China: The character of the Chinese state

China developments crucial importance to socialists everywhere

Socialism Today’s China debate continues with a reply by Lynn Walsh to Vincent Kolo’s article, China’s Capitalist Counter-Revolution (Socialism Today No.114). In that article, Vincent argues that, to all intents and purposes, China is now a fully-fledged capitalist economy. Is it that clear cut?

See also Peter Taaffe’s article China’s Future from Socialism Today No. 108.

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The character of the Chinese state

Developments in China are of crucial importance to socialists everywhere. The Chinese economy is now a major component of the global economy. With its increased economic and strategic weight, China is now a key player in relations between the major world powers. And political developments in China – the fate of the regime and struggles of the massive Chinese working class and poor peasantry – are of enormous significance internationally. At the same time, there has, not surprisingly, been a debate about the complex transition from a Maoist-Stalinist planned economy and the current character of the Chinese state.

In his article (, Vincent argued, in essence, that China is now a fully capitalist state. “The top echelons of the Chinese state… are now fully integrated into the global capitalist system”. In our view – the view of the leadership of the CWI – Vincent’s characterisation is too categorical. The direction of travel of the Chinese state is clear enough, from the former Maoist-Stalinist planned economy, based on nationalised property, towards a capitalist economy. But, however powerful the locomotive, the train has not yet arrived at its destination. It is premature to declare: “Capitalism, of a peculiar Chinese type, has been restored”.

Although there are powerful and rapidly growing capitalist forces in China, the Chinese state is still a hybrid, combining remaining state-owned industries with ‘state capitalist’ enterprises (state-owned companies run on a more or less market basis) and with new elements of private capitalism (ranging from millions of individual businesses to giant Chinese and foreign corporations). The transition is not, in our view, complete and may not develop in a straight line. There can be significant twists and turns in the situation. It cannot be ruled out that, in the coming period of world economic crisis, the state will once again take over privately-owned corporations and some previously privatised companies threatened with collapse.

We believe that this debate is important and we welcome Vincent Kolo’s contribution. But, it may be asked, if both Vincent and ourselves agree that there is no longer a state-planned economy and that China is heading in a capitalist direction, is there a real difference? We believe there are important issues involved in this debate.

First, there is the issue of method. Marxists should strive to analyse social phenomena (in this case, the changing Chinese state) in a rounded-out, scientific manner, not attempting to fit new developments into old stereotypes.

A second issue, related to method, is the autonomous role that can be played under certain conditions by a powerful Bonapartist state (particularly an ex-Maoist-Stalinist state) in directing a social transformation from above.

Third, there are issues of perspectives. It would be a mistake, in our view, to base ourselves on a single perspective that China will develop on purely capitalist lines, uninterrupted by turns in the direction of the regime. The advanced layers of the Chinese workers, in our view, have to be politically prepared for several different perspectives. In particular, they need to be prepared for the possibility that, faced with a deep economic crisis and a mass upsurge which threatens its survival, the regime will revert to much greater intervention in the economy, including taking over failing companies, in an attempt to defuse a potentially revolutionary situation.


In our view, the possibility of swings by the Chinese regime between promoting accelerated capitalist development and increased state intervention to stabilise the economy is inherent in the contradictory, hybrid character of the Chinese state. This is why our method of analysis is important. In 1936, Leon Trotsky analysed the character of the Soviet Union in The Revolution Betrayed (chapter 9: Social Relations in the Soviet Union). The situation was obviously different from China today. But from the point of view of Marxist method, Trotsky’s analysis of the Soviet Union of that period as a transitional or intermediate social formation is very relevant to our approach to contemporary China.

Finished social categories, such as capitalism and socialism, wrote Trotsky, had to be abandoned in favour of “a more complete definition”, necessarily more “complicated and ponderous”. Trotsky summarised his analysis of the Soviet Union in nine points, summarising key features of the Soviet state and society, and posing several alternative perspectives for the fate of the Soviet state.

