[Book] China: From Permanent Revolution to Counter-Revolution

China Marches Back to Capitalism

15.1 Introduction

This chapter will explain the process whereby, in order to protect its privileges, a hardened, Stalinist caste took the Chinese workers’ state back to capitalism. The defining point in the process was the bloody crushing of protests that took place on a national scale but centred in Beijing at Tien An Men Square. After this watershed, the dominant section of the CCP increasingly came to see capitalism as its salvation.

The alternate solution to the social and economic problems besetting China was Soviet democracy, but the bureaucracy knew this would mean the end of its privileges and preferred capitalism. This chapter concentrates on the bones of the process. How and when the CCP relinquished the three key pillars of a workers’ state: a national economic plan, monopoly of foreign trade, nationalisation of the key industries including wholesale food distribution and, especially, the banks. The process of the so-called reforms was piecemeal due, not least, to the very real powers of the provincial authorities each with its own interests, but also due to the CCP acting cautiously and testing each step as the process progressed.


15.2 A Cold Transition?

Trotsky had argued that the Soviet Union could not be “reformed” into capitalism, without some form of violent counter-revolution.[1] But Eastern Europe, Russia and China have all made the transition back to capitalism without armed counter-revolution, without even major confrontations between the different wings of the bureaucracy.

This observation confirms that we should not take from Trotsky single sentences isolated from their historical context. Trotsky’s argument rested on Russia as it was in 1933, where the traditions of the revolution were still alive. The Russian working class had played the key role in the October Revolution, they had suffered dreadfully in the imperialist war and fought heroically to defeat the White Armies. Despite the severe hardships imposed by the bureaucracy they would have resisted capitalist restoration. The purges had not yet physically removed the Bolshevik heritage of the Communist Party and, despite the growing bureaucracy, Party members were committed to maintaining the Soviet regime.

Trotsky was writing a few months after Hitler had come to power in Germany, but before finally concluding that the bureaucracy was irrevocably counter-revolutionary. It was nearly two years later, in August 1935, that he issued his open letter calling for the formation of the Fourth International and the removal of the bureaucracy by a political revolution.

However, the Stalinist regime survived in the USSR for far longer than Trotsky could have anticipated, for more than 60 years in fact. In that period the revolutionary traditions were eradicated from the consciousness of the workers. The generation that had experienced the revolution was gone. The new generations witnessed a gluttonous bureaucracy hoisting itself further and further above the masses. They saw only mismanagement, waste and corruption at every level, and towards the end all that was left facing them was a system which was grinding to a halt.

However, we should remember that Stalin did, in fact, carry out a civil war against Bolshevism. Vadim Rogovin in his detailed and authoritative history of the purges[2] concluded that the number of political prisoners during the Stalin period reached approximately four million, and between 700,000 and 800,000 were actually executed. Three times as many Party members were killed in the Siberian slave camps as in the Civil War against the Whites. The purges were the logical response of the bureaucratic caste as it sought to protect itself by eliminating actual and potential opposition in the communist movement, both within the USSR and internationally.

During Trotsky’s life the Stalinist bureaucracy retarded the development of the Soviet economy which, because of its planned nature, nevertheless surged ahead. But, as industry and commerce became increasingly advanced, until in its final stages the bureaucracy became an unqualified brake on economic development. The bureaucrats protection of their own interests had higher priority than the performance of soviet industry, so they never considered introducing the one measure, the most effective measure, for solving the problems of the Soviet economy – workers’ democracy.

However, Trotsky did warn that as the bureaucracy developed, the more senior the bureaucrat the more they would want to pass their privileges on to their children. And this was best done through private ownership. He predicted that the bureaucracy could and would adapt very easily to capitalist restoration.

