ARAB-ISRAELI CONFLICT

Introduction
• The conflict between Palestinian Arabs and Zionist (now Israeli) Jews is a modern phenomenon,
dating to the end of the nineteenth century.
• Although the two groups have different religions (Palestinians include Muslims, Christians and
Druze), religious differences are not the cause of the strife.
• The conflict began as a struggle over land.
• From the end of World War I until 1948, the area that both groups claimed was known
internationally as Palestine.
• That same name was also used to designate a less well-defined “Holy Land” by the three
monotheistic religions.
• Following the war of 1948–1949, this land was divided into three parts: the State of Israel, the
West Bank (of the Jordan River) and the Gaza Strip.
• It is a small area—approximately 10,000 square miles, or about the size of the state of Maryland.
• The competing claims to the territory are not reconcilable if one group exercises exclusive
political control over all of it.
• Jewish claims to this land are based on the biblical promise to Abraham and his descendants, on
the fact that the land was the historical site of the ancient Jewish kingdoms of Israel and Judea,
and on Jews’ need for a haven from European anti-Semitism.
• Palestinian Arab claims to the land are based on their continuous residence in the country for
hundreds of years and the fact that they represented the demographic majority until 1948.
• They reject the notion that a biblical-era kingdom constitutes the basis for a valid modern claim.
• If Arabs engage the biblical argument at all, they maintain that since Abraham’s son Ishmael is the
forefather of the Arabs, then God’s promise of the land to the children of Abraham includes Arabs
as well.
• They do not believe that they should forfeit their land to compensate Jews for Europe’s crimes
against Jews.

The British mandate in Palestine

• By the early years of the twentieth century, Palestine had become a trouble spot of competing
territorial claims and political interests.
• The Ottoman Empire was weakening, and European powers were strengthening their grip on
areas along the eastern Mediterranean, including Palestine.
• During 1915– 1916, as World War I was underway, the British high commissioner in Egypt, Sir
Henry McMahon, secretly corresponded with Husayn ibn ‘Ali, the patriarch of the Hashemite
family and Ottoman governor of Mecca and Medina.
• McMahon convinced Husayn to lead an Arab revolt against the Ottoman Empire, which was
aligned with Germany against Britain and France in the war.
• McMahon promised that if the Arabs supported Britain in the war, the British government would
support the establishment of an independent Arab state under Hashemite rule in the Arab
provinces of the Ottoman Empire, including Palestine.
• The Arab revolt, led by Husayn’s son Faysal and T. E. Lawrence (“Lawrence of Arabia”), was
successful in defeating the Ottomans, and Britain took control over much of this area during
World War I.
• After the war, Britain and France convinced the new League of Nations (precursor to the United
Nations), in which they were the dominant powers, to grant them quasi-colonial authority over
former Ottoman territories.

• The British and French regimes were known as mandates. France obtained a mandate over Syria,
carving out Lebanon as a separate state with a (slight) Christian majority.
• Britain obtained a mandate over Iraq, as well as the area that now comprises Israel, the West
Bank, the Gaza Strip and Jordan.
• In 1921, the British divided this latter region in two: East of the Jordan River became the Emirate
of Transjordan, to be ruled by Faysal’s brother ‘Abdallah, and west of the Jordan River became
the Palestine Mandate. It was the first time in modern history that Palestine became a unified
political entity.
• In 1920 and 1921, clashes broke out between Arabs and Jews in which roughly equal numbers
from both communities were killed.
• In the 1920s, when the Jewish National Fund purchased large tracts of land from absentee Arab
landowners, the Arabs living in these areas were evicted.
• These displacements led to increasing tensions and violent confrontations between Jewish settlers
and Arab peasant tenants.
• In 1928, Muslims and Jews in Jerusalem began to clash over their respective communal religious
rights at the Western (or Wailing) Wall.
• The Wall, the sole remnant of the second Jewish Temple, is the holiest site in the Jewish religious
tradition. Above the Wall is a large plaza known as the Temple Mount, the location of the two
ancient Israelite temples (though no archaeological evidence has been found for the First Temple).
• The place is also sacred to Muslims, who call it the Noble Sanctuary. It now hosts the al-Aqsa
Mosque and the Dome of the Rock, believed to mark the spot from which the Prophet
Muhammad ascended to heaven on a winged horse, al-Buraq, that he tethered to the Western
Wall, which bears the horse’s name in the Muslim tradition.
• On August 15, 1929, members of the Betar Jewish youth movement (a pre-state organization of
the Revisionist Zionists) demonstrated and raised a Zionist flag over the Western Wall.
• Fearing that the Noble Sanctuary was in danger, Arabs responded by attacking Jews in Jerusalem,
Hebron and Safed. Among the dead were 64 Jews in Hebron. Their Muslim neighbors saved
many others.
• The Jewish community of Hebron ceased to exist when its surviving members left for Jerusalem.
During a week of communal violence, 133 Jews and 115 Arabs were killed and many wounded.