“Doctrinaires will doubtless not be satisfied with this hypothetical definition. They would like categorical formulae: yes-yes, and no-no. Sociological problems would certainly be simpler, if social phenomena had always a finished character. There is nothing more dangerous, however, than to throw out of reality, for the sake of logical completeness, elements which today violate your scheme and tomorrow may wholly overturn it. In our analysis, we have above all avoided doing violence to dynamic social formations which have had no precedent and have no analogies. The scientific task, as well as the political, is not to give a finished definition to an unfinished process, but to follow all its stages, separate its progressive from its reactionary tendencies, expose their mutual relations, foresee possible variants of development, and find in this foresight a basis for action”.

In a notebook written in the 1930s, Trotsky made a further general comment that is extremely relevant to any discussion of the character of the Chinese state today: “Some objects [phenomena] are confined easily within boundaries according to logical classification, others present [us with] difficulties: they can be put here or there, but within a stricter relationship – nowhere. While provoking the indignation of systematisers, such transitional forms are exceptionally interesting to dialecticians, for they smash the limited boundaries of classification, revealing the real connections and consecutiveness of a living process”. (Trotsky’s Notebooks 1933-1935: Writings on Lenin, Dialectics, and Evolutionism, edited by Philip Pomper, NY Columbia University Press, 1986)

We believe that the transformation in China is also a process without precedent and that we have to ‘follow all stages’. Our analysis may appear more ‘complicated and ponderous’ than the simple assertion that China is now a ‘fully’ capitalist state. However, it is necessary, in our view, to take account of the contradictory features of the transition and “foresee possible variants of developments, and find in this foresight a basis for action”.

The role of the Bonapartist state

Linked to the question of method is the issue of the role of the state, in particular the autonomous role that can be played – under certain conditions, for a certain period of time – by a Bonapartist state consisting of a powerful apparatus and army, together with a powerful ruling party, in the case of China. Vincent, in our view, does not take sufficient account of the role of the ex-Stalinist, Bonapartist state in steering the transition in China.

“The class character of any social organism, regime, or party”, writes Vincent, “is determined by the class interests it serves – its social base”. As a general proposition, this is correct. But it is not sufficient for analysing the situation in China. The Chinese regime has abandoned defence of nationalised property and the planned economy, historically progressive relations of production, and is promoting the development of capitalist relations. But the situation in China is conditioned by the past development of the Maoist-Stalinist system after 1949. While defending the planned economy, the state was relatively independent, not subject to democratic checks by the working class. Now the regime has turned to a pro-capitalist, counter-revolutionary course. This undoubtedly serves the interests of an emerging Chinese capitalist class and international capital. But it would be too simplistic, at this stage, to say that the regime is simply the repressive agent or servant of the Chinese bourgeoisie. The Chinese state, a product of Maoism-Stalinism, has a large degree of autonomy in fostering and steering the development of capitalism while striving to preserve its own power.

There are analogies for this development in the writings of Karl Marx and Friedrich Engels, where they show that, under certain circumstances, a state power balancing between social classes (a ‘Bonapartist’ state) can play an autonomous role in sponsoring the development of capitalist industry and fostering the development of a capitalist class. In Germany during the 1870s, for instance, Otto von Bismarck – based on the Prussian monarchist state, the army elite and the Junker landlords – promoted the development of capitalist forces as the necessary basis for German imperialism’s increased military and economic power.

Another example is the Russian tsarist state during the second half of the 19th century. Based on archaic feudal landlordism, some tsarist leaders recognised that to survive as a military power they had to develop industry (especially railways and armaments). After the Crimean war (1853-56), Engels wrote, the Russian government “set about breeding a Russian capitalist class”. (The Foreign Policy of Russian Tsarism, 1890, Marx-Engels Collected Works vol 27) The tsarist state remained a powerful force in Russian society until the crisis of the first world war and its overthrow by the October revolution in 1917. Like Bismarck, the tsarist state in breeding a capitalist class also bred a small, but powerful, working class.

