CHINA along the capitalist road

‘Let China sleep, for when she wakes, she will shake the world.’ Napoleon

Fifty-five years later the Hong Kong based brokerage firm CLSA says that the private sector is now responsible for three-quarters of China’s output and employment, making the Communist Party government more dependent than ever on entrepreneurs to sustain high-speed economic growth. The Organisation for Economic Co-operation and Development (OECD) reports that private business generates nearly two-thirds of non-farm output. It says that the number of state controlled enterprises has halved to 150,000 since 1995. Private companies increased output by 400% and foreign companies 200% between 1998 and 2003 compared with the state sector increase of 70%. TREVOR RAYNE examines the routes China has taken since 1949.

A new police force is being established in Chinese cities, equipped with helicopters and armoured vehicles to combat ‘the threat of terrorism and the rising incidence of rioting and social unrest across the country’. The Public Security minister, Zhou Yongkang, said the authorities dealt with 74,000 protests and riots last year, involving 3.7 million people, compared with 10,000 incidents in 1994. Professor Xiaozheng of Renmin University doubted that the new force would have any impact on the causes of unrest: ‘The crux of the problem lies in an unbalanced society which lacks justice and equality. As the income gap widens, and officials become more and more corrupt, better equipped police will only be used to protect the rich people and residents of big cities.’ (Financial Times, 19 August 2005)

China has been presented as an example of the success of market socialism in achieving development and one to be emulated by others including Cuba. Market socialism is a contradiction in terms; it is an ideological formulation allowing pro-capitalist tendencies to assert themselves. History demonstrates: society can revert from socialism to capitalism.

The new El Dorado
China has approximately 1.3 billion people or one in five of humanity, 50% more people than the combined populations of all the developed capitalist countries. 66% of the people live in rural areas compared with 80% in 1949. 300 million rural residents are expected to move to towns and cities before 2020. 885 million people world-wide have Mandarin as their first language compared with 322 million whose native language is English.

Since 1978 China’s annual average growth of Gross Domestic Product (GDP) has been 9.4%, during which time real income per head grew 300%. China has over 300 million mobile-phone subscribers, more than any other country, and 100 million people with Internet access. In 1978 China accounted for 1% of the world economy, today it accounts for over 4%. China’s economy is one seventh the size of the US’s and one third the size of Japan’s. Its foreign trade is worth $851 billion and is exceeded only by those of the US and Germany. From 1993 to 2002 the volume of China’s exports rose at an annual rate of 17.3%. On current trends China’s exports will exceed those of the US within five years. Imports and exports combined were 10% of GDP in 1979, 20% in 1989 and over 60% in 2004. About half of China’s exports are produced by foreign subsidiaries; the proportion rises to 80% for electronic goods exports. China overtook Mexico as an exporter of manufactured goods to the US in 2002. Average Chinese wages are one fifth of those of Mexico and one twentieth of the average British wage. 49% of the world’s DVDs are exported from China, 42% of PCs, 50% of cameras, 29% of colour TVs, 75% of clocks and watches, 70% of toys, 24% of clothes and 83% of tractors. China is integrated into the world capitalist trading system.

Total accumulated fixed direct investment in China in 2003 was $501.5 billion. The stock of foreign direct investment in 2004 was $245.5 billion. British companies are the biggest European investors in China, spending $11.4 billion in 2003. Fixed asset investment in 2003 was an extraordinary 47% of GDP. China consumed 27% of the world’s steel in 2003, 31% of its coal and 40% of the world’s cement. In 2004 China accounted for 40% of the increase in world demand for oil. China is now the world’s second biggest oil importer. China’s combined consumption of aluminium, copper, nickel and iron ore has doubled in 10 years to become 20% of the world’s total. Between 1990 and 2002 the value of additional industrial output grew by an average 12.6% per annum, while agricultural value grew 3.9% per annum. This is a pronounced expression of uneven-development, generating social and political problems for the Chinese state with rural unrest.