The UN partition plan

• Following World War II, hostilities escalated between Arabs and Jews over the fate of Palestine
and between the Zionist militias and the British army.
• Britain decided to relinquish its mandate over Palestine and requested that the recently established
United Nations determine the future of the country.
• But the British government’s hope was that the UN would be unable to arrive at a workable
solution, and would turn Palestine back to them as a UN trusteeship.
• A UN-appointed committee of representatives from various countries went to Palestine to
investigate the situation.
• Although members of this committee disagreed on the form that a political resolution should take,
the majority concluded that the country should be divided (partitioned) in order to satisfy the
needs and demands of both Jews and Palestinian Arabs.
• At the end of 1946, 1,269,000 Arabs and 608,000 Jews resided within the borders of Mandate
Palestine. Jews had acquired by purchase about 7 percent of the total land area of Palestine,
amounting to about 20 percent of the arable land.
• On November 29, 1947, the UN General Assembly voted to partition Palestine into two states,
one Jewish and the other Arab.

 • The UN partition plan divided the country so that each state would have a majority of its own
population, although a few Jewish settlements would fall within the proposed Arab state while
hundreds of thousands of Palestinian Arabs would become part of the proposed Jewish state.
• The territory designated for the Jewish state would be slightly larger than the Arab state (56
percent and 43 percent of Palestine, respectively, excluding Jerusalem), on the assumption that
increasing numbers of Jews would immigrate there.
• According to the UN partition plan, the area of Jerusalem and Bethlehem was to become an
international zone.
• On May 15, 1948, the British evacuated Palestine, and Zionist leaders proclaimed the State of
Israel.
• Neighbouring Arab states (Egypt, Syria, Jordan and Iraq) then invaded Israel, claiming that they
sought to “save” Palestine from the Zionists. Lebanon declared war but did not invade.
• In fact, the Arab rulers had territorial designs on Palestine and were no more anxious than the
Zionists to see a Palestinian state emerge.
• During May and June 1948, when the fighting was most intense, the outcome of this first Arab
Israeli war was in doubt.
• But after arms shipments from Czechoslovakia reached Israel, its armed forces established
superiority and conquered additional territories beyond the borders the UN partition plan had
drawn up for the Jewish state.

1948-49 Israel’s war of Independence and the Palestinian Nakbah

• In November 1947 the United Nations (UN) voted to partition the British mandate of Palestine
into a Jewish state and an Arab state (United Nations Resolution 181).
• Clashes broke out almost immediately between Jews and Arabs in Palestine.
• As British troops prepared to withdraw from Palestine, conflict continued to escalate, with both
Jewish and Arab forces committing belligerences.
• Among the most infamous events was the attack on the Arab village of Dayr Yāsīn on April 9,
1948.
• The news of a brutal massacre there by Irgun Zvai Leumi and the Stern Gang forces spread
widely and inspired both panic and retaliation.
• Days later, Arab forces attacked a Jewish convoy headed for Hadassah Hospital, killing 78.
• On the eve of the British forces’ (May 15, 1948), withdrawal, Israel declared independence.
• The next day, Arab forces from Egypt, Transjordan (Jordan), Iraq, Syria, and Lebanon occupied
the areas in southern and eastern Palestine not apportioned to the Jews by the UN partition of
Palestine and then captured east Jerusalem, including the small Jewish quarter of the Old City.
• The stated purpose of the invasion was to restore law and order in light of British withdrawal,
citing incidents such as that at Dayr Yāsīn, and a growing refugee crisis in neighbouring Arab
countries.
• The Israelis, meanwhile, won control of the main road to Jerusalem through the Yehuda
Mountains (“Hills of Judaea”) and successfully repulsed repeated Arab attacks.
• By early 1949 the Israelis had managed to occupy all of the Negev up to the former Egypt-
Palestine frontier, except for the Gaza Strip.
• Between February and July 1949, as a result of separate armistice agreements between Israel and
each of the Arab states, a temporary frontier was fixed between Israel and its neighbours.
• In Israel, the war is remembered as its War of Independence.
• In the Arab world, it came to be known as the Nakbah (“Catastrophe”) because of the large
number of refugees and displaced persons resulting from the war.

