman believed that inflation was the product of bad government policies and could only be cured through free markets.

As inflation grew across China, Zhao turned to Friedman for economic advice. After giving multiple lectures in China, Friedman finally met Zhao in September 1988.

Once Friedman learned about Zhao’s interest in his advice, he submitted a memo to the Chinese General Secretary where he outlined his economic views. He firmly believed that free-market reforms would fix many of China’s lingering problems.

Friedman specifically advised that China lift its remaining price controls, tighten its money supply, and cut government spending.

After the meeting between Friedman and Zhao, China began to face domestic turmoil as China’s elite aspirants began to protest. Recent college graduates were hit hard by the nation’s growing inflation. As a result, they grew restless and took to the streets to protest. They were incensed by the CCP’s rampant corruption and the lack of economic and political reforms.

Soon the protestors started to converge on Beijing’s Tiananmen Square during the spring of 1989. The crowds grew larger in the ensuing months, which worried CCP chiefs. In light of these developments, there were fierce debates among CCP officials over whether to use military force to crack down on the protests. Zhao was a strong opponent of using the military to quell the protests.

However, Zhao’s views were ignored by CCP leaders. They decided that only military force could solve the Tiananmen Square question. Zhao was perturbed by the Chinese government’s turn towards military force. He immediately took to the streets to address the students directly.

Using a megaphone, he bellowed at the student protesters, “We came too late.” “Whatever you say and criticize about us is deserved,” Zhao added.
Zhao’s complaints fell on deaf ears and the Chinese government carried out its infamous Tiananmen Square crackdown on June 4, 1989 which resulted in the deaths and injuries of an unknown number of people that possibly numbered in the thousands.

As for Zhao, he was formally condemned for backing the protests and undermining the CCP. The General Secretary was accused of attempting to overthrow the political order in China and install a liberal capitalist system in its place. This led to the party wiping Zhao’s name from the history books and subsequently placing him under house arrest until his death in 2005.

Despite the CCP’s brutal crackdown in the late 1980s, it still did not fully abandon the reforms that Deng previously implemented. Ironically, the CCP maintained several market reforms that Zhao pushed for and expanded upon them even when Zhao was placed under house arrest.

Friedman eventually returned to China in 1993 and was surprised by its rapid pace of economic growth. Despite its authoritarian exterior, the CCP continued turning to Friedman’s anti inflation wisdom for much of its central banking decision-making.

Though, the Chinese success story could potentially be in danger now.

Since Xi Jinping assumed the presidency of the PRC in 2013, China has grown much more authoritarian. There is now speculation that the economic miracle Deng helped facilitate could be in danger as Xi tightens the Chinese state’s grip over the economy.

It’s anyone’s guess what’s in store for China.

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