One of the basic facts about China today is that most of it is communist - the part that most of us hear about. Thus, it surprises some people to know that some parts of it are not communist at all; but have free-market capitalist systems like those found in the West. Why is this, you might ask? Why did these parts not go communist, when the rest of China did?
Flag of the People's Republic of China
To answer that, you have to examine a little of the history; which explains why the country has two "Special Administrative Regions" (which are Hong Kong and Macau), and lays claim over still another region which is not communist, which is Taiwan. Why is this, you might ask? Why were these particular regions spared the cataclysmic forces that engulfed the rest of the Chinese-speaking world?
Map of the People's Republic of China
Part of it is that two of these places - Hong Kong and Macau - were colonized by European powers, and so were protected from the tidal wave of communism by treaties with these countries. Specifically, Macau was colonized by Portugal in 1557, and Hong Kong was colonized by Britain in 1841 (explaining the prevalence of English there). They continued to remain under the control of these European powers until the 1990's, when the original treaties expired (1997 for Hong Kong, 1999 for Macau). After this, the British and the Portuguese handed over these areas to the communist mainland as promised in the treaties; but managed to bargain for their special status within the People's Republic of China in the process, with each becoming a "Special Administrative Region" that retained its free system of government. Ironically, the continuance of their capitalist economies has brought considerable revenue to the communist government in Beijing, as the taxation going from Hong Kong & Macau to Beijing has enriched this otherwise-communist country greatly; and the two "Special Administrative Regions" continue to enjoy considerable autonomy in other ways.
Picture from the Chinese Civil War, 1930s
The situation in Taiwan is much more complicated, since one has to discuss a decades-long civil war before one can make much (if any) sense out of it. While Taiwan was ruled by the Japanese, the "Republic of China" was proclaimed in the Chinese mainland in 1912; but it erupted into a major civil war in 1927, and continued on through the early years of a Japanese invasion of Chinese Manchuria in 1931, with the first phase of the civil war ending in 1936. At this time, the coming full-scale war with the invading Japanese actually caused a temporary cease-fire between the two sides, and the eventual victory over Japan resulted in the reacquisition of Taiwan for the "Republic of China" in 1945, with the civil war resuming in 1946.
The second phase of the Chinese Civil War resulted in a major victory for the Chinese Communist Party in 1949, in which Mao Zedong proclaimed the "People's Republic of China" within the Chinese mainland. The old government of the "Republic of China" retreated to Taiwan, with the civil war ending in May 1950. (It's possible the civil war might have continued past that with a communist invasion of Taiwan, but for the outbreak of the Korean War in June 1950 - a war that communist China would officially enter in October 1950; thus declaring war on the United States, and necessitating a greater focus on the war with America, than on the war with the old regime in Taiwan.)
Chinese troops in Korean War, 1950
Up until that point, the Americans had not been very interested in the Chinese Civil War, and had no desire to intervene or otherwise get involved; but after the outbreak of the Korean War, disruption of communist interests in Taiwan became an important strategic military aim in the war; and so the Americans sent their troops to protect Taiwan from communist invasion - thus beginning a long tradition of American military support for Taiwan, which continued on long after the war had ended (and still continues today). From that point on, the American military support of Taiwan would be a major factor in the mainland's relations with Taiwan, and quite possibly the only factor keeping Taiwan from going just as communist as the mainland had. The government of the mainland has repeatedly threatened to invade Taiwan if it ever declares its independence, so it has never done so since then; but unofficially, it is even more autonomous than Hong Kong and Macau are, since it does not have to pay taxes to Beijing as Hong Kong and Macau do. Since the end of the Korean War, I should mention, the status of Taiwan has been a major issue in Chinese relations with the United States, with more than one crisis being caused by various incidents in the Taiwan Straits - three of them, to be specific. (One in the mid-fifties, one in the late-fifties, and one in the mid-nineties; in case you're wondering - with the mid-nineties incident being well after the famous visit by President Richard Nixon to the mainland in 1972, and the closer diplomatic and economic ties between the two countries resulting from that visit.)
Chiang Kai-Shek, president of the Republic of China for many years
I wrote in one of my previous posts that the differences between communist North Korea and capitalist South Korea, or between communist East Germany and capitalist West Germany during the Cold War, were due to the fact that their political & economic systems were so different; with the capitalist part being prosperous in each case, and the communist part being grindingly poor - with each situation being an experiment with communism that shows the world the failure of the communist system. Some have suggested that I include communist China and semi-capitalist Taiwan in this category as well; and given that both have the Mandarin Chinese language as their official language, there is some reason to consider doing this. Nonetheless, I'm not sure I would say the experiment is clean enough to have eliminated all the other explanations properly, so I'm a little ambivalent as to whether this counts as another such "natural experiment" (although I stand by my assertions that the Korean and German experiments do count as such).
Tiananmen Square, 1989 - scene of a government massacre of protesters
The correlation is undoubtedly there, I should acknowledge; as the relationship between communism and poverty is well-demonstrated by the evidence - the semi-capitalist island of Taiwan (not to mention Hong Kong and Macau) are much more prosperous than the communist mainland, and the communist mainland is almost universally poor. Nonetheless, the separate histories of mainland China and Taiwan - with varying degrees of Japanese rule and other factors - make it so there are a number of competing explanations for these differences in their standards of living, which would have to be properly eliminated before the attribution of these results to communism could be certain. Given that this elimination may be literally impossible to do, the results of the Chinese experiments with communism are not as clean as their counterparts in Korea and Germany; although the evidence from the Korean and German experiments remains solid, and would seem to implicate other manifestations of communism than the ones in these "natural experiments" - including, it would seem, that found in mainland China.
Coal mine in China, 1999
Whatever your feelings about the degree of messiness in the Chinese experiments, though, the fact remains that communism would seem to account for the extensive poverty in the mainland (or at least partially do so), and be a force for stagnation in the Chinese-speaking world - bringing things to a virtual crawl compared to its economic potential, since its population and other resources would seem to suggest that it could be extremely prosperous and well-off under more favorable economic circumstances.
Factory in China, 2008
Thankfully, though, there are a few parts of the Chinese-speaking world that were spared the tidal wave of communism that engulfed the mainland - parts which gave the region some tiny islands of prosperity to take refuge in. With over a billion people in the communist mainland, it is still well that we pay it more attention than the comparatively small regions of Hong Kong, Macau, and Taiwan; as the mainland will continue to have a larger effect on world affairs, for good or evil, in years to come. But through it all, the evidence from these other regions can show us what might have been in China had things been different; and the mainland's history can show us what mistakes we might need to avoid if we are to continue to enjoy the prosperity that we so cherish today.
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The Korean and German experiments
Actually, communism has been tried (and it doesn't work)
Part of a series about
Communism in theory: Why Marxism can never work
The "Communist Manifesto" (and how Marxism got started)
Marx's "labor theory of value" (and why it doesn't work)
Problems with equalizing income (even in theory)
Problems with rewarding good behavior (under communism)
In defense of John Locke: The need for private property
Communism in practice: The results of the experiments
Revolution in Russia: How the madness got started
History's horror stories: The "grand experiments" with communism
Germany and Korea: The experiments that neither side wanted
Civil war in China: How China was divided
Actually, communism has been tried (and it doesn't work)