Official military spending is $30 billion or 2.4% of China’s GDP. US military spending is 18 times that of China or 77 times per capita. However, the US claims that China understates its real military spending, estimating it at up to three times the declared figure.

China’s foreign exchange reserves rose to $740 billion earlier this year and are on target for $1 trillion by June 2006. The US current account deficit is forecast to reach $760 billion or 6.1% of US GDP in 2005. China’s purchase of US Treasury bonds is preventing the collapse of the US dollar and steep rises in US interest rates that would plunge the US economy into recession.

Capitalism and imperialism have been given an extension of its life by the discovery of this ‘last frontier for significant growth’, as Unilever describes China, but in doing so it is producing a rival to US global hegemony.

‘As long as it makes money’
Between 1952 and 1976 Chinese industrial production grew at an average annual rate of 11.2% or five times the rate of agricultural growth. This was a problem when 80% of the people lived in the countryside. A process of agricultural collectivisation begun in the 1950s did improve rural education, health, housing, social security and food distribution for the masses; together these were known as ‘the iron rice bowl’. The infant mortality rate measured per 1,000 people fell from 200 in 1949 to 81 in 1956.

The Great Leap Forward 1957-59 and the Great Proletarian Cultural Revolution 1966-76 promoted a model of development based on agricultural collectivisation and the Commune. The Commune combined agricultural production with light industry. The development of farming and light industry, serving both farming and consumption, would set the rate of growth of heavy industry; in turn heavy industry would serve the Communes. This was Mao’s model of development, a model of self-reliance as opposed to dependence on Soviet technology and capitalist imports. Communes were presented as a means of strengthening working class and peasant control over the means of production and political power.

Mao opposed Lenin’s view that ‘The more backward the country, the more difficult is the transition from capitalism to socialism.’ For Mao the very backwardness of the peasants drove them to want revolution and socialism all the more. The peasantry was like a blank sheet of paper on which wonderful things could be drawn. Mao condemned Khrushchev for rejecting Stalin, Lenin, Marx and Engels. He saw in the Soviet Union a privileged stratum of bureaucrats that had degenerated into a ‘new bourgeiosie’, handing on privilege to their sons and daughters and using the means of production to exploit the workers.

Criticising the Soviet Union, Mao said that over-reliance on material incentives was a futile attempt to ‘beat capitalism at its own game’. Mao proposed moral incentives. His criticism of the Soviet Union was also a criticism of a major trend in the leadership of the Communist Party of China (CCP). Mao was determined to prevent the restoration of capitalism in China and saw class struggle intensifying as socialism progressed. The Cultural Revolution was launched against ‘those Party persons in power taking the capitalist road.’ The ‘number one and number two capitalist roaders’ were senior CCP Central Committee members, Liu Shaoqi and Deng Tsiaoping respectively.

Mao used the cult of his personality to attack the trend he opposed in the Party. In a 1958 speech ‘On the problem of Stalin’ Mao argued that the cult of the individual, or the correct side of an individual, was justified in so far as a person ‘represents the truth’. Marx, Engels and Lenin and the correct side of Stalin all held the truth so why should they not be revered?

Opponents of Mao, ‘raising the Red flag in order to deny it’, sabotaged the Cultural Revolution and the country suffered from this. The cult of personality, the reverence for Mao’s thought, rather than encouraging the masses to investigate, debate and solve their problems, was used to promote factionalism and inhibit genuine study using Marxist texts. Negative experiences of the Cultural Revolution contributed to demoralisation among the working classes. Socialism is a process produced by the masses for the masses; it cannot be made for them. Given the experiences of the past century it is also more difficult to achieve than many anticipated, though no less necessary for that. Barriers to strengthening working class control provide possibilities for bourgeois restoration. It would be useful to contrast China’s Cultural Revolution with Cuba’s Rectification Campaign and the current Battle of Ideas as forms of combating bourgeois trends emerging in the effort to construct socialism. The issue is political: socialism requires democracy for the working classes.