 1956 Suez Crisis

• Tensions mounted again with the rise to power of Egyptian President Gamal Abdel Nasser, a
staunch Pan-Arab nationalist.
• Nasser took a hostile stance toward Israel.
• In 1956 Nasser nationalized the Suez Canal, a vital waterway connecting Europe and Asia that
was largely owned by French and British concerns.
• France and Britain responded by striking a deal with Israel—whose ships were barred from using
the canal and whose southern port of Elat had been blockaded by Egypt—wherein Israel would
invade Egypt; France and Britain would then intervene, ostensibly as peacemakers, and take
control of the canal.
• In October 1956 Israel invaded Egypt’s Sinai Peninsula.
• In five days the Israeli army captured Gaza, Rafaḥ, and Al-ʿArīsh — taking thousands of
prisoners and occupied most of the peninsula east of the Suez Canal.
• The Israelis were then in a position to open sea communications through the Gulf of Aqaba.
• In December, after the joint Anglo-French intervention, a UN Emergency Force was stationed in
the area, and Israeli forces withdrew in March 1957.
• Though Egyptian forces had been defeated on all fronts, the Suez Crisis, as it is sometimes
known, was seen by Arabs as an Egyptian victory.
• Egypt dropped the blockade of Elat.
• A UN buffer force was placed in the Sinai Peninsula.

1967: Six-day war

• Arab and Israeli forces clashed for the third time June 5–10, 1967, in what came to be called the
Six-Day War (or June War).
• In early 1967 Syria intensified its bombardment of Israeli villages from positions in the Golan
Heights.
• When the Israeli Air Force shot down six Syrian MiG fighter jets in reprisal, Nasser mobilised his
forces near the Sinai border, dismissing the UN force there, and he again sought to blockade Elat.
• In May 1967 Egypt signed a mutual defence pact with Jordan.
• Israel answered this apparent Arab rush to war by staging a sudden air assault, destroying Egypt’s
air force on the ground.
• The Israeli victory on the ground was also overwhelming.
• Israeli units drove back Syrian forces from the Golan Heights, took control of the Gaza Strip and
the Sinai Peninsula from Egypt, and drove Jordanian forces from the West Bank.
• Importantly, the Israelis were left in sole control of Jerusalem.

1973:Yom Kippur War

• The sporadic fighting that followed the Six-Day War again developed into full-scale war in 1973.
• On October 6, the Jewish holy day of Yom Kippur (thus “Yom Kippur War”), Israel was attacked
by Egypt across the Suez Canal and by Syria on the Golan Heights.
• The Arab armies showed greater aggressiveness and fighting ability than in the previous wars,
and the Israeli forces suffered heavy casualties.
• The Israeli army, however, reversed early losses and pushed its way into Syrian territory and
encircled the Egyptian Third Army by crossing the Suez Canal and establishing forces on its west
bank.
• Israel and Egypt signed a cease-fire agreement in November and peace agreements on January 18,
1974.