In China, the former Maoist-Stalinist state has used its massive power to ‘breed’ a Chinese capitalist class. The regime has adapted the state (the party, the army and the apparatus) to the transition to capitalism. But the state retains considerable power, while the new capitalist forces are, at this stage, an emergent social class in the process of formation.

The burgeoning capitalist elements are very diverse, ranging from small family businesses to the owners of giant corporations. At this stage, they lack social cohesion and, as yet, have not developed any independent political representation. Many of the capitalists are ex-bureaucrats or state-sector bosses, and retain close links with the Chinese Communist Party (CCP) and the apparatus. They are mostly quite content to allow the state to create the conditions for the growth of capitalist business, and provide ‘social stability’, that is, to protect them from resistance and mass protest by workers and peasants. At this stage, there is no threat to the regime’s absolute political power from the emergent capitalist class.


“The state sector today”, writes Vincent, “is a lever for developing the capitalist economy”, providing a framework of basic industries and infrastructure. This is evidently true. The regime is carrying out, under contemporary international conditions, the barbarous tasks of ‘primitive accumulation’, historically required as the basis for capitalist growth. There is a brutal process of forced urbanisation, as the poor peasantry are being driven from the land and are forced to seek low-paid work under atrocious conditions in the sweatshops and construction sites of the big cities. In the long run, if this development continues in an uninterrupted way, it would produce a ‘fully’ capitalist society. But this depends on perspectives.

If there were to be a long period of rapid growth in the world capitalist economy (continuing, for instance, the record 5% per annum growth of 2002-07), accompanied by 10% a year growth in the Chinese economy, then China could, theoretically, move steadily towards a ‘fully’ capitalist economy. At a certain point, on that basis, a strengthened Chinese bourgeoisie would come into conflict with the ex-Stalinist Bonapartist state and attempt to take direct control of a Chinese capitalist society (though the bourgeoisie would be increasingly challenged by a strengthened working class). Given the current implosion of the global capitalist finance system and the beginnings of a world recession, that does not seem the most likely perspective.

If there is a prolonged world economic crisis, on the other hand, which would inevitably result in a serious downturn in the Chinese economy, the regime could be forced to intervene in the economy to prevent economic and social collapse, and head-off a revolutionary challenge from the Chinese workers and peasants. The Chinese leaders have already taken note of the abrupt swing of the US government from free-market fundamentalism to state intervention and the nationalisation of failed financial institutions. Faced with the prospect of failed industries collapsing, it is likely that the Chinese state will intervene and take them over. Given the history of the Chinese state and the existing extent of state ownership, this is likely to be on a bigger scale than in the major capitalist states.

The Chinese regime (as with Bismarck, the tsarist autocracy, and other Bonapartist regimes in the past) faces the problem that, in ‘breeding’ a new capitalist class in China, it is also breeding a new working class. Already there is a high level of social protest and strikes, often brutally repressed by the regime. In coming years the Chinese workers will increasingly form independent trade unions and their own political parties. The advanced layer of workers will in the course of struggles prepare to overthrow the regime and sweep away the capitalists, Chinese and foreign.

We cannot predict the timescale of such events. But we should not take it for granted that China will automatically become a ‘fully’ capitalist society. In the coming years, events and the influence of Marxist ideas will give rise to a revolutionary movement aiming to overthrow the regime, sweep away capitalism, and re-establish nationalised property relations and planned production – this time under the democratic control of the working class and linked to an international perspective for a world socialist economy.

