The China Debate: China’s capitalist counter-revolution

A view on the nature of China’s state.

As part of our series, The China Debate, begun in Socialism Today (April 2007), we publish below an article by Vincent Kolo which offers a view on the nature of China’s state.

China’s capitalist counter-revolution

Marxists like everyone else are discussing China, which has become central to economic and political developments in the world. An important aspect of this discussion is how we view the Chinese state. The state (the police, army, judiciary and, in China’s case, the ruling Chinese ’Communist’ Party – CCP) is as Lenin explained "an organ for the oppression of one class by another". In China, which class is oppressor and which are oppressed?

This discussion can be enormously beneficial in deepening our understanding of processes in China and perspectives for the period ahead. Our starting point is the brutal social counter-revolution of the last two decades that has seen the former Maoist-Stalinist bureaucracy, like its counterparts in the Soviet Union and Eastern Europe, abandon central planning and shift to a capitalist position. If we ask which class has benefited from the process in China, then without doubt the answer is the bourgeoisie, in China and globally. In 1949, the Chinese revolution meant a shift in the class balance of forces internationally. Today, the counter-revolution has shifted the balance in the other direction. There is absolutely nothing progressive in the current Chinese state.

China today is synonymous with vast sweatshops and the most brutal exploitation of labour by domestic and global capitalism. The majority of the ’new’ industrial working class, mostly rural migrants who are the legal equivalent of ’paperless’ immigrants in Europe or America, work twelve hours a day or longer, for pitiful wages, in unsafe factories, under a military-style regime of fines and petty rules. This edifice of super-exploitation is built around the repressive one-party state of the CCP, which viciously crushes strikes and all attempts to build free trade unions.

Mine and factory owners involved in serial law-breaking and appalling workplace ’accidents’ (136,000 fatalities in 2004) are protected by CCP officials and the police. After the deaths of 123 miners at one coalmine in Guangdong province last year, it was discovered that half the shareholders were local government officials. One police officer had shares worth about 30 million yuan (€2.8 million) in the mine.

This is gangster capitalism, as brutal and lawless as that in Russia and other parts of the former Soviet Union. The top echelons of the Chinese state, including the central government in Beijing, are now fully integrated into the global capitalist system – through the open door policy that president Hu Jintao describes as the ’cornerstone’ of China’s economic development. As a result, China has been turned upside down, from one of the most equal societies to one of the most unequal – with a wealth gap greater than in the US, India and Russia. This ’fully capitalist’ programme is central to any discussion on the class character of the CCP regime and state.

’Radical neo-liberalism’

"China has implemented one of the most radical neo-liberal policies in the world", explains Chinese author Dale Wen, whose report, China Copes with Globalisation, provides one of the best summaries of the so-called ’reform process’. Wen likens the policies of the last 20 years to IMF and World Bank programmes in the neo-colonial world, pointing out, "The major difference is that the Chinese government willingly takes the measures".

Under the pressure of the masses aroused by the revolution of 1949, the Maoist state delivered immense social improvements in the field of educational standards, healthcare, housing and poverty reduction. These policies were possible because the economic foundations of this state rested on nationalised property and centralised planning, albeit within narrow national-bureaucratic limits. Most of these social gains have been liquidated as a result of the capitalist counter-revolution. What remains for the Chinese masses are only the worst leftovers of Stalinism (police terror and absence of the most elementary democratic rights) combined with the worst features of capitalism (extreme exploitation and absence of a social safety net).

The following facts illustrate the devastating effects of CCP policy:

  • Education: Private sources account for 44% of total education costs in China, the highest share in the world apart from Chile. There is no longer any free education. Normal fees at secondary school level in most cities are around €200 a year – two month’s salary for a typical worker. In Shanghai, the average family spends 25% of their income on their children’s education, compared to 10% in the United States. There are half a million unqualified teachers and thousands of substandard unlicensed schools that cater for the 20 million migrant children who are debarred from attending state schools. Illiteracy is on the rise as dropout rates soar, especially in rural areas and among girls.
  • Public health: China’s health service was once the envy of Asia. Today, a bigger share of total medical expenditure is financed privately in China than in the US. In the countryside, one-third of rural clinics and local hospitals are on the brink of bankruptcy and another third have already collapsed. Four hundred million Chinese, a figure almost equivalent to the population of the European Union, can no longer afford to visit a doctor.
  • A similar process has taken place in the housing sector and local transport.

China’s global role

With the world economy more interlinked than ever, the question of the class character of the Chinese state and regime cannot be approached solely from a national perspective. China is more integrated into the capitalist world order than Russia and other ex-Stalinist states. Foreign capitalists today control a quarter of China’s industrial production (OECD 2005). The CCP’s economic model has been based on "an unusually high degree of openness to the world economy – foreign trade is 75% of its GDP", explains Susan L Shirk in her book Fragile Superpower. This ratio is twice as high as India’s, and more than three times that of Japan, Russia and the US.