 • The accords provided for Israeli withdrawal into the Sinai west of the Mitla and Gidi passes,
while Egypt was to reduce the size of its forces on the east bank of the canal.
• A UN peacekeeping force was established between the two armies. This agreement was
supplemented by another, signed on September 4, 1975.
• On May 31, 1974, Israel and Syria signed a cease-fire agreement that also covered separation of
their forces by a UN buffer zone and exchange of prisoners of war.
• On March 26, 1979, Israel and Egypt signed a peace treaty formally ending the state of war that
had existed between the two countries for 30 years.
• Under the terms of the Camp David Accords, as the treaty was called, Israel returned the entire
Sinai Peninsula to Egypt, and, in return, Egypt recognized Israel’s right to exist. The two
countries subsequently established normal diplomatic relations.

1982: Lebanon War

• On June 5, 1982, less than six weeks after Israel’s complete withdrawal from the Sinai, increased
tensions between Israelis and Palestinians resulted in the Israeli bombing of Beirut and southern
Lebanon, where the Palestine Liberation Organization (PLO) had a number of strongholds.
• The following day Israel invaded Lebanon, and by June 14 its land forces reached as far as the
outskirts of Beirut, which was encircled, but the Israeli government agreed to halt its advance and
begin negotiations with the PLO.
• After much delay and massive Israeli shelling of west Beirut, the PLO evacuated the city under
the supervision of a multinational force.
• Eventually, Israeli troops withdrew from west Beirut, and the Israeli army had withdrawn entirely
from Lebanon by June 1985.

2006: Second Lebanon War

• In July 2006 Hezbollah launched an operation against Israel in an attempt to pressure the country
into releasing Lebanese prisoners, killing a number of Israeli soldiers in the process and capturing
two.
• Israel launched an offensive into southern Lebanon to recover the captured soldiers.
• The war lasted 34 days but left more than one thousand Lebanese dead and about one million
others displaced.
• Several Arab leaders criticised Hezbollah for inciting the conflict.
• Nevertheless, Hezbollah’s ability to fight the Israel Defense Forces to a standstill won it praise
throughout much of the Arab world.

 PEACE PROCESS

• After the 1967 war, Israel immediately offered to exchange land for peace.
• The Arab league’s response, known as the “Three Nos”: “No peace with Israel, No recognition of
Israel, No negotiations with Israel” –Arab League Khartoum Resolution, September 1, 1967
• When the mindset changed? - The peace process with Egypt, the first gulf war, Madrid
conference in 1991 and when governments changed

Israels search for peace

• Israel was willing to make territorial compromise to gain peace
• Since 1937, Israel accepted territorial compromise in 1937, 1947, 1979 and 2000.

Madrid Conference (1991) - Impact

• Israel’s international status has improved and new diplomatic relations were developed with other
countries like China, Oman, Qatar, Tunisia and Morocco.
• The Madrid conference also paved the way for the Oslo Accords and direct negotiations with the
PLO.

Israeli-Palestinian Peace Efforts

• The Oslo process brought high hopes for Palestinian-Israeli peace in 1993
• The PLO’s Yasser Arafat agreed to a Palestinian government in the West Bank and Gaza.
• Israel agreed to give administrative control to the newly created Palestinian Authority and to
progressively withdraw from disputed territory.
• “Final Status” issues, including final borders, refugees, Jerusalem settlements and security, were
to be negotiated at the end of the peace process.

1994 Peace with Jordan

• Discussions began in 1994. Israeli PM Yitzhak Rabin and Foreign Minister Simon Peres informed
King Hussein that after the Oslo Accords with the PLO, Jordan might be “left out of the big
game”
• The treaty was closely linked with the efforts to create peace between Israel and the Palestinian
Authority.

WYE River Memorandum

• The Wye River Memorandum was agreement negotiated between Israel and the Palestine
Authority to implement the earlier Interim Agreement of 28th September, 1995.
• With the outbreak of the Al-Aqsa Intifada in September 2000, the Wye River’s understandings
and goals remain un-implemented.

Hopes for Peace lost (2000)

Hopeful Steps
• PA created as Palestinian civil government
• Yasser Arafat claims to renounce terror and is elected as President of PA
• 98% of Palestinians governed by PA
• Israeli withdrawals from 80% of Gaza, 40% of West Bank

 Disappointments
• Terrorism escalates - 1993-2000: 282 Israeli’s killed, 1978-1993: 216 Israeli’s killed
• Anti-Israel incitement mounts in Palestinian media, schools and mosques
• Israel delays withdrawals
• No agreements on borders. Israeli communities expand in disputed territories.

