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China’s halfway house
A new book, Red Capitalism, draws the conclusion
that China has some way to go before it can be described as a
fully-fledged capitalist state. Socialism Today has long argued, from a
socialist viewpoint, that the monopoly of power exercised by the
so-called ‘Communist’ Party and the overwhelming influence of the state
sector in economic life makes China a curious hybrid. Continuing our
China Debate series, PETER TAAFFE reviews this important work.
Red Capitalism: The Fragile Financial Foundation of China’s
Extraordinary Rise
By Carl E Walter and Fraser JT Howie
Published by John Wiley & Sons (Asia), 2011, £19-99
SERIOUS CAPITALIST REPRESENTATIVES and Marxists
often have shared analyses of events. Where they differ is in the
diametrically opposed class conclusions that they draw from these. This
important book on China illustrates this well. The authors have the
advantage of having lived and worked in China over decades at the very
heart of the financial and capitalist sector of the economy. They are
passionate and strong advocates of the proposition that the only viable
system for China is the creation of a full capitalist economy and
society.
However, they demonstrate that this is far from the
case today. In this sense, they agree with the conclusions of Socialism
Today about the complex reality of China’s economy and its state as
still remaining in transition. The direction of travel – towards a
‘normal’ capitalist regime – is obvious, but it has not yet been fully
completed. They provide a mass of empirical evidence to show that, since
the collapse of the world capitalist system in 2008, the process has
been halted and in some senses thrown into reverse. They fully recognise
– how can this be denied? – the existence of a huge capitalist sector,
which looked as though it was likely to dominate the whole of China in
the course of time. But that is not yet the case.
We read on the second page of the book: "In a brief
30 years, China had rejected communism, created its own brand of
capitalism and, as all agreed, seemed poised to surpass its great model,
the United States of America, the Beautiful Country". But the authors
also state in the preface: "It is a simple fact that China’s financial
system and its stock, bond and loan markets cater only to the state
sector, of which the ‘National Champions’ represent the reddest of the
Red. These corporations, the heart of China’s state-owned economy, are
‘inside the system’. The private economy, no matter how vibrant, is
‘outside the system’ and, in fact, serves the will of the system". They
go on: "If nothing else, the events of the fall of 2008 [the collapse of
Lehman Brothers] added an additional seal to the [Chinese Communist]
Party’s determination to sustain a closed, tightly controlled economy.
‘Don’t show me any failed models’, is the refrain of the Chinese
officialdom these days".
Inside the system
THROUGHOUT THEIR BOOK, Walter and Howie deploy the
same seemingly contradictory definitions of the regime as other China
watchers. For instance, the Economist and the Financial Times describe
China as ‘capitalist’ with a ‘ruling class’. Recognition is given to the
existence of big capitalist sectors which have been the engine of
China’s phenomenal growth. But then we find a definition which appears
to be diametrically opposed to this. This book shows that, "By 2008,
nearly 80% of all foreign investment assumed a wholly-owned enterprise
structure. At long last, the Treaty Ports system seemed a thing of the
past, as foreign companies had the choice of where and how to invest.
Over the past few years they have undeniably committed their
technologies and management techniques and learned how to work with
China’s talented workers to build a world-beating job-creation and
export machine".
But the important proviso is added: "But they have
done this in only two areas of China: Guangdong and the Yangtze River
Delta compromising Shanghai and southern Jiangsu Province. The economies
of these two regions are dominated by foreign investors and private
companies; there is virtually no state sector remaining. These areas
consistently attract 70% of total foreign direct investment and
contribute over 70% of China’s exports". (pp8-9)
These in turn have created huge foreign exchange
reserves, one third of the world’s total. At the same time, there is a
parallel economy that is "geographical as well as politically
strategic". This is referred to as the economy "inside the system and,
from the Communist Party’s viewpoint, it is the real political economy.