The CCP regime today is instrumental in spreading neo-liberalism globally. This process is in no way ambiguous – it is strikingly clear. Chinese companies, many of which are state-owned, are hated across whole swathes of Africa due to their union-busting, corrupt, law-breaking and environmentally destructive practises. China’s banks have shown themselves to be as parasitic as any in the capitalist world – pouring billions of dollars into US subprime ’derivatives’ for example. In Iraq and other debtor countries, Chinese representatives endorse treaties with exactly the same conditionality – privatisations, deregulation and other neo-liberal policies – as demanded by other capitalist powers. Foreign policy is of course an extension of domestic policy, they are not separated by a Chinese wall.

Counter-revolution on the land

An estimated 70 million peasants have been turned off the land over the last two decades to make way for factories, roads, and luxury projects like hotels and golf courses. Most land acquisitions are illegal, thwarting central government attempts to control this process.

There are more than a dozen property tycoons on the most recent Forbes’ list of China’s 40 top billionaires. The list is headed by 26 year-old Yang Huiyan, head of a Guangdong property empire, whose personal fortune in 2007 was valued at $16.2 billion – a fortune she inherited from her father. By comparison, in the years 2000-02, a staggering 42% of the rural population suffered an absolute decline in income.

In the 1950s, Mao’s regime nationalised the land and this measure has not formally been reversed, although successive partial ’reforms’ have privatised land usage even while land ownership remains in the hands of the state. But as Lenin explained, land nationalisation does not in itself constitute a barrier to capitalism: "Is such a reform possible within the framework of capitalism? It is not only possible but it represents the purest, most consistent, and ideally perfect capitalism… According to Marx’s theory, land nationalisation means a maximum elimination of medieval monopolies and medieval relations in agriculture, maximum freedom in buying and selling land, and maximum facilities for agriculture to adapt itself to the market". (Democracy and Narodism in China, 15 July 1912)

Shrinking state

As a result of neo-liberal ’reforms’ and anarchic capitalist growth the state’s economic power has been seriously degraded. The list of economic spheres over which the Beijing regime has lost control is long: urban property and construction sectors, credit and most investment decisions, food and drug safety, environmental protection, labour markets, most of manufacturing industry and, as we see from the above, allocation of agricultural land.

Every year, the Heritage Foundation, a capitalist think-tank, produces an Index of Economic Freedom, in which China regularly outperforms Russia and other ex-Stalinist states. Under the category ’Freedom from government’, for example, based on an overview of government spending and privatisation, China was deemed 88.6% ’free’, while Russia scored 71.6% and Ukraine only 61.9%. In China, total government spending in 2006 equalled 20.8% of gross domestic product (GDP), far lower than in Russia (33.6%), Ukraine (39.4%), and barely a third of the level in Sweden (56.7%).

In both Russia and Ukraine, state-owned enterprises and government ownership of property contribute a significantly higher share of total government revenue, 6.1% and 5.6% respectively, than in China where the figure is just 3.1% (all figures for 2006). In the context of East Asia, with its ’state capitalist’ tradition, China’s figure is conspicuously low. The Malaysian and Taiwanese governments receive 11.5% and 14.4% respectively of their income from the state-owned sector.

The size of the state sector in itself is not decisive in determining the class nature of society – which class exercises economic power? In his analysis of Stalinism, The Revolution Betrayed, Leon Trotsky predicted that a bourgeois counter-revolution in the Soviet Union would be forced to retain a large state sector. In China this is even more the case given the Confucian tradition of government economic intervention, an important influence throughout East Asia. There are countries today with a far higher degree of state ownership than China – Iran for example, where the state controls 80% of the economy.

Privatisation and downsizing

According to a National Bureau of Statistics report in September 2007, foreign and private companies now account for 53% of total industrial output in China, an increase from 41% in 2002. The state-owned enterprises (SOEs) still play an important role, and predominate among the very largest companies. But the only industrial sectors in which SOEs now occupy a dominant position are in mining, energy and utilities. According to an OECD report in December 2005, in the remaining 23 major industrial sectors, from textiles and telecommunications equipment to steel and automobiles, the private sector employs two-thirds of the labour force and produces two-thirds of these industries’ value added.

Today, "three-quarters of urban employees work outside the state sector". (Shirk, Fragile Superpower) This is the result of the frenetic pace of privatisation and downsizing in the state sector over the last decade, accelerated by WTO strictures. As Zhou Tianyong, professor with the Party School of the Central Committee of the CCP explains, "the number of employees at state-owned enterprises and collective ownerships has dropped from 130 million in the mid-1990s to 30 million today". (China Daily, 8 October 2007)

Measured by the number of employees affected, this is without question the biggest privatisation programme in any country at any time. Given that agriculture was already privatised in the 1980s, the vast majority of Chinese – over 90% – are now employed in the private sector.