Camp David Summit, 11th July 2000

• The Middle East Peace summit at Camp David of July 2000 took place between US President Bill
Clinton, Israeli PM Ehud Barak, and Palestinian Authority Chairman Yasser Arafat.
• Ultimately, it was an unsuccessful attempt to negotiate a “final status settlement” to the Israeli-
Palestinian conflict.
• The Offer
- 100% of Gaza, 97% of West Bank with land swap for extra 3%
- Uprooting Israeli settlements within new PA borders
- Shared capital of Jerusalem
- $30 billion in refugee resettlement fund
• Arafat’s response - Arafat did not accept the offer, made no counteroffer and walked away from
the negotiation
• Two months later, he launched the second Intifada - the terrorist war against Israel

Road Map for peace, June 2003

• The “road map” for peace is a plan to resolve the Israeli-Palestinian conflict proposed by a
“quartet” of international entities: the US, the EU, Russia and the UN
• The Roadmap represents a starting point toward achieving the vision of two states, a secure State
of Israel and a viable, peaceful, democratic Palestine.

Palestinian Presidential Election (2005)

• The first to be held since 1996 - took place on January 9, 2005 in the West Bank and Gaza Strip.
Voters elected PLO chairman Mahmoud Abbas as the new President of the Palestinian Authority
to replace Yasser Arafat, who died on Nov 11, 2004.

 THE REVOLUTION IN IRAN (1979)

Iran under Shah Reza Pahlavi (r. 1941 – 1977)

• Institutes Western reforms & ties with the West
• The majority of his people live in poverty.
• Brutal suppression of dissidents
• SAVAK (secret police)

The “White Revolution” - 1963

The Shah’s attempted reforms
- Divested the clergy of their vast landholdings
- Declared new rights for women
- Right to vote
- Right to attend university
- Dramatically increased urbanization and industrialization
- Many saw this as Iran becoming too Westernized and abandoning Iranian/Islamic traditions
- Exiles the Ayatollah Khomeini after he criticizes the Shah

Ayatollah Khomeini (r. 1979-1989)

• 1902 – 1989.
• Became an Islamic scholar
• Began to speak out against the Shah in the 1960s.
• Arrested and imprisoned several times by the Shah.
• Exiled in 1978 & went to France.
• Khomeini returns to Iran on February 11, 1979 as Supreme Leader

Reasons for the Fall of the Shah

• The Shah spent the oil profits for top of the line American military hardware.
• Little money to reinvest back into the Iranian economy.
• Religious leaders angry with the Shah for too much “Westernisation.”
• Government corruption.
• The Shah’s constitutional violations of the basic human rights of his citizens.

Why it happened?
• Opposition to the Shah (Sunni) was wide spread
• Many Shiites wanted the Iran governed by Islamic law
• The Islamic clergy became the voice of opposition
• The revolution was governed by Ayatollah Ruhollah Khomeini (Shiite)
• The Shah leaves Iran on 1/16/79. Facing likely execution should he return to Iran, he died in exile

Iran After Revolution

• Government Change - Iran goes from a Shah (king) to an Islamic Republic with a theocratic
constitution
• Theocracy
- Religious government
- God is seen as head of state
- All laws must be in line with religion (in this case Islam)

 Islamic State Returns

• Enemies of the Islamic Revolution are tried and executed
• All political parties and organisations are banned
• Independent and non-Islamic newspapers are closed.
• Banks and Industries are Nationalised.