Points of agreement

Before taking up his arguments in more detail, and in order to avoid any misunderstanding, we will try to sketch out where we agree and where we disagree with Vincent Kolo. The Maoist-Stalinist planned economy (dominated by state-owned industry but undemocratically managed by a ruling bureaucracy), which began to crumble in the 1970s, no longer exists. Whatever state intervention there is, there will be no return to the Stalinist planned economy, which developed on the basis of the international class relations of a past era. The destruction in recent years of the social gains of the masses based on the planned economy – the ‘iron rice bowl’ (security of employment) and education, health and welfare provisions provided by state-owned enterprises and village communes – is a counter-revolutionary development that has had a devastating effect on workers and peasants. The leadership of the Chinese state – the CCP and the state apparatus – from Deng Xiaoping to Hu Jintao has fostered the development of capitalist forces and sought to integrate China into the global economy. The leadership, recognising the failure of bureaucratic planning, has sought to develop a new social-economic base for its rule.

The growth of the capitalist market has been accompanied by the intensified, super-exploitation of the majority of workers and peasants (in both private and state-owned companies) and a grotesque widening of inequality. The growth of market relations has led to the emergence of a tiny stratum of capitalist billionaires and a wider layer of wealthy capitalists. The Chinese regime is one of the most repressive in the world and uses its massive apparatus to suppress all forms of opposition organisation, activity and discussion. The counter-revolutionary destruction of the social gains of the planned economy is virtually complete and China is heading in the direction of a ‘full’ capitalist economy.

We reject any claim by the regime (or its apologists) that they are developing the market – capitalist relations – in order to ‘strengthen socialism’, even in the limited sense of defending a state-planned economy. The regime no doubt fears a growing backlash against corruption, poverty wages, the growth of inequality and environmental destruction. But these social phenomena are the result of the policies they are pursuing. We judge the Chinese leaders by their deeds, not by the deceitful ‘socialist’ language they use in an attempt to legitimise their counter-revolutionary measures. We share the anger of Chinese workers and peasants at the squandering of the gains of the 1949 revolution and the promotion of the most predatory elements of capitalism.

There is also broad agreement with Vincent Kolo on the programme that should be adopted by Marxists in relation to China. We call for state-owned enterprises (SOEs) to be run under workers’ control and management, and for SOEs to be integrated in a plan of production under the direction of a workers’ government and managed by elected, democratic planning bodies. Large privately-owned firms should be nationalised – or re-nationalised – and also run democratically by workers as part of a planned economy. As internationalists, we also raise the issue of international collaboration between Chinese workers and workers in other countries with the aim of developing economic planning on an international level.

We agree that (as Vincent says), “A political – ‘anti-bureaucratic’ – revolution is no longer enough to raise the working class to power”. But we do not accept his assertion that, “Nor is it correct to say a new revolution will combine tasks of the political and social revolution…” There are indisputably important sections of industry and banking remaining under state ownership and control, and a revolutionary overturn would entail placing them under workers’ control and management. A proletarian revolution would, of course, involve the overthrow of the present state and the expropriation of the Chinese and foreign capitalists. But the tasks facing the coming Chinese revolution, because of the remnants of Maoism-Stalinism, are in some ways more complex than in the advanced capitalist countries, and our revolutionary programme must reflect this reality.

Our differences

So, what are our differences with Vincent’s approach? Essentially, our criticism is that Vincent (to use Trotsky’s phrase) is giving “a finished definition to an unfinished process”. We agree that there is a counter-revolutionary transition towards capitalism, but we do not accept that, as Vincent argues, the process is complete and that China is now a ‘fully’ capitalist state. He refers, for instance, to Trotsky’s comment that a restoration of capitalism may occur either along “the path of an abrupt counter-revolutionary overturn” or “the path of successive shiftings”, culminating in “a Thermidorian shift”. (Thermidor refers to the defeat in 1794 of the Jacobins, the most advanced party in the French revolution, a term used by Trotsky to denote a victory of the counter-revolution.) Vincent says: “This ‘path of successive shiftings’ is an excellent description of what has happened in China. Capitalism, of a peculiar Chinese type, has been restored”. It “has happened”, capitalism “has been restored”. In other words, the “Thermidorian shift” has taken place. In our view, however, there will be further “shiftings” and the process is not yet complete.