Mao died in 1976 and Deng became leader of China and the CCP in 1978. Markets were introduced by government directive, not by popular demand. The Commune system was demolished and the household contracting system introduced in rural areas: land became private property which, when converted into commercial real estate, could be rented or sold, and labour could be hired. In 1983 state enterprises were allowed to hire workers on part-time contracts with no job security or welfare benefits. Managers were given autonomy to sack people and even close businesses. Communes’ industrial assets were taken over by Township and Village Enterprises, run by government officials who could involve foreign capital, hire and fire workers at will and were profit based. State enterprises’ share of urban employment fell from 78% in 1978 to 70% by the mid-1980s.

In 1979 Deng declared an ‘Open Door’ policy to attract foreign investment to four special economic zones along the coastal region. In 1983 joint-ventures and wholly-owned foreign business operations were allowed. The CCP-run government abolished the right to strike in 1982. Some 100 million rural workers began to migrate to the towns and cities in search of work. Wage rates often fell below the state’s prescribed minimum level. Deng talked of ‘Crossing the river by feeling the stones.’ As Mao predicted, China was crossing from the socialist road to the capitalist road.

When the students’ movement protests resulted in the Tiananmen Square deaths of 300-700 people on 4 June 1989, FRFI said that demands for democracy were being used by imperialism to undermine the Chinese state, as they were used to undermine the Soviet and east European states. However, we said that repression would not solve the problems for Chinese communists and workers. It is now clear that the Tiananmen movement had been joined by independent workers’ organisations and that this had unnerved the leadership of the CCP.

Deng’s response to the Tiananmen events was at first public silence and then an assertion that Chinese political stability required break-neck speed development. For this Deng said that ‘if capitalism has something good, then socialism should take it over and develop it’. ‘The proportion of planning to market forces is not the essential difference between socialism and capitalism….A planned economy is not equivalent to socialism…a market economy is not capitalism.’ The 1992 CCP Congress said that China must ‘get rid of highly centralised planning and develop a socialist market economy’. From 1993 state-owned enterprises could be privatised. Between 45 million and 60 million state enterprise employees were made redundant by 2000. By 2001 the state sector accounted for just 15% of total manufacturing employment and less than 10% of employment in domestic trade. This was defended by the CCP on the basis of superior private sector efficiency.

With privatisation, CCP cadres used their positions to set themselves up as capitalists. This took place with the blessing of the Party: To get rich is glorious. As Deng put it in 1992 ‘as long as it makes money it is good for China’. In 2001 Premier Jiang Zemin announced on the 80th anniversary of the CCP a Chinese version of the ‘trickle down effect’ justifying tax cuts for the rich in the US and Britain, ‘When some people and some regions Get Rich First, others will be brought along….’ In 2002 the CCP opened membership to entrepreneurs. The following year it recommended changes to the constitution placing private property ‘on an equal footing with public property’. All of these were justified on the grounds that they are necessary to make China strong in the world.

Central to the pace of China’s growth has been foreign investment. Foreign direct investment was $1 billion in 1985, $50 billion in 2002 and $61 billion in 2004. By 2000 the share of foreign companies in China’s manufacture was 31.3%. By 2004 foreign funded enterprises were responsible for over half of China’s exports. In recent years export growth has accounted for three-quarters of overall economic growth. This October the Chinese government announced that it was preparing to issue shares to international investors in its vast railway network. Foreign investors were banned from this sector in 1949. Major capitalist finance houses such as Goldman Sachs, Carlyle Group and Warburg Pincus have set up funds to multiply their stakes in Chinese assets. These funds are prepared to pay up to 100% more for shares in these assets than markets would normally tolerate. In October Carlyle bought a controlling interest in Xugong, a previously state-controlled construction equipment maker. In the same month the China Construction Bank said it would issue shares overseas. This is the first of China’s four big state-owned banks to do so. These banks control $1.8 trillion in deposits.