Iranian Revolution Escalates

• US interests in the Persian Gulf are threatened.
• No access to Iranian Oil
• Cancellation of $7 billion of uncompleted arms contracts
• Anti American sentiment runs high – US was “The Great Satan”

Pros and Cons of Theocracy

Pros
1. Likely totalitarian: bills easily passed and imposed
2. Strict discipline, so less crime
3. Extreme adherents to religious principles
4. High patriotism and morale in the case of economic/natural disaster
5. Organized, orderly and effective government

Cons
1. Powers of leader are likely to be used for corrupt practices
2. Conservative; limited change
3. Radical, easy to swing to fanatical state
4. Indoctrination, propaganda, no freedom of the press
5. Hard for non-clerics to create sweeping change or initiate new ideas

Hassan Rouhani (2013-)

• An Islamic cleric and a former member of the Majlis & the Assembly of Experts
• Described as a centrist - supports personal freedom & free access to information
• Appointed women to government positions
• Seen as a reformist who has improved Iran's diplomatic relations with other countries through
exchanging letters
• Sept. 27, 2013 - Speaks with President Barack Obama by telephone, the first direct conversation
between leaders of Iran and the United States since 1979

Iranian Nuclear Program

• Since 2003 the US has alleged that Iran has a program to develop nuclear weapons
• Iran says that its nuclear program is only to generate electricity
• US and Iran signed the Nuclear Non-Proliferation Treaty
• US and other countries in violation for not disarming
• Iran in violation for not reporting nuclear material to IAEA
• March 8 2006 – US and European countries call on Security Council of UN to act against Iran
• Mahmoud Ahmadinejad continued to escalate this issue by restricting UN inspectors’ access to
Iranian facilities
• President G. W. Bush State of the Union Address: “States like these [North Korea, Iran, and Iraq]
and their terrorist allies, constitute an axis of evil, arming to threaten the peace of the world. By

 seeking weapons of mass destruction, these regimes pose a grave and growing danger. They could
provide these arms to terrorists, giving them the means to match their hatred. They could attack
our allies or attempt to blackmail the United States. In any of these cases, the price of indifference
would be catastrophic.”
• There have been multiple rounds of negotiations between Iran and the so-called P5+1, which
comprises the five permanent members of the UN Security Council - the US, UK, France, China,
Russia - and Germany.
• For years they failed to make headway.
• But the mood changed after the election of Hassan Rouhani as president in June 2013.
• Five months later, following secret bilateral talks between the US and Iran, negotiators agreed an
interim deal.

Summary of Treaty

What Iran will do:

• Halt enrichment of uranium above 5% purity
• "Neutralise" its stockpile of near-20%-enriched uranium
• Not install any more centrifuges (the machines used to enrich uranium)

What world powers will do:

• Not impose further nuclear-related sanctions
• Suspend certain sanctions on trade
• Transfer $4.2bn (£2.6bn) to Iran in installments from sales of its oil

 JAPANS ECONOMIC MIRACLE

US Military Occupation (1945-1955)

• General Douglas MacArthur pushes new Constitution. Known as “Macarthur Constitution”

• Eliminates military influence in government
• Land reform eliminates large landowners, makes Japanese farmers middle class.
• Emperor becomes largely ceremonial, no longer considered divine.
• U.S. troops and bases stationed in Japan.

War Crimes Trials Punished Japanese Wartime Military leaders

• Over 20,000 Japanese officers and soldiers accused of war crimes against civilians.
• Over 900 executed in trials throughout Asia after war.
• US tribunal in Tokyo tried the highest leaders – Gen. Tojo (left), Admiral Yamashita
• US didn’t seek publicity like Nuremberg Trials or put Hirohito on trial because they needed his
cooperation

The Korean War

• The Korean War Boom - Japan’s production increased by nearly 70 percent and as far as business
firms were concerned, it provided a greater boost than anything else to its economic recovery,
since many firms were trying to restructure themselves.
• Japans economic growth was highest in the world during the 50s and 60s
• By 1970, Japan had the third largest economy in the world and became the model for other east
asian economies, including China
• Fulfils US goals of a strong counterweight to communist influence in East Asia.

Zaibatsu
• Large “financial cliques” that were broken up after World War II.
• Famous examples: Mitsubishi, Mitsui, Suzuki

Elements of Japanese Miracle

• Partnership between government and private corporations
• Slow down population growth; frees up capital to invest.
• Economy was based initially on exports, and eventually turns to consumer goods for domestic
market
• Government and companies agree to focus on certain areas of industry: electronics, automobiles
and other vehicles, cameras, shipbuilding.
• Emphasis on quality through team approach; job security for those in good corporations

Role played by the banks

• Constant help to industry.
• Japanese Companies got a constant source of reliable funds.
• Control over the economy.