Vincent, in our view, puts forward a simplistic analysis of the complex process of transition, basing his categorical conclusion on a one-sided approach. For instance, on the role of the state, he rightly refers to the power of the “repressive one-party state of the CCP”. He also says, “This edifice of super-exploitation is built around the repressive one-party state of the CCP…” But he underestimates the role played by the powerful, ex-Stalinist state (the CCP and the state apparatus) in directing the transition. The regime has promoted the development of capitalist forces and the intervention of foreign, trans-national corporations, but it has also been determined to safeguard its monopoly of political power and overall control of the economy.

“[T]he state’s economic power”, writes Vincent, “has been seriously degraded”. True, the state no longer has the economic power that it had on the basis of the planned economy. Moreover, the development of capitalist forces has produced powerful centrifugal forces, which will tend to become stronger if the present course continues. But it is a mistake to imply (as Vincent does) that the Chinese state is now completely subservient to capitalist forces, within China and internationally.

The present Chinese state is not simply the equivalent of the state in Japan, Korea or Taiwan during their accelerated growth in the 1960s and 1970s, when (on the basis of the ‘Asian development model’) the state intervened in the economy to a much greater extent than in the advanced capitalist economies of Western Europe and North America. The surviving state-owned and state-controlled industries in China today are the product of the Maoist-Stalinist planned economy. They are not merely the equivalent of Japan’s keiretsu or South Korea’s chaebol, industrial-financial conglomerates that developed from big family-capitalist trusts.

There is still a legacy of Maoism-Stalinism in China. Though fostering capitalist development, the state still controls powerful levers of economic influence. As we show in a separate section (China’s hybrid economy, pp27-30), the regime, through a cluster of huge state-owned enterprises (SOEs), effectively controls several key industrial sectors: telecoms, transport, energy, and defence production, etc. Though state-sector employment has been drastically reduced, the state sector still accounts for 38% (2004) of industrial output. It is true, as Vincent says, that most of the remaining SOEs have been ‘corporatized’: they no longer operate under a plan of production but, according to government policy, on the basis of market criteria. But it is an exaggeration to say: “The state industrial and commercial sector consist of completely autonomous and in most cases semi-privatised units”. In reality, many SOEs are run by ex-CCP bureaucrats or bosses currently nominated by the CCP, who (often on the basis of ‘soft loans’ – where there is no expectation of repayment – from state banks) aim at maximising investment and growth, rather than maximising enterprise profits.

As Vincent says, “The banking sector is majority state-owned…” and the big four state banks are responsible for over 70% of all loans. Loans are provided, moreover, not according to strictly market criteria but, in many cases, in order to further the regime’s policy objectives. Indeed, soft loans are regarded (both in China and by foreign, free-market critics) as a supplementary form of public spending.

The state, moreover, through central and provincial governments, is responsible for most infrastructure spending – and this investment is a major factor in driving China’s high growth rate. At the same time, sales of formerly state-owned land (combined with soft loans from state-controlled banks) have been a big element in China’s massive, speculative property boom.

The enforcement of macroeconomic policy also gives the central government considerable power to determine the direction and priorities of economic growth. There are undoubtedly provincial governments and both SOE and private bosses who defy central government policies. Nevertheless, both the CCP and the state apparatus are used to enforce policy.

China & global capitalism

Vincent Kolo argues that China’s links with the global capitalist economy confirm that China is now a fully capitalist country. However, involvement in the world capitalist market, through trade and investment with other capitalist economies, does not in itself determine the class character of a state. In the case of the newborn Soviet state, Lenin and Trotsky advocated exploiting rivalry between the capitalist powers to develop trade links necessary for the growth of the Soviet economy. Their proviso was that there must be a state monopoly of foreign trade to ensure trade served the needs of the Soviet planned economy. Clearly, there is no longer a monopoly of foreign trade in China. But neither is there a completely ‘open door’, despite some of the Chinese leaders’ claims. Just as there is a ‘hybrid’ domestic economy, China’s relations with global capitalism have a mixed character.