The state sector today is a lever for developing the capitalist economy, providing a framework of essential industries such as energy and communications, plus targeted investments in certain advanced technological sectors after the Japanese and Korean models. It would be incorrect to talk about ’capitalist’ and ’non-capitalist’ sectors of the economy, as if the state sector operated on an alternative, non-capitalist basis.

China’s SOEs have been transformed by wave after wave of corporate ’reforms’, mergers and downsizing, management buy-outs (MBOs) and share-ownership, recruitment of western educated managers, public listings, joint ventures with foreign capital, and differing degrees of privatisation. Even when a company is wholly state-owned (a rarity today) it operates to make a profit in the same way as a private company. Commenting on the Thatcher government’s attacks on nationalised industries in Britain, a Financial Times columnist argued, "the transformation of British Airways and British Steel in the 1980s was not the result of privatisation – transformation preceded privatisation and made it possible". (John Kay, 26 September 2007)

This is exactly what has happened in China – only the scale is different. The state industrial and commercial sector consists of completely autonomous and in most cases semi-privatised units. This represents a form of ’state capitalism’ similar to Gazprom, the state energy conglomerate that alone produces 8% of Russia’s GDP.

State-led investments

It is true that the bulk of investment in China comes from the state sector. But this is the case in Russia too. In China, however, most investment decisions are made at local level, very often in direct contravention of central government policies. A large proportion of infrastructure spending by local governments goes on prestige projects geared to attract private ’investors’ – luxury hotels, conference centres, new ’international’ airports, golf courses and half-deserted shopping malls.

This represents an insane – unrestrained capitalist – waste of public funds, and is setting the stage for an economic crash similar to the one that struck Southeast Asia ten years ago. No socialist government, or even reformist government of the old pattern, would approach the issue of public investment in this criminal fashion. But today every Chinese municipality and region wants its own direct link to the world market, at a time when the country’s foreign trade dependence is close to ’overkill’. The most pressing need is to develop China’s internal market, but this can only be done by raising living standards and reconstructing essential public services like health, education and affordable housing – areas which local CCP bosses refuse to invest in.

The banking sector is majority state-owned in China. But this too is not unique, especially in Asia. China’s ’Big Four’ majority-state-owned banks account for 71% of all loans and 62% of deposits. By comparison, in Russia the largest state-owned bank Sberbank holds over 60% of household deposits and 40% of all loans. In India, the state-owned banks account for 75% of all commercial banking. (Bank of International Settlements)

It would be a mistake to dismiss the neo-liberal ’reforms’ (partial privatisations, mergers with foreign companies) in banking and other sectors as superficial – the changes are all too real and extremely detrimental to the interests of ordinary working people in China and abroad. A growing share of China’s gargantuan pool of savings – around $1.8 trillion – is being ploughed into speculative deals around the world, enriching hedge funds and other financial parasites instead of being used to rebuild collapsed public services.

Reform or revolution?

The Chinese state – like the governments of Germany and Britain recently – can and will intervene to rescue failing banks or strategic companies, and this can include renationalisation. Renationalisation on a capitalist basis, however, does not represent a return to central planning. Only a mass revolutionary movement of the super-oppressed workers and peasants can shatter what are now powerful capitalist economic foundations in China, which are closely bound up with global capitalism. Such a movement will not want to go back to Maoism-Stalinism, but will strive towards genuine democratic socialist planning based on the colossal potential of the Chinese proletariat, now numbering over 250 million.

The process of counter-revolution in China has been complex and sometimes extremely contradictory, but nevertheless the victory of bourgeois counter-revolution, albeit in a peculiar ’Confucian’ form, is today brutally clear. A political – ’anti-bureaucratic’ – revolution is no longer enough to raise the working class to power. Nor is it correct to say a new revolution will combine the tasks of the political and social revolution – this is true of every social revolution, which involves a change of the economic base and of necessity also the political superstructure, the state. A qualitative change has occurred, whereby a reversal of China’s capitalist counter-revolution is no longer possible other than through a new proletarian social revolution that must overthrow the present state and expropriate its main beneficiaries, the Chinese and foreign capitalists. This point is extremely important when we come to questions of perspectives and programme for China.

What is the bureaucracy?

Marxists do not base our assessment of the Chinese regime on its still ’communist’ (Stalinist) symbols and occasional phraseology. This external shell is an entirely secondary factor: just as there are social democratic and ’communist’ parties elsewhere that continue to march on May Day and sing the ’Internationale’, while pursuing wholly capitalist policies. The class character of any social organism, regime, or party, is determined by the class interests it serves – its social base.