All of the state’s financial, material and human resources, including
the policies of opening up the country to foreign investment, have been
and continue to be directed at the ‘system’. Improving and strengthening
it has been the goal of every reform effort undertaken by the Party
since 1978". (p9)
The authors show that this has been the aim of the
Chinese elite, including the so-called ‘reformers’. Much has been made
in the past of the existence of stock exchanges, a bond market, etc. But
right from the outset in 1993, "Beijing had… restricted the privilege of
listing shares to state-owned enterprises in the name of SOE reform. The
market capitalisation in Hong Kong, Shanghai and elsewhere belongs to
companies controlled outright by China’s Communist Party; only minority
stakes have been sold". (p14) The markets provide less than 30% of all
capital raised, including loans, bonds and equity.
It is true that many commentators – not Socialism
Today – looked to China’s adherence to the World Trade Organisation
(WTO) as representing the final, qualitative move towards untrammelled
capitalism. Indeed, under the WTO, commodity and bond markets would have
to be freed from outside government control. But this has not been
carried through and leaves China in its present economic halfway house
position.
The authors state bluntly: "The global financial
crisis eliminated the political consensus in support of the western
financial model that had been in place since 1992. This has allowed the
pre-reform economic vision of an egalitarian socialist planned economy
to re-emerge. There are many in the Party and the government who had
never supported Red Capitalism in the first place". (p213)
It is an exaggeration to suggest even now, in the
teeth of the present world economic crisis, that the Chinese elite is
ready to turn back the clock, or is able to move towards a ‘planned
economy’. But as the Chinese ‘Communist’ Party (CCP) is preparing to
celebrate the 90th anniversary of its founding on 1 July – the present
CCP is a million miles removed from its revolutionary origins in 1921 –
"ideological battle lines are being drawn as factions fight to gain
influence and to determine the direction taken by the party. Foreign
diplomats and business leaders are watching these conflicts closely for
signs of whether China is heading for a dilution or even a full reversal
of the market reforms that have made it an economic powerhouse".
One of the contenders for the new nine-member
politburo, Bo Xilai, CCP chief from Chongqing in the west of China, has
invoked alleged ‘Maoist slogans’, propaganda and techniques. It seems
that, "on special occasions, residents receive [from Bo] ‘red texts’ –
Mao quotations sent to mobile phones. The local state television station
has replaced all commercials with ‘red programmes’ – soap operas
narrating revolutionary history. Civil servants, state company staff and
students are called in for the organised singing of ‘red songs’ – hymns
glorifying the country’s founding father and the party. ‘The sun is red,
Chairman Mao is dear’, according to one". We also learn that "some
conservative groups, long unhappy with the naked capitalism produced by
more than 30 years of economic reforms, have taken up [this] model".
(China: Mao and the Next Generation, Financial Times, 3 June)
The state’s mixed character
TO CHARACTERISE THIS simply as ‘capitalism’ is
one-sided and, moreover, does not prepare the working class for the
kinds of developments which have been seen in China recently. There are
those, some of whom have a presence on the internet in China, who may
lean towards this analysis. But their approach and conclusions would not
allow us to foreshadow the kind of recent developments that took place
following the implementation of China’s massive stimulus package.
China is not a planned economy, not even one
bureaucratically managed from the top by a Stalinist elite as existed in
the past. But it has not yet made the full transition, as this book
demonstrates, to a complete capitalist transformation either in the
economy or the state. Socialism Today has argued (for example, in
China’s Future? – Socialism Today No.108, April 2007) that China can be
compared today, in some senses, with states in many neo-colonial
countries which played a Bonapartist role – balancing between
different groups and opposing forces – and which were not able to
consolidate a defined stable regime. In the neo-colonial world in the
1960s and 1970s, in a number of states a significant degree of
nationalisation of industry, in some cases a majority, was carried
through by such Bonapartist regimes. This was the case, for instance, in
Libya and Algeria at one stage.