“The top echelons of the Chinese state, including the central government in Beijing”, writes Vincent, “are now fully integrated in the global capitalist system – through the open door policy that Hu Jintao describes as the ‘cornerstone’ of China’s economic development”. This, in our view, is an exaggeration. China has encouraged massive investment by foreign trans-national corporations, but largely controls the terms on which they operate. The regime, moreover, still tightly regulates relations between the Chinese economy and the global economy.

Recently, in response to the global financial crisis, the regime has again signalled to the US and the EU that it is in no hurry to relax government controls on capital flows in and out of China. It continues to maintain the low exchange rate of the renminbi (which gives China’s exports a strong competitive advantage) and defends its current rate through massive interventions in currency markets – in defiance of IMF rules and contrary to promises to the US to allow a substantial appreciation of the renminbi. At an earlier stage, the Chinese leaders used the issue of WTO compliance to help push through marketisation at home but, more recently, they have turned increasingly to bilateral trade deals. The Chinese government shed no tears at the recent breakdown of the Doha round of WTO negotiations, in which (together with India and Brazil) it refused to accept the packages proposed by either the US or the EU.

In the event of a prolonged crisis in the world economy, it cannot be ruled out, in our view, that China will resort to much stronger protectionist measures, both in relation to trade and investment, in an attempt to cushion the impact on the Chinese economy.

Role of the state

Vincent gives no real analysis of the process of transition since Deng Xiaoping launched his pro-market reforms in 1978. In particular, the comments on the role of the state are inadequate. This means, in turn, that Vincent draws a simplistic picture of the unfolding counter-revolutionary processes.

The role of the state is a key factor in determining the character of the transitional regime. Vincent presents it simply as a ‘repressive apparatus’ that has shifted from the planned economy to capitalism. With the abandonment of central planning, the working class is no longer the “ruling economic class”. The Chinese state “has thrown in its lot with capitalism”. A section of the Maoist bureaucracy has converted itself through the “reform” process into “a property owning class”. “The victory of bourgeois counter-revolution, albeit in a peculiar ‘Confucian’ form, is today brutally clear”.

There is truth in all of this, but Vincent’s analysis does not take sufficient account of the decisive role of the powerful Bonapartist state created by the Maoist-Stalinist regime. Far more than a repressive apparatus, the bureaucratic state has fostered the development of capitalist forces, with the aim of creating a new social base for its continued rule. It has used all the resources of the CCP and the state apparatus to direct the process of change from above and to retain, together with its monopoly of political power, a key role in the running of the economy. Its economic power is undoubtedly diminished compared with the situation under the centrally planned economy. But the state retains a far greater role in the economy than in capitalist countries like Japan and South Korea.

It is not a question of the Chinese state, the CCP and the state apparatus itself, being “the repository of the socially progressive features created by the 1949 revolution”. The state has clearly abandoned the relatively progressive planned economy. Nevertheless, to understand the processes taking place in China, we have to take account of the role played by the ex-Maoist-Stalinist state in the transition. The autonomous power of the state, neither controlled by the working class nor by the emergent capitalist class, together with significant elements of state industry and banking, determines the mixed or hybrid character of the transitional society that exists in China today.

Leaving aside for a moment the question of what stage has been reached, the counter-revolutionary process in China is not simply a transfer from one ruling class (the working class) to another (the bourgeoisie). In the aftermath of the second world war, the magnificent revolutionary mass movement of the Chinese peasants and workers swept away landlordism, capitalism and their imperialist patrons. The transformation of 1949, however, was directed from above by the Maoist leadership of the peasant Red Army and the bureaucratised (Stalinised) Communist Party. Under the planned economy, which was run on Stalinist lines, there were (as Vincent points out) important social gains for the workers and peasants that have now been largely wiped out.