Transforming the workers’ state into a bourgeois regime would be realised largely by the bureaucrats themselves, who would become the captains of capitalist industry or its favoured servants. Few bureaucrats would have to be purged. On the other hand, a political revolution would impose on those bureaucrats a worker’s wage and remove their privileges. For most bureaucrats there was a bigger conflict with workers’ democracy than capitalism! Trotsky’s prognosis of capitalist restoration was almost a blueprint for the actions of the Chinese Stalinists:

“… The chief task of the new (bourgeois) power would be to restore private property in the means of production. First of all, it would be necessary to create conditions for the development of strong farmers from the weak collective farms …. In the sphere of industry, denationalization would begin with the light industries and those producing food. The planning principle would be converted for the transitional period into a series of compromises between state power and individual ‘corporations’ – potential proprietors, that is, among the Soviet captains of industry … and foreign capitalists.”[3]

It must also be remembered that the 1949 Chinese Revolution was not made by a Leninist Party. The CCP was a Stalinist organisation long before it came to power, so in China there was never a period of workers’ or soviet democracy and it was natural for the leaders of the CCP to see China’s future in terms of their own wellbeing.

The collapse of the Soviet Union and the resulting chaos was a very powerful factor in the thinking of the Chinese bureaucrats. The leadership of the CCP, in its majority concluded that in order to prevent the same thing happening in China market methods must be introduced, but under tight CCP control. They began a series of steps each of which was an attempt to increase the rate of development of the economy. It is now generally accepted that the Chinese bureaucracy staggered from one support to the next to avoid the collapse that had taken place in Russia. Three factors slowed the process: lack of understanding of a market economy, important special interest groups that opposed the reforms and – most important of all – fear of how the masses would respond. But the process had a logic of its own and empiric step by empiric step eventually ended in the restoration of capitalism.

While generally peaceful, and often welcomed. it would not be correct to say there were no protests against the bureaucracy and the measures it was taking. In 1989 there were demonstrations of protest across China but centred on Tien An Men Square in Beijing. These were crushed by the PLA under the direction of the hard line Stalinists within the Party. These people took the protests as a sign that reform needed to gather pace, and within five years the CCP had ended the monopoly of foreign trade, allowed unfettered foreign currency exchange, ended state planning of the economy, and were using the giant State Owned Enterprises (SOEs) to support private industry at the expense of the Chinese workers. When these measures were carried through China ceased to be a workers’ state. However, important sections of industry and the banks remain in state hands, the better to support privatisation and the growth of Chinese capitalism.

Among the top layers of the bureaucracy there is no evidence that any group wanted to retain the old state-owned, centrally planned economy. From the viewpoint of the Party tops the present system is working. For them it is doing very well, because now the bureaucrats are successfully passing their privileges on to their offspring. Many of the sons and daughters of the bureaucrats have been transformed into owners of the means of production and amongst this layer there is no desire to return to a nationalised planned economy. There is no material basis for them to wish to do so. They would resist any attempt to turn the clock back, and they would have the backing of the CCP and the state.

It is also worth noting that the tops of the army have also been transformed into owners of property. In fact, for a period the PLA was spearheading the creation of private enterprises. In 1996, for example, the South China Construction Company, possibly the largest in China, was just completing the Diwang Building, one of the tallest buildings in Asia. But the South China Construction Company was an off-shoot of the PLA. Its senior personnel alternated between wearing their army uniforms and business suits. The officer caste within the “armed bodies of men” forming the power of the state, has been integrated into the new property relations that have been established.

15.3 A New Economic Policy

1976 to 1978 was a period of intense political activity in China. Mao Zedong died in September 1976 and on 6 October 1976, Madame Mao and her three principal associates (the infamous Gang of Four) were arrested on the orders of Marshal Ye Jianying, Minister of National Defence. They would be subjects of a show trial in 1981 and all would receive lengthy prison sentences.