This did not, however, lead us to hastily
characterise these regimes as ‘worker’s states’, even of the ‘deformed’
character described by Leon Trotsky in his analysis of Stalinism. Torn
by contradictions which threatened to consume these societies in endless
internal conflict, the state played the role of a mediator, balancing
between class forces in developing ‘the nation’ in a certain historical
period. They were inherently unstable and in changed circumstances
easily moved in an opposite direction towards privatisation and the
market. We commented in the past: "The present Chinese state shows some
of these features today. Not just the Chinese economy but the Chinese
state itself is of a ‘mixed character’, with significant remnants of the
Maoist state machine retaining an important influence. This is entirely
different to the state machine which ushered from the ‘big bang’ in
Russia in the early 1990s, when the remnants of the pro-Stalinist
bureaucracy were completely cleared out and the untrammelled rule of the
ex-bureaucrats who had gone over lock, stock and barrel to capitalism
ruled the roost, and have done since". (Socialism Today, April 2007)
It is true that, had the financial measures pursued
by reformers such as Zhu Rongji been completed in a comprehensive and
consistent fashion, China would have already decisively broken with its
past and be well on the way to a rounded-out capitalist regime. But, the
authors point out: "Failure to follow through may have been inevitable…
given the fragmented structure of the country’s political system in
which the special-interest groups co-exist within a dominant political
entity, the Communist Party of China. What moves this structure is not a
market economy and its laws of supply and demand, but a carefully
balanced social mechanism built around the particular interests of the
revolutionary families who constitute the political elite. China is a
family-run business. When ruling groups change, there will be an
inevitable change in the balance of interests; but these families have
one shared interest above all the others: the stability of the system.
Social stability allows their pursuit of special interests. This is what
is meant by calls for a ‘Harmonious Society’." (p24)
It is true that over the past 30 years China’s state
sector, in the guise of western corporations, has listed companies on
foreign stock exchanges and made use of such related professions as
accountants, lawyers and investment bankers. But the formerly creaking
state sector, the state-owned enterprises (SOEs), were renovated and, to
some extent, put back on their feet, ironically, by Goldman Sachs and
Morgan Stanley. They "made China’s state-owned corporate sector what it
is today. Without their financial know-how, the SOEs would long since
have lapsed into obscurity, outcompeted by China’s entrepreneurs, as
they were in the late 1980s". (p10)
CCP patronage
THE AUTHORS POINT out that the reality of China is
the ‘patronage system’ centred on the CCP’s nomenclature. The huge state
corporations adopted the financial techniques of the international
competitors and raised billions of dollars in capital, growing to an
economic scale never seen before in all of Chinese history. "But these
companies are not autonomous corporations; they can hardly be said to be
corporations at all. Their senior management and, indeed, the fate of
the corporation itself, are completely dependent on their political
patrons. China’s state-owned economy is a family business and the
loyalties of these families are conflicted, stretched tight between the
need to preserve political power and the urge to do business. To date,
the former has always won out".
The authors continue: "The ‘Party’ – that is, the
winning interest group – can intervene for any convenient reason,
changing CEOs, investing in new projects or ordering mergers… Given the
state’s scale in critical sectors, together with the enormous power of
the government, the influence of this patronage system pervades all
aspects of China’s economy. It inevitably undermines the very contents
of its superficially internationalised institutions". (p23)
Despite China’s adherence to the WTO, foreign banks
consistently constitute less than 2% of total domestic financial assets,
with the party treating banks as basic utilities to provide unlimited
capital to the "cherished state-owned enterprises. With all aspects of
banking under the party’s control, risk is thought to be manageable".
(p25) However, under this system on a number of occasions the banks have
been technically bankrupt. The importance of this cannot be
underestimated as they own and control 43% of China’s total financial
assets. But, given what has been written above, the government’s
"unshakeable control over this sector", this gives the Chinese state
much greater leverage – for instance, in the event of serious economic
crises – than is the case with any other system of government in the
world.