The working class and peasantry, however, were excluded from any democratic participation in the running of the state or the economy. They were denied any independent, democratic trade unions or political organisations. The centrally planned economy was historically progressive compared to capitalism and was therefore in the interests of the working class. In this sense, the working class could be described as the ‘ruling economic class’. But, politically, the working class never became the ruling class. That would have required the working class to overthrow the bureaucracy and establish workers’ democracy – a political revolution. China (like the Soviet Union under Stalin) was ruled by a bureaucratic caste through a monstrous apparatus consisting of the CCP and the state machine itself. Unchecked by workers’ democracy, the state became a monstrous behemoth wielding enormous power over every area of society.

For nearly three decades the bureaucratic Maoist elite defended the planned economy as the basis of its power and privileges. In the 1970s, however, the planned economy (as in the Soviet Union and Eastern Europe) began to flounder under the weight of bureaucratic mismanagement. Deng Xiaoping introduced ‘reforms’, elements of the market economy (inevitably stimulating the emergence of capitalist relations), initially with the aim of stimulating growth and shoring up the planned economy. However, after the rapid collapse of the Soviet Union and the other Stalinist states following the fall of the Berlin wall, Deng and other leaders concluded that the planned economy was no longer viable and they could preserve their power only through a transition to a market economy. In reality, this inevitably meant moving towards a capitalist economy. Of course, the regime tried to disguise this by presenting the new course as ‘market socialism’.

Paramount for the CCP leaders was the need to retain the power of their regime. The regime was profoundly shaken by the mass protest movement that culminated in the bloody Tiananmen Square events. From that and the events in the Soviet Union and Eastern Europe, the Chinese leaders concluded that they could not tolerate any political liberalisation: there would be no democratic reforms accompanying the moves towards the market.

At the same time, the Chinese regime concluded that it should at all costs avoid the kind of ‘big bang’ economic transition that had taken place in the Soviet Union. Sweeping privatisation of the state industries had not only provoked an economic disaster but had (as was intended by US advocates of the ‘big bang’) shattered the bureaucratic, Stalinist state apparatus and the Communist Party. There would be no Chinese Yeltsin.

In contrast to the Soviet Union, the Chinese regime proceeded incrementally towards the capitalist market. It promoted market forces in the countryside and opened the door to foreign trans-national corporations in the economic development zones. Private enterprises were allowed to develop in urban areas alongside the state-owned enterprises. The regime, fearing a surge of social and political unrest, has moved cautiously and incrementally towards the privatisation or ‘corporatisation’ of SOEs. It has undoubtedly opened the door to the ruthless, super-exploitation of workers. At the same time, it has been cautious about the freeing of prices and the cutting or abolition of subsidies for fuel and food.

So far, as a result of this incremental approach – and given the absence of an organised mass opposition to the regime – the Chinese leadership has preserved the regime and the state bureaucracy largely intact. Clearly, it is no longer in complete command of a centrally planned economy. But it retains powerful levers for steering the direction of economic change. Vincent says that “the state’s economic power has been seriously degraded”. But it retains far more power than in economies where capitalism has been consolidated as the dominant socio-economic system. Moreover, the regime has attempted to adapt the ex-Maoist-Stalinist state machine and the CCP (with over 70 million members) to the tasks of directing a market-dominated economy.

In his recent book, China’s Communist Party: Atrophy and Adaptation (2008), David Shambaugh writes: “… the CCP has atrophied over time and its Leninist [Maoist-Stalinist] instruments of control are not as sharp as in the past, but its tools of rule are far from blunt – and they are being re-strengthened. The party remains a nationwide organisation of considerable authority and power. It is the only political game in town. Through its monopoly on personnel management (through the nomenklatura and bianzhi [selective appointment] systems), the party effectively controls not only the government at all levels but also a wide variety of professional institutions, corporations and enterprises, universities and research institutions, and service organisations. It also controls the military and all coercive institutions (People’s Armed Police, People’s Militia, Ministry of State Security, and Ministry of Public Security). It also controls much of the media and flow of information to and within society. The party certainly does not intend to relinquish these instruments of control – quite to the contrary, it has been doing much to strengthen them. It also brooks no opposition, and it quickly suppresses any sign of organised political activity”.