Automation
• Japan became first major user of industrial robots in manufacturing.
• These were first developed in Connecticut

 Miniaturisation
• Japanese took new American technology like transistors and and microchips and were able to
manufacture them more cheaply

Slow down
• Japan’s economy slows in the 1990s
• Problems of inflation, high oil prices, crony capitalism

The “Four Tigers”

• South Korea, Singapore, Hong Kong and Taiwan follow Japan’s formula for success
• Their economies also grow rapidly.
• Today Malaysia and Thailand are following similar routes to development.
• Vietnam is following China’s mix of capitalism and communism
• Indonesia is a mix of Tiger-style development along with selling off its natural resources, esp.
forests

Positive Points of Pacific rim Development

• Successful alternative to communism
• Better way of life for huge part of earth’s population
• More trading partners for the US and Western world

Criticisms
• Competition and Trade deficit with US
• Loss of American industries
• “Crony Capitalism” - Corruption
• Global economic collapse and bailout - 1998

 Chinas open Market Economy

Introduction

From agrarian economy to global superpower in half a

century—China’s transformation has been an economic success
story unlike any other.

Today, China is the world’s second largest economy, making up

16% of $86 trillion global GDP in nominal terms. If you adjust
numbers for purchasing power parity (PPP), the Chinese economy
has already been the world’s largest since 2014.

The upward trajectory over the last 70 years has been filled with
watershed moments, strategic directives, and shocking tragedies
and all of this can be traced back to the founding of the People’s
Republic of China (PRC) on October 1st, 1949.

How the PRC came to be

The Chinese Civil War (1927–1949) between the Republic of China (ROC)
and the Communist Party of China (CPC) caused a fractal split in the
nation’s leadership. The CPC emerged victorious, and mainland China
was established as the PRC.

Communist leader Mao Zedong set out a few chief goals for the PRC: to
overhaul land ownership, to reduce social inequality, and to restore the
economy after decades of war. The first State Planning Commission and
China’s first 5-year plan were introduced to achieve these goals.

Today’s timely chart looks back on seven decades of notable events and
policies that helped shape the country China has become. The base data
draws from a graphic by Bert Hofman, the World Bank’s Country Director
for China and other Asia-Pacific regions.

The Mao Era: 1949–1977

Mao Zedong’s tenure as Chairman of the PRC triggered sweeping
changes for the country.

1953–1957: First 5-Year Plan

The program’s aim was to boost China’s industrialization. Steel

production grew four-fold in four years, from 1.3 million tonnes to 5.2
million tonnes. Agricultural output also rose, but it couldn’t keep pace
with industrial production.

1958–1962: Great Leap Forward

The campaign emphasized China’s agrarian-to-industrial

transformation, via a communal farming system. However, the plan
failed—causing an economic breakdown and the deaths of tens of
millions in the Great Chinese Famine.

1959–1962: Lushan Conference and 7,000 Cadres meeting

Top leaders in the Chinese Communist Party (CCP) met to create

detailed policy frameworks for the PRC’s future.

1966–1976: Great Proletarian Cultural Revolution

Mao Zedong attempted to regain power and support after the

failures of the Great Leap Forward. However, this was another
plan that backfired, causing millions more deaths by violence and
again crippling the Chinese economy.

1971: Joined the United Nations

The PRC replaced the ROC (Taiwan) as a permanent member of

the United Nations. This addition also made it one of only five
members of the UN Security Council—including the UK, the U.S.,
France, and Russia.

1972: President Nixon’s visit

After 25 years of radio silence, Richard Nixon was the first sitting
U.S. President to step foot into the PRC. This helped re-establish
diplomatic relations between the two nations.

1976–1977: Mao Zedong Death,

After Mao Zedong’s passing, the interim government promised to

“resolutely uphold whatever policy decisions Chairman Mao
made, and unswervingly follow whatever instructions Chairman
Mao gave.”