The Maoist regime acted to block any independent movements of the working class using a mix of cunning, manoeuvres and repression. But at the same time, in order to maintain its own privileges and power, it defended state property and the social gains of the revolution. This gave the regime a contradictory character – a combination of reactionary and progressive features. This is no longer the case. Having thrown in its lot with capitalism, the Chinese state has lost this dual, contradictory, character.

Trotsky described the Stalinist bureaucracy as a cancerous tumour on the body of the workers’ state. He explained that, "A tumour can grow to tremendous size and even strangle the living organism, but a tumour can never become an independent organism". (The Class Nature of the Soviet State, 1933)

The ’tumour’ of the Chinese bureaucracy cannot acquire a life of its own in relation to the means of production, and it is certainly not itself the repository of the socially progressive features created by the 1949 revolution. Rather the opposite is true. Under Stalinism and Maoism these gains existed in the consciousness and mass pressure of the workers and poor peasants, despite the disorganising and confusing role of the bureaucracy. As Trotsky also explained, "The existence of a bureaucracy, in all its variety of forms and differences in specific weight, characterises every class regime. Its power is of a reflected character. The bureaucracy is indissolubly bound up with a ruling economic class, feeding itself upon the social roots of the latter, maintaining itself and falling together with it". (ibid, emphasis by VK)

Which is the ruling economic class in China today? With the destruction of the planned economy it is no longer the working class. A section of the former Maoist bureaucracy has converted itself through the ’reform process’ into a property owning class.

The nexus of state and private capital is not a rigid one, but fluid, reflecting a vast array of intermediate, part-state part-private arrangements. The capitalist class is dependent on the current state for contracts, loans, favours and, above all, for protection from the working class. Of China’s 20,000 richest businessmen, 90% are either CCP members or their relatives.

No ’big bang’?

The CCP regime and the bureaucracy as a whole were never in themselves the barrier to capitalist counter-revolution – this is the key to understanding what has happened. As in Russia and other ex-Stalinist states the resistance of the working class was the only real barrier to capitalist counter-revolution. This resistance – which at times assumed mass proportions – was nevertheless overcome in China due to a combination of factors. The terrifying and excessive violence used to crush the nascent revolutionary movement of 1989 was a critical factor. Rapid economic growth (averaging 10% per year over the past decade) has also provided a certain ’safety valve’ for the regime.

For Trotsky, the threat of capitalist restoration did not hinge upon whether or not the Stalinist party was overthrown. This was only one possible perspective: "But bourgeois restoration, speaking in general, is only conceivable either in the form of a decisive and sharp overturn (with or without intervention) or in the form of several successive shifts…

"Thus, as long as the European revolution has not conquered, the possibilities of bourgeois restoration in our country cannot be denied. Which of the two possible paths is the more likely under our circumstances: the path of an abrupt counter-revolutionary overturn or the path of successive shiftings, with a bit of a shake-up at every stage and a Thermidorian shift as the most imminent stage? This question can be answered, I think, only in an extremely conditional way". (The Challenge of the Left Opposition, 1926-27, emphasis by VK)

This "path of successive shiftings" is an excellent description of what has happened in China. Capitalism, of a peculiar Chinese type, has been restored. This began as an empirical reflex by the Stalinist regime in the late 1970s, a search for a way out of the political and economic crisis, with elements of civil war, that it inherited from Mao. In the early stages this was an attempt to harness some market mechanisms within a Stalinist state-owned economy. But such processes have a logic of their own especially given the delay of the world socialist revolution, the crisis and collapse of Stalinism worldwide, and the ferocious acceleration of neo-liberal globalisation.

Unlike in the Soviet Union, there was no ’big bang’ implosion of the one-party state and the CCP remains in power. But the emerging capitalist class particularly in the Russian Federation saw the break-up of the Soviet state as a prerequisite for completing the counter-revolution. In China’s case, however, with its history of warlordism and fragmentation, and with the immediate threat of mass protests exorcised by the massacre of 1989, the standpoint of the emerging capitalist class was different. Here, the continuation of CCP rule – to maintain ’order’ and hold the country together – was the most advantageous basis for developing capitalism.

Who today is demanding regime change in China? Certainly not the capitalists, who understand that by keeping China’s massive working class down, the present regime is the best they could realistically hope for. Even the ’democratic’ bourgeoisie – and they are a minority – do not seek the downfall of the CCP regime, rather its ’reformation’. This gives the clearest possible answer to the question as to which class interests the Chinese state serves today.

From the December 2007/January 2008 edition of Socialism Today (opens in new window). Magazine of the Socialist Party, cwi in England and Wales

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December 2007