Late 1978: China initiates limited experiments allowing peasants to take responsibility for producing a quantity of agricultural goods under the commune system. In many villages, however, peasants began spontaneously dividing up the collective land. By the early 1980s, 98 percent of China's arable land was split up among individual peasant households.
1984: A new phase of rural reform begins when Beijing issues State Council Document No. 4. The document formally abolishes the system of "people's communes," and replaces them with township governments. In turn, "production teams" become village governments.
The document also formally approves the setting up of rural enterprises by individual peasant households, leading to a sharp increase in the number of dynamic rural firms. At the same time, in October 1984, China announces its first major effort to reform the urban economy.
November 1987: Chinese Communist Party General Secretary Zhao Ziyang calls on China's coastal areas to carry out an export-led growth strategy.
In 1988, Mr. Zhao specifically encourages the vibrant rural enterprises, as opposed to the stagnant state-run sector, to get involved in foreign trade. Rural enterprises rapidly expand exports, which today account for more than a quarter of the nation's total. Zhao also urges state-owned firms to take the flexible management systems of rural firms as a model.
Fall 1988: Alarmed by double-digit inflation and panic buying in major cities, China announces a sweeping economic retrenchment. Conservative central planners take the reins of economic policy from Zhao and other reformist leaders.
November 1989: Following the Army crackdown in Tiananmen Square on June 4, 1989, conservatives attempt to further tighten controls on the economy. They announce a new economic policy of "39 points" that stresses the need to recentralize state controls over key sectors.
Meanwhile, conservatives intensify a crackdown on the market-driven private sector and rural enterprises, which they criticize as "capitalist," by cutting off loans. As an economic recession worsens, millions of the rural firms go bankrupt.
At the same time, conservatives call publicly for strengthening agricultural collectives -- privately for reviving Mao's commune system -- leading to widespread fears among China's 860 million peasants that reforms are ending.
Spring 1990: The Chinese Communist Party leadership, responding to peasant anxiety and widening economic disparities, begin lobbying on behalf of rural industry and reassure farmers that policies concerning household-based agriculture will not change.
January 1992: Chinese leader Deng Xiaoping makes a tour to southern China to promote faster market-oriented economic reforms. His bold remarks on experimenting with capitalism are summarized and disseminated in Document No. 2, boosting the confidence of rural entrepreneurs.