DENG XIOPING

https://www.britannica.com/biography/Deng-Xiaoping

1979: “One-Child Policy”

The government enacted an aggressive birth-planning program to

control the size of the country’s population, which it viewed as
growing too fast.

 A Wave of Socio-Economic Reforms: 1980-1999

From 1980 onward, China worked on opening up its markets

to the outside world, and closing the inequality gap.

1980–1984: Special Economic Zones (SEZs) established

Several cities were designated SEZs, and provided with

measures such as tax incentives to attract foreign
investment.

Today, the economies of cities like Shenzhen have grown to

rival the GDPs of entire countries.

1981: National Household Responsibility System implemented

In the Mao era, quotas were set on how many goods farmers
could produce, shifting the responsibility of profits to local
managers instead.

This rapidly increased the standard of living, and the quota system
spread from agriculture into other sectors.

1989: Coastal Development Strategy

Post-Mao leadership saw the coastal region as the potential

“catalyst” for the entire country’s modernization.

1989–1991: Post-Tiananmen retrenchment

Early 1980s economic reforms had mixed results, and the growing
anxiety eventually culminated in a series of protests. After tanks
rolled into Tiananmen Square in 1989, the government
“retrenched” itself by initially attempting to roll back economic
reforms and liberalization. The country’s annual growth plunged
from 8.6% between 1979-1989 to 6.5% between 1989-1991.

1990–1991: Shanghai and Shenzhen stock exchanges open

Combined, the Shanghai (SSE) and Shenzhen (SZSE) stock

exchanges are worth over $8.5 trillion in total market
capitalization today.

1994: Shandong Huaneng lists on the NYSE

The power company was the first PRC enterprise to list on the
NYSE.

 1994–1996: National Poverty Reduction Plan

China successfully lifted over 400 million poor people out of

poverty between 1981 and 2002 through this endeavor.

1996: “Grasp the Large, Let Go of the Small”

Efforts were made to downsize the state sector. Policy makers

were urged to maintain control over state-owned enterprises to
“grasp the large”. Meanwhile, the central government was
encouraged to relinquish control over smaller SOEs, or “let go of
the small”.

1997: Social Safety Net

China’s social safety net went through restructuring from 1993,

and became a nationwide program after strong success in
Shanghai.

1997-1999: Hong Kong and Macao handover, Asian Financial Crisis

China was largely unscathed by the regional financial crisis, thanks

to the RMB (¥) currency’s non-convertibility.

Meanwhile, the PRC regained sovereignty of Hong Kong and

Macau back from the UK and Portugal, respectively.

1999: Western Development Strategy

The “Open Up the West” program built out 6 provinces, 5

autonomous regions, and 1 municipality

Turn of the Century: 2000-present

China’s entry to the World Trade Organization, and the
Qualified Foreign Institutional Investor (QFII) program –
which let foreign investors participate in the PRC’s stock
exchanges – contributed to the country’s economic growth.

2006: Medium-term Plan for Scientific Development

The PRC State Council’s 15-year plan outlines that 2.5% or more of
national GDP should be devoted to research and development by
2020.

2008-2009: Global Financial Crisis

The PRC experienced only a mild economic slowdown during the

 crisis. The country’s GDP growth in 2007 was a staggering 14.2%,

but this dropped to 9.7% and 9.5% respectively in the two years
following.

2013: Belt and Road Initiative

China’s ambitious plans to develop road, rail, and sea routes

across 152 countries is scheduled for completion by 2049—in time
for the PRC’s 100th anniversary. More than $900 billion is
budgeted for these infrastructure projects.

2015: Made in China 2025

The PRC refuses to be the world’s “factory” any longer. In

response, it will invest nearly $300 billion to boost its
manufacturing capabilities in high-tech fields like
pharmaceuticals, aerospace, and robotics.

Despite the recent ongoing trade dispute with the U.S. and an
increasingly aging population, the Chinese growth story seems
destined to continue on.

China Paving the Way?

The 70th anniversary of the PRC offers a moment to reflect on the

country’s journey from humble beginnings to a powerhouse on
the world stage.

Because of China’s economic success, more and more countries

see China as an example to emulate, a model of development that
could mean moving from rags to riches within a generation.