From Tiananmen Square to the world's factory

Modernization begins: The road to Tiananmen Square

(MoneyWatch) The mass pro-democracy protests that erupted in Beijing's Tiananmen Square in 1989 did not spring from nowhere. They emerged from the period of rapid economic liberalization that followed the death of Communist Party Chairman Mao Zedong in 1976. Two years later, his successor Deng Xiaoping formally moved to encourage private enterprise and open the country to foreign investment. Under the so-called Four Modernizations, as the program was known, China instituted a number of reforms aimed at accelerating economic growth.

Yet, 24 years to the day after the protests were crushed, China has enjoyed enormous success in building the foundation for a modern and vibrant economy, lifting tens of millions of people out of poverty along the way. But the country's economic "miracle" has failed to loosen the party's grip on power.

"There are two circumstances that make it easy for the Chinese government to maintain control of the economy without need for political reform," said Jin Zhong, chief editor of Open Magazine (Hong Kong), a longtime observer of China's political scene. "The vast amount of labor available in China and the low wages that people accept there still."

From Tiananmen Square to the world's factory

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China's enormous growth over the last four decades has focused on transitioning from a largely agricultural economy into a manufacturing powerhouse.

From Tiananmen Square to the world's factory

Tiananmen Square: Death of a movement

After six weeks of pro-democracy protests centered on Beijing's Tiananmen Square, Chinese government troops on June 4, 1989, launched a violent operation to suppress the movement. Soldiers fired on civilians, killing hundreds and, by some estimates, even thousands. The total casualty figures remain unknown. In China, information about the June 4 incident, as it is widely known, is censored, with Internet watchdogs blocking searches.

From Tiananmen Square to the world's factory

Capitalist roaders

In the years after the Tiananmen protests, many of the student leaders fell into discord, a fact underlined by their respective career paths. Some became academics, some remained activists, and others embraced capitalism. Just not in China.

Take Chai Ling, one of the heroines of the protests later criticized for self-interest, has embraced capitalism and Christianity. She got an M.B.A. at Harvard, went to work at Bain Consulting, is married to a former adviser to Mitt Romney and runs an educational software company, Jenzabar. She has sued the makers of the acclaimed documentary "Gate of Heavenly Peace," which offered an unflattering portrait of her role during the protests, and has in turn been sued by an employee for religious discrimination.

Or there's Li Lu, another student leader vilified by some of his erstwhile comrades. Armed with degrees in business and law from Columbia University, he started his own hedge fund and has become a darling of Warren Buffet's partner, Charles Munger.

Said Jin Zhong of the Chinese language magazine Open, student leaders like Li and Ling who fled to the West had to "adjust to the real world outside China -- especially those who were young students during the protests. They've undergone a process of change that you would expect of young people whose circumstances have changed radically over time. People involved in the protests who were more mature had a more deliberate approach [to change in China], and their thinking and activities did not change over the years."

From Tiananmen Square to the world's factory

The relentless flow of progress

Despite international condemnation and internal Chinese outrage over the government's ruthless suppression of the Tiananmen protests, the years following the incident were ones of explosive economic growth for China. A signature project from the era: the Three Gorges Dam. China started work on the hydroelectric facility, which spans the Yangtze River, in 1994 -- today, it is the world's largest power station.

Yet the dam remains a source of controversy, with entire towns flooded and its residents forcibly relocated to make way for the project. Along with symbolizing China's growing economic might, the dam has come to represent the authoritarian regime's disregard for individual rights and continuing monopoly on power.

From Tiananmen Square to the world's factory

Build now, worry later

Along with serving as a global manufacturing center, China's soaring economic growth in recent years has been fueled by vast amounts of commercial and residential construction. That trend has boosted the standard of living for many ordinary Chinese by providing jobs and for the country's growing middle class.

Yet development has also sparked public outrage. In the run-up to the 2008 Olympics in Beijing, for example, the government bulldozed many older neighborhoods to pave the way for newer facilities. As the real estate industry boomed, developers also erected entire cities in expectation of new, money-flush inhabitants. But China's slowing growth since the 2008 financial crisis has for now stopped the flow of new residents, leaving the country dotted with "ghost cities" full of new -- and abandoned -- housing developments.

From Tiananmen Square to the world's factory

Up the value chain

In this century, China's manufacturing prowess has steadily moved up the production value chain, expanding from basic electronics assembly into software, chips, alternative energy and other high-tech goods and services.

From Tiananmen Square to the world's factory

High-speed growth, high-speed crashes

One of official China's proudest achievements is a network of high-speed trains. But the rapid implementation of the mammoth project -- China has invested more than $250 billion in the revamp of its rail system -- has been marred by charges of corruption and dubious quality controls.

In 2011, railways minister Liu Zhijun, known as "Great Leap Liu," was removed from office and charged with embezzling millions of dollars. Later that year, there was a public outcry after a signal malfunction caused an accident in Wenzhou in which at least 40 people died and nearly 200 were injured. The accident called attention to a lack of accountability among officials and derailed China's attempts to export high-speed rail equipment.

From Tiananmen Square to the world's factory

Workers shedding their chains?

China's massive industrialization was based in part on its claim to a seemingly endless supply of low-paid and obedient workers. But by 2010, more and more of them had had enough: A rash of riots and other altercations occurred after workers committed suicide at factories of Taiwanese-owned electronics maker Foxconn, the top manufacturer of Apple products. Workers also rebelled at Honda plants the same year, winning wage and working condition concessions.

Labor unrest is not a new phenomenon in China, but the government keeps a wary eye on it: One fear among officials in 1989 was that labor would join the students in demanding sweeping political change. Today, the rising tide of dissent -- some experts number the protests at more than 180,000 a year -- does not stem from any one source, whether labor conditions or memories of the Tiananmen massacres.

"Most of the current social unrest in China stems from social inequality rather than from the June 4 incident," Zhong said, using the Chinese vernacular for the 1989 crackdown. "Information about June 4 is still extremely restricted and censored in China. Many younger people still don't even know that it occurred, so their discontent can't be attributed to Tiananmen. There is, however, an informed minority who will continue to express their social discontent because of what happened during the June protest."

From Tiananmen Square to the world's factory

Pollution and its discontents

A major byproduct of China's hothouse growth: pollution. Chinese officials are increasingly concerned with the adverse environmental impact of the country's startling expansion, from the notoriously bad air quality in its biggest cities to deforestation and soil erosion.

Regulating that growth has proved difficult. A measure of political autonomy in China's main economic zones, greased by widespread corruption, has encouraged local governments to emphasize growth at all costs. Government oversight remains lax, while China's powerful state-owned enterprises are able to use their clout in official circles to resist regulation.

From Tiananmen Square to the world's factory

Bound together by debt

Perhaps nothing symbolizes the transformed economic relationship between the U.S. and China more than the investment by the People's Republic in U.S. Treasury bonds. The sum total of Chinese holdings now stands at more than $1.2 trillion, making China America's top foreign creditor.

Americans, polls have found, worry about foreign holding of U.S. debt, and some commentators and strategists see China as the new rival on which America should focus its military attention. But a quote from late financier J. Paul Getty is in order: "If you owe the bank $100, that's your problem; if you owe the bank $100 million, that's the bank's problem."

For China to destabilize the U.S. economy or to suddenly vanish as a creditor would have profound implications for the largest economy in the world, and thus for China as well. The investment in Treasuries shows just how closely tied China and the U.S. are and will likely continue to be.