An emergent capitalist class

In China, THE former Maoist-Stalinist state has used its massive power to ‘breed’ a Chinese capitalist class. The regime has adapted the state to the transition to capitalism. While the state retains considerable power, the new capitalist forces are, at this stage, an emergent social class in the process of formation. The Chinese capitalist class is made up of diverse elements, from small family businesses to the owners of giant corporations. It lacks social cohesion and as yet has not developed any independent political representation.

Before Deng’s market measures in 1978, private enterprise was officially illegal and there were hardly any capitalists, apart from black-marketeers. Successive pro-market measures under Deng Xiaoping, Jiang Zemin and Hu Jintao opened the doors wider and wider to the growth of capitalist forces, inevitably encouraging the emergence of new strata of capitalists.

The first large contingent of capitalists came from the layer of peasants who enriched themselves on the basis of Deng’s pro-market reforms in the countryside. As market opportunities widened, many small family traders and professionals developed businesses. A substantial section of the capitalists are former CCP officials and ex-bosses of SOEs, who have used their power and influence (and resources plundered from the state) to set themselves up in business. Many retain close links with party and state bureaucrats.

Moreover, the composition of the emergent capitalist class is still quite fluid. There are signs that many of the small businesses of the first phase are now being squeezed out by much bigger businesses that are increasingly dominating the economy.

Many big businesses have links with state-owned firms, overseas Chinese big business and transnational corporations. Prominent among the big-business elite are the ‘princelings’, the children of top party officials. Some of the wealthiest and most rapacious capitalists are the property developers, who have already accumulated unimaginable wealth on the basis of appropriating state land and feverish property speculation. Last year, the Hurun Report recorded over 100 US dollar billionaires in China (compared to 24 in Japan). According to another report, 90% of the billionaires are the children of senior CCP-state officials.

Surveys report many complaints against the regime from the capitalists, especially small business-people: their property rights are not secure; they find it too hard to get loans from the banks (which favour SOEs and big business); they are over-taxed; and their profits are undermined by corruption; etc. A few would like to throw off the constraints imposed by the present regime and see the introduction of a big-business government. The great majority, however, are grateful to the regime for introducing a social framework in which capitalism can develop. Above all, they rely on the regime to maintain ‘political stability’, to protect them from the growing, super-exploited working class. Many capitalists pay lip service to the idea of democracy, but consider that it is ‘too early for China to become democratic’.

Many capitalists have joined the CCP or the CCP-sponsored ‘democratic parties’ as a way of lobbying for their interests. According to official surveys, over 30% of private entrepreneurs are now members of the CCP. “The CCP already counts 2.86 million employers and employees from private enterprise in its ranks and 800,000 independent entrepreneurs, as well as 40% of all heads of private and individual enterprises”. (Jean-Louis Rocca, A Middle Class Party, Le Monde Diplomatique, English edition, August 2008) Now the CCP is trying to recruit among the employees of the 600,000 foreign companies operating in China. This is not a takeover of the CCP by capitalists, but rather an effort by the CCP leadership to co-opt capitalists in order to exert political control over this emergent class. At the same time, the CCP also strives to maintain political control of the various business associations that have developed over recent years.

In our view, the analysis presented here shows that China is a ‘hybrid’ state, still in the process of transition towards capitalism, not a ‘fully’ capitalist state. As Barry Naughton, a pro-capitalist economist, puts it: “Despite the enormous distance already traversed, China still has several steps to go in the creation of a high-functioning market economy”. (The Chinese Economy: Transitions and Growth, 2007, p326)

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October 2008