It allowed the state to intervene in the aftermath
of the crisis beginning in 2008 with what was the biggest ‘stimulus
package’ in the world. Faced with 20 million unemployed and all the
social consequences of this, the Chinese regime, as this journal
predicted, undertook a spending programme, much of it through local
government, in a desperate attempt to keep the turbo-charged export
machine expanding further and generating jobs. But this was at a cost
and a considerable one at that. Such was the scale of the spending
programme, which was basically the same as in previous cycles but on a
vastly extended scale – infrastructure projects, SOEs and local
government ‘financing platforms’, as they have been referred to in the
Chinese press – they are now being compared to Mao Zedong’s ‘Great Leap
Forward’ of 1958-61. This meant the colossal build-up of debts,
estimated to be at least 70% of China’s gross domestic product, in the
banks. This has created a number of bubbles in the financial sector,
particularly in property, which can come crashing down in the next
period.
At the same time, there is an increasing rejection
of the US model. One government minister declared that China should not
bring "that American stuff over here… it should build its own banking
system". (p74) This was on the back of the Lehman Brothers crisis in
2008. The next year "marked the end of banking reform as advanced since
1998. What will follow is beginning to look like a glossier version of
the old Soviet command model of the 1980s and early 1990s", write the
authors. (p76) In effect these banks operate like public utilities, as
the authors once more lament: "It is the Party, and not the market, that
runs China and its capital allocation process… [This has lent
credibility] to the idea that banks in China are just that, banks, and
have value, if not as individual institutions then as proxies of the
country’s economy. That is just the point: they are indeed proxies of
the economy ‘inside the system’." (pp78-79)
Difficult to classify from a Marxist point of view,
nevertheless, China could be described in a sense as a unique form of
‘state capitalism’. The state’s primary concern is not to further all
the normal attributes of capitalism: the realisation of surplus value, a
drive to privatise ‘everything’ irrespective of the social consequences,
etc. The opening towards capitalism was seen as necessary to ensure
social stability. It can also be halted if it threatens a social
meltdown. It is not the type of regime described as state capitalist by
Friedrich Engels, where the state steps in to rescue and nationalise a
minority of industry. Nor does it fit into the false concept of the
state capitalist school typified by the late Tony Cliff and his heirs in
the Socialist Workers’ Party. They described Russia under Stalinism as
state capitalist. Russia was a nationalised, planned economy but with a
one-party totalitarian regime, a ‘deformed workers’ state’. China is
presently in a halfway position, a hybrid, and it is not certain how or
if it will develop in a fully capitalist direction.
The authors describe the bond markets as incredibly
weak because "China is a country where the state – that is the Party –
owns everything and there is no tradition of private property". (p85)
They show in the most graphic and detailed fashion how this affects the
bond market, which the government carefully controls with the
"state-controlled entities holding 92% of total bond investments". The
consequence of all this is more asset bubbles, stock market booms,
problem loans, all the inevitable products of this halfway house
arrangement which is neither a planned economy nor firmly-established
capitalism. This is despite the fact that there is the veneer of a
modern capitalist economy. But almost right from the beginning of the
‘reforms’ and opening up to the ‘capitalist world’, the ruling elite
through the party has ensured that power remains in their hands by,
among other things, making sure that only a minority of shares is in the
hands of private interests.
Growing mass discontent
BEHIND THIS CAREFULLY organised attempt to control
the situation is the morbid fear of the elite of the social consequences
if they should accede to all the demands of foreign capital and their
echoes inside China. This is particularly the case now against the
background of the catastrophic economic crisis of world capitalism. The
original ‘renovation’ of the SOEs resulted in sackings, the eviction of
millions from their jobs, land and homes although, technically, the land
is still owned by the state in China. Inhuman conditions arose from this
in the form of the ‘primitive accumulation of capital’ in the
sweatshops, synonymous with the introduction of capitalism. All of this
has fuelled enormous discontent resulting in a growing wave of ‘mass
incidents’. It has even resulted in terroristic acts by outraged
workers. One such reported incident was of a 50-year-old worker who set
off a car bomb outside a prosecutor’s office because of the forced
demolition of his house. One of the most popular online games in China
at the end of last year was called Nail Household Fighting Against
Demolition Squad.
The rise in inflation has also added to the woes of
the Chinese state, a particular fear because of historical experiences –
it was a factor in the revolution of 1944-49. The massive investment in
factories and infrastructure, the industrial base, played a major part
in the colossal industrialisation. But in the changed economic
circumstances this could rebound on China as the growth in the economy
and ‘demand’ begins to slow down worldwide. The regime’s massive
investment programme has aggravated global overcapacity in many sectors
of industry, and the scope for increasing China’s exports comes up
against the limits of international demand and competition.
At the same time investment, on which the country’s
rapid growth has depended, has run ahead of domestic demand, which has
been held back by low wages and weak social expenditure. Even the
influx of cheap labour from the countryside is slowing down as the
enormous cost of living in the urban areas is not compensated by wage
packets which are falling behind steeply rising prices. Many of the new
generation are also refusing to accept the inhuman conditions in the
foreign-owned factories in China.
Vibrant social media reflect the growing discontent
of the masses. One blogger declared: "Prices go up like our blood
pressure and finding a job is as tough as finding a three-legged frog".
Another commented about the tightening censorship: "Society is like a
costume ball - you cannot see our anger, grief or even happiness under
the masks". Another complains about living with "developing countries’
salaries, but developed countries’ prices". This was supplemented by the
comment that the price of food had reached the point where it was
cheaper and more effective to take vitamin pills. (The Times, 2 May)
At the same time, the colossal discontent with
endemic corruption has been revealed. Over a 15-year period, according
to a report released by China’s central bank, 17,000 CCP cadres, police,
judicial officers and SOE executives fled the country between the
mid-1990s and 2008. They are estimated to have smuggled out of the
country $123.6 billion in stolen assets. The Beijing authorities now
estimate, according to the Financial Times on 16 June, that ‘incidents’,
a euphemism for strikes, protests and riots, numbered 180,000 last year,
double the figure of five years ago. It works out at 493 such incidents
each day.
Despite the clampdown by the regime, incidents and
clashes between the police and different groups of the population
inevitably appear and are openly commented on in China. In one southern
city a pregnant migrant worker was manhandled by government
representatives and this led to large crowds engaging in running street
battles with riot police. We have to remember that it was an incident
like this that triggered the ‘jasmine’ revolution in Tunisia earlier
this year.
Even the Financial Times (20 June) commented: "For
the moment, the first instinct of China’s government, at both local and
national level, is to use force. Suppression can work for a while. But
if the underlying causes are not addressed, China risks an explosion".
Similar battles took place in another city between police and migrant
workers over unpaid wages. And it is not just insecure ‘migrant workers’
but other sections of the working class, as shown by the strikes of last
year, who are provoking conflict. Shanghai truck drivers have also come
out on strike and this has found its way into workers’ consciousness
despite the attempts at a blackout by the regime.
Pessimistic outlook
FOR THE AUTHORS of this book all of this serves to
underline their view that China’s present economic and political halfway
house threatens to undermine and throw back the colossal industrial
growth of the last 20 to 30 years. Their solution is untrammelled
capitalism which, they believe, would guarantee a rosy future for China.
This argument could hold a certain amount of water when the world
capitalist system seemed to be powering ahead. But, like Japan before
it, even with a big growth in the economy, China was most likely to hit
the buffers, suffering stagnation and decline. The very development of
capitalism was in the process of creating the strongest working class in
the world, numerically at least.
Inevitably, this would raise the question in their
minds of independent trade unions and a mass workers’ party for the
Chinese masses to challenge brutal capitalism. This will be mirrored by
movements in the state sector against the rampant corruption and vicious
anti-democratic totalitarian methods of the state. This has now been
magnified a thousand times by the world economic crisis of capitalism,
from which the ruling classes of the West will not find an easy escape.
Moreover, the tumultuous events in Europe,
exemplified in Greece, Spain and Portugal, can inspire the best workers
and youth to once more engage in mass struggles against the brutal
Chinese regime. A slowdown of capitalist economic growth in China has
been masked for the time being by the huge stimulus package, which has
also redounded to the benefit of primary producers in the neo-colonial
world. But that is coming to an end amid warnings about the economy
‘overheating’, particularly colossal inflation in property prices which
has shut out the new generation from acquiring even the most modest
properties.
The conclusion the authors draw from their very
detailed and searching analysis is not at all optimistic from the point
of view of capitalism generally, the capitalist elements or the putative
capitalist class in China. Firstly, the regime is beginning to share all
the problems of capitalism on a world scale: "China’s narrowly defined
stock of debt seems to be catching up with the levels of developed
countries, some with a GDP many times larger than China’s". (p203) This
graphically demonstrates that China is now dependent on debt to drive
the economy forward.
Moreover, there will be no further "meaningful
reform of interest rates, exchange rates or material foreign involvement
in the domestic financial markets for the foreseeable future. Nor will
there be any further meaningful reform or internationalisation of the
major banks, although future recapitalisations will inevitably take
place". The events of the fall of 2008 put an additional seal on this:
"‘Don’t show me any failed models’ is the refrain of Chinese officials
these days. But is its own financial system a model for the world to
study? Can China be thought of as an economic superpower, either now or
in the future, with such a system?" (p210)
Not classical capitalism
THE AUTHORS ANSWER their own questions by saying
that only capitalism, one not hemmed in by the state, can succeed in
China. But they also answer in the negative the question of whether
there is the possibility of this being realised: "With nationwide
monopolies or, at worst, oligopolies, these business groups do not want
change, nor do they believe that foreign participation is needed. How
can China use its Anti-Monopoly Law when the Party owns the monopolies?…
If Zhu Rongji’s intention in signing China to the World Trade
Organisation was to open it up to foreign competition and, therefore,
economic change, after 2008 this goal seems to have faded from sight".
(p212)
Events have exercised a huge effect on the outlook
of the elite, particularly the decisive change represented by the onset
of the world capitalist crisis. The authors state bluntly: "As far as
the financial sector goes, the collapse of Lehman Brothers in September
2008 undermined the influence of those in the Party who sought a policy
of greater openness and international engagement. The global financial
crisis eliminated the political consensus in support of the Western
financial model that had been in place since 1992". (pp212-213)
Walter and Howie have established through their
analysis that China is unlikely now to construct an economy or state
which mirrors the ‘classical’ or ‘normal’ style of capitalism in the
West. Why does this matter? Does the precise character of China today
have political repercussions for socialists and Marxists? Without
understanding the complex character of China it is not possible to
foresee the likely march of events, a vital element of Marxist
perspectives. It has been the contention of Socialism Today that China
has not and may not complete a full transition to capitalism as we know
it in other areas of the world. Therefore, the retention of elements of
the previous regime, a large state economy and its reflection in the
state, would give the regime a certain leeway not open to other
governments in the world. This proved to be correct with the example of
the stimulus package, mentioned above, and in other respects. Of course,
this does not offer a complete economic lifeline for them or elsewhere,
but it is unparalleled in its scope and its effect, at least in the
short term, to any other regime in the world. This is just one example
of how careful analysis does have an effect.
The main features of an alternative socialist,
Marxist programme have not been altered by our characterisation of
China. It still remains the task for workers in the state sector to
drive out the pro-capitalist elements and push aside the bureaucrats,
‘princelings’ and capitalists that leech off the state sector. It is
necessary to employ a programme of workers’ control and management in
drawing together the state sector in a real socialist plan of
production. In the purely capitalist sector we fight for independent
trade unions, workers’ control and taking this sector into the state, at
the same time linking the struggles of all workers, no matter what
sector they work in, with the idea of a socialist, democratic China.
This book allows us to further deepen our analysis and prepare for the
tumultuous events which impend. |