The effects on the working class
Many Chinese people have experienced primitive capitalist accumulation, wresting the means of production from their control and throwing them at the mercy of capital. This transition towards capitalism has meant that Chinese people no longer have a universal education system. Lenin remarked that the development of socialism could be judged by the changing position of women in society. The 1950 marriage law advocated equality of men and women, and an end to arranged marriages. Nurseries, kindergartens, public canteens and homes for the elderly helped reduce the burdens of domestic work on women. By 1960 the number of women college and university students had risen five-fold in a decade. The demolition of the Communes reinforced traditional patriarchy. Women were routinely denied inheritance rights. The Lancet reports that the rural suicide rate is three times that of urban areas and, uniquely in the world, the rate for Chinese women is above that for men (cited in John Gittings*). Today in rural areas there are entire provinces where less than half the girls attend any school at all. Nationwide public health care coverage fell from 90% of the people in 1978 to 4% in 1997. In 2003 the official figures showed that 80% of the population were without medical insurance. Prostitution has grown rapidly as have human trafficking, drug abuse, HIV/AIDS, sexually transmitted diseases – all made worse by the collapse of the health care system. Women are the first to be laid off from state enterprises. They form 40% of the state enterprise workforce but 60% of those sacked. Women remain unemployed for longer than men do.

The tradition of female infanticide was largely eliminated in the 1950s to 1970s. By 1997 the World Health Organisation reported that ‘more than 50 million females were estimated to be “missing” in China because of the institutionalised killing and neglect of girls…’. The government policies of one child and the destruction of the social welfare system in the countryside are responsible for this attack on women. National census results for 2002 showed more than 116 male births recorded for every 100 female births. The main cause of the gender imbalance is sex-selective abortion. Over 70% of aborted foetuses are female. About 95% of the children in China’s orphanages are girls with living biological parents. The director of the British TV documentary on China’s state orphanages, The Dying Rooms, estimates that up to a million baby girls are deserted every year. China’s Academy of Social Sciences reports eight ‘disaster provinces’ where there are 26% to 38% more boys than there are girls. The United Nations warns of 60 million missing women in 10 years time with ‘enormous implications’ for China’s prostitution industry and human trafficking. Kidnapping and slave-trading of women have increased.

Rates of industrial fatalities resemble the horrors of Dickensian England. 4,600 miners were killed in the first nine months of 2003. The environment has been degraded; satellite images show permanent brown clouds over parts of China. The deserts are spreading; water is polluted and the water table falling with rivers silted up from dam building. Inequality exceeds that of India and resembles the extremes of Brazil and South Africa. A 1997 UNICEF study reported 40% of children in rural areas to be malnourished. Meanwhile, Shanghai has a property bubble and elsewhere there is an over-production of property, but not for the working class. State enterprises no longer provide workers with housing.

China and the world economy
Japanese manufacturing employment is falling as companies like Toshiba and Minolta relocate to where wages are one twentieth of those of Japan. Mexico’s Maquiladora employment is down by a fifth because Chinese wages are one fifth of those of the Maquiladora. In South Korea, the Philippines, Malaysia etc. if wages are not driven down firms threaten to move out. Even in France lavender growers complain that Chinese lavender is forcing them out of business.

The Economist (30 July 2005) notes that with China, India and Russia entering into the global capitalist market, the world’s labour force has, in effect, doubled, with China responsible for over half of this increase. ‘So, with twice as many workers and little change in the size of the global capital stock, the ratio of global capital to labour has fallen almost by half in a matter of years.’ As a result wages in the most developed capitalist countries are at their lowest level as a proportion of national income for decades while profits are at their highest level in Japan and the euro area for 25 years. Last year, US after-tax profits rose to their highest level for 75 years but wages lagged 6% behind cyclical trends. China’s influence on low commodity prices and purchase of US Treasury bonds has kept inflation rates low, allowed central banks to set low interest rates fuelling an expansion of credit thereby driving up house prices and consumer debt.