By the CC meeting of December 1978, after a period of bitter infighting, Deng emerged as the key figure within the Party and it was this meeting that repudiated the “two whatevers” policy – whatever Mao said must be correct, and whatever policy Mao proposed must be adopted. This was replaced with a new Party line, the “Four Modernizations”. To overcome the inheritance of the GPCR there would be a period of huge investment and rapid development of Chinese science and technology which would then be applied to agriculture, industry, and national defence. At the time the proposed programme stressed economic self-reliance but had as its target China becoming one of the world’s major economic powers in the early part of the 21st Century. On 5 December 1978 in Beijing, a former red guard, Wei Jingsheng, posted on the Democracy Wall calling for a Fifth Modernization: “democracy”. He was arrested a few months later and jailed for 15 years.[4]

The CCP was a thoroughly Stalinised Party but claimed the Bolshevik revolution as part of its heritage. It was only natural that Deng should look to the history of the USSR to see what lessons could be learned on how to re-vitalise the Chinese economy and, especially, increase food production. The obvious lesson was the introduction of the New Economic Policy in 1921. This had been tremendously successful in restoring food supplies to Russian towns and had generated a boom in light industry. The main points of the NEP had been: Once the peasants had paid their taxes they were free to sell their surplus at free farmers’ markets in urban areas; Private merchants were allowed to buy and sell produce in a market environment; light industry was left in private hands while state-owned large-scale industry had to be self-funding. Increased wage differentials were allowed so that productivity and level of responsibility could be rewarded; foreign capitalists were offered concessions.

On 4 February 1919, Lenin presented a resolution to the Council of People’s Commissars along the lines, that one way of securing the investment necessary to develop the productive forces of the weak and underdeveloped economy of the young workers’ state was to grant short-term concessions to foreign capital for the long-term benefit of the revolution. It was the delay of the world revolution that forced the Bolsheviks to propose this compromise with capitalism. At that time, however, the foreign capitalists, far from wanting to reach economic deals with Soviet Russia wanted to crush it; first by armed intervention and then by economic blockade. With China, by the late 1970s, it was quite a different matter. The imperialists were perfectly willing to make deals with the bureaucratic, privileged caste running the state. Even the arch-reactionary Nixon had no problems in reaching agreements with Mao.

In the conditions which prevailed in China in the late 1970s some form of NEP was eminently sensible, subject to certain conditions. The Deng wing coined the phrase “market socialism” in which the main levers of the economy remained under state control guided by the state plan including a monopoly of foreign trade. These proposals were acceptable as a means of stimulating and developing the Chinese economy. Deng and his co-thinkers drew the conclusion that the attempts to make China self-sufficient had failed and, correctly, recognised that China could not develop in isolation from the world market. Socialism in One Country, while remaining official ideology was finally, though quietly, buried.

Lenin perceived the NEP as a temporary retreat, but Deng saw it as an advance. The difference was that Lenin’s Russia was a relatively healthy workers’ state, which the NEP would be used to strengthen, whereas Deng’s China was a Stalinist, bureaucratised deformed workers’ state which the introduction of a NEP would weaken.

Deng and his co-thinkers argued that, despite 25 years of almost continuous growth, the Mao era had left the economy in a mess. The GLF and the GPCR had caused serious shortfalls in agricultural and industrial production but, more importantly, as the economy became increasingly sophisticated the centralised, bureaucratic command system was proving so inept, corrupt and wasteful that future growth was threatened. Industrial productivity was declining, the quality of the finished products was very poor, there were inflationary tendencies, and scarcity of consumer goods. Workers and peasants were becoming restless and threatening to take their demands onto the streets.

When Deng came to power in 1978 he had no intention of restoring capitalism. He, and the wing of the bureaucracy he represented, understood the need to introduce the most advanced techniques into the Chinese economy, but the bureaucracy’s inherent conservatism meant that it moved empirically, responding to the needs of the moment. Having accepted a market-led approach, it was only a matter of time before China would open up to foreign investment and participate wholeheartedly in the world market.

15.4 Deng’s 1978 Turn

At the CC meeting of December 1978, Deng presented his version of the New Economic Policy. Central planning would remain dominant, but it was proposed to introduce elements of decentralisation and encourage private initiatives. The concept was that market forces would be introduced at the periphery to ensure the targets of the planned economy were met.

The Beijing leadership began warily, communal ownership of agricultural land would remain, but private use of that land would be permitted. Simultaneously, