Exploring China’s Shift from Communal Poverty to Private Prosperity
Just 50 years ago, China was one of the poorest countries on Earth. Many of its people lived in mud-brick homes. Most were undernourished. Everyone was trapped in a rigid communist system that crushed initiative. Today, it is the world’s second-largest economy by some measures, home to gleaming megacities and the largest middle class by population.
How did that happen so fast?
China’s rise is one of the greatest economic turnarounds in history. It is one of the clearest demonstrations of how capitalism and economic freedom can transform lives.
After World War II, Mao Zedong’s troops imposed communism on the country. The result was catastrophic. The PRC government nationalized all aspects of the economy. Central planning dictated every aspect of life. Productive incentives vanished. Innovation stalled. The Great Leap Forward campaign starved tens of millions, followed by 10 years of Cultural Revolution that brought the country to rock bottom.
Then, in the late 1970s, something remarkable happened. After Mao’s death, a small group of desperate farmers in the village of Xiaogang decided that they no longer wanted to wait to die of starvation, which was happening daily around them. In secret, they divided up their collective farmland, assigning each of the eight families their own plot so they could make decisions by themselves about what to plant on their own land, and for themselves. They had to deliver the government quota, but they agreed to keep any extra harvest for themselves.
It was a simple act of rebellion. Yet, allowing people to make decisions for themselves and to keep the fruits of their labor changed everything. Yields soared. When word spread, the farmers braced for severe punishment. China’s new pragmatic leader took notice and allowed the experiment to continue.
Deng Xiaoping began to let go of many controls and restrictions, opening up the PRC to the world, decriminalizing small private businesses, allowing individuals to lease land, and encouraging trade. China didn’t become a completely free market overnight, but for the first time in decades, people could profit from their own efforts.
The results were amazing. Governmental and individual entrepreneurs opened factories and shops. Foreign investment poured in. Hundreds of millions walked out of poverty with their own feet. A country once synonymous with famine became an engine of global production and innovation.
But internal reform wasn’t the only factor. The West, especially the United States, played a key role in China’s transformation.
When President Richard Nixon visited Beijing in 1972, his goal wasn’t economic cooperation. It was geopolitics. America wanted a counterweight to the Soviet Union. By normalizing relations with China (at the cost of the sovereign nation Taiwan, aka ROC), Washington helped create a partnership that indirectly hastened the USSR’s collapse.
This diplomatic thaw had some surprising consequences. As America opened trade with China, many companies shifted manufacturing to China to cut costs. The country gained access to Western markets, technology, and capital. The label “Made in China” appeared in every store.
Milton Friedman hoped the economic transformation would lead to political liberalization. Instead, private wealth strengthened the Communist Party’s grip on power. Beijing used its newfound prosperity to modernize its military, expand influence abroad, and gain leverage over the West. The same system that unleashed capitalist energy also reinforced political control.
Removing political barriers to market integration lifted billions of people worldwide. But it also shifted power. Soviet foreign aid in Africa, Latin America, and Asia dwindled. The U.S. imposed sanctions on countries like Iran, Cuba, and North Korea. Many governments turned toward China for trade and financing. More recently, Western sanctions on Russia have pushed Moscow closer to Beijing, giving the CCP access to cheap energy and advanced weaponry.
Washington’s attempts to “contain” China through tariffs and trade wars sometimes backfired, encouraging other nations to seek alternatives to U.S.-dominated networks. Beijing now leads or participates in rival trade blocs, invests heavily in Third World economies, and funds infrastructure projects across the world through its Belt and Road Initiative.
As a result, globalization’s best success story has become America’s biggest strategic challenge.
But beneath the shiny skyscrapers and dazzling statistics, China’s government-directed mercantilist economic model is showing signs of strain.
For decades, central and local governments fueled growth through massive construction projects. Highways, rail lines, dams, factories, airports, and entire new cities sprang up like mushrooms after rain. These developments boosted GDP numbers and impressed central planners, but many became “ghost cities” — thousands of empty commercial and residential towers with no residents.
Developers borrowed heavily to build them, and Chinese families (encouraged by the state) treated real estate as the safest investment. Property became a national obsession and a key savings vehicle. But as population growth slows and housing demand collapses, the cracks are widening. Major developers like Evergrande have defaulted on debts worth hundreds of billions of dollars.
Beijing now faces a delicate balancing act. How will the CCP restore confidence? How do you liquidate the malinvestments without triggering a financial panic? The idea of “common prosperity” calls for narrowing inequality and subsidizing new technologies and transitioning to “green” energy. In practice, it means more state control. Expect further crackdowns on private firms, tighter restrictions on personal choices, and less room for entrepreneurs to take risks.
Ironically, the very freedom that made China rich is now being curtailed by the same Party that once set it loose.
Under President Xi Jinping, China has grown more authoritarian. The Communist Party inserts itself into private companies’ decisions, censors information, and punishes business leaders who stray from official policy. Foreign investors, once eager to tap China’s vast market, are pulling back. Companies like Apple and Tesla are shifting supply chains to countries like India, Vietnam, and Mexico.
The more Beijing clamps down, the more global firms diversify away. Openness, trade, and private initiative lifted China from abject misery to relative prosperity. Now, all of this is slowly being replaced by centralization and control.
China’s economic rise is breathtaking. After Mao, it achieved what took the West a couple of centuries. Entrepreneurial capitalism in China has empowered and freed more people out of poverty than in any nation in history. It highlights a core truth: prosperity follows freedom.
When individuals are allowed to own (have permission to use) property, experiment, create, and trade, wealth grows. When the government dictates and controls, stagnation returns.
China now stands at a crossroads. It can continue down the path of innovation and openness. Or the CCP can retreat into political rigidity, producing managed decline. Injecting a dose of capitalism turned rice paddies into skylines. A return to socialist controls could just as easily become the cage that traps the country’s future.
For America and the world, China’s story is both a warning and a reminder. Capitalism works, even when practiced imperfectly. But freedom, once surrendered, is hard to regain.
About this Piece
A. Noel Tokarev, of Midland, Michigan, is studying sport management at Northwood University. Nathan Kniesteadt, of Dexter, Michigan, is studying finance at Northwood University. Adriel Sanchez, of Coachella, California, is a business student at Northwood. Li Schoolland, an independent educator, writer, translator, and event organizer dedicated to defending freedom and liberty worldwide, was a featured presenter during the 2025 Northwood University Freedom Seminar. She and Noel, Nathan, and Adriel co-authored this piece with Kristin Tokarev, a Northwood alumna who works for Stossel TV and has mentored several Northwood Freedom Seminar students. This piece is featured in the January 2026 edition of When Free to Choose, Northwood’s signature publication dedicated to exploring the importance of free enterprise. Click here to receive this complimentary publication in your inbox!