As China has expanded so world commodity prices for oppressed nations’ producers have risen. China is a rival to imperialist nations for investment in underdeveloped nations and for purchases of their commodities. Trade with Africa grew from $12.4 billion in 2002 to an estimated $30 billion in 2005. This year Chinese trade with Africa will overtake Britain’s. China buys a quarter of Angola’s oil and owns 41% of Sudan’s oil consortium. In Nigeria, Libya and Algeria China is investing in oil. China is the biggest foreign investor in Zimbabwe. Trade between Latin America and China has multiplied five-fold since 1999. In the World Trade Organisation the alliance of China and Brazil has countered the efforts of the imperialists to impose their rules for investment, patents and terms of trade.

China’s declared foreign policy stance is for ‘a peaceful rise’. The strategy is to reduce the risks of belligerence in order to allow maximum economic growth. China’s stock of overseas investment was just $39 billion in 2004, but it is growing in key areas. China has competed for and won access to gold in Bolivia, coal in the Philippines, oil in Ecuador and natural gas in Australia. Iran signed a deal to supply China with as much as $70 billion worth of oil and natural gas – China’s biggest deal with any major OPEC producer. Venezuela has found a new outlet for its oil to help reduce dependence on the US market. In December 2004 President Chavez said, ‘We have been producing and exporting oil for more than 100 years. But these have been 100 years of domination by the United States. Now we are free, and place this oil at the disposal of the great Chinese fatherland.’ China is overtaking the US as Australia’s second biggest trading partner. Canadian and Chinese firms have signed a memorandum to build a pipeline to carry oil to Canada’s west coast for shipment to Asia. US Vice President Dick Cheney’s 2001 national energy security report stressed the importance of Canada’s oil tar sands to the US. China may seek ‘a peaceful rise’ but imperialism cannot allow itself to surrender resources and markets crucial to its existence that were won by war and military interventions over centuries. FRFI will consider the changing relations between imperialism and China in a future issue.

Resistance in China
Deng hoped that the policy of encouraging rapid development would give political stability to China, but the capitalist form it has taken has provoked workers to resist. Foreign investment has greatly increased social mobility in China, both occupationally and geographically (and with this the prospects of higher incomes for some). This mobility may serve to reduce the tensions caused by greater regional and income inequality. However, China’s Ministry of Labour’s own figures state that in 1992 there were 8,150 labour disputes, in 1999 120,000 and in 2000 327,152 disputes. These disputes are over demands for unpaid wages, for pensions, for compensation and against corruption. They are frequently met by force from paramilitary police and soldiers.

In 1999 legislation set new rules for gatherings of over 200 people: they have to get permission from local authorities. If over 3,000 want to meet, the permission must come from a higher level of state authority. The state arrests anyone seeking to form independent worker organisations. In 2001 the government ordered cities to ‘augment their anti-riot police’. Workers have resorted to legal means to defend their conditions and rights. They are using gains achieved in a previous period to try and stop the encroachments into their lives that capitalism demands today.

On 19 October the Chinese government issued a paper entitled ‘The Building of Political Democracy’. It states: ‘Democratic government is the Chinese Communist Party governing on behalf of the people…while upholding and perfecting the people’s democratic dictatorship…China’s socialist political democracy has vivid Chinese characteristics.’ As the new police forces are established and armed, as the state’s repressive apparatuses are aimed at them, the Chinese people are questioning on whose behalf the Communist Party governs.

* Acknowledgements to John Gittings, The Changing Face of China, Oxford University Press, 2005 and to Martin Hart-Landsberg and Paul Burkett, China and Socialism: Market Reforms and Class Struggle, Monthly Review Press, 2005.

FRFI 188 December 2005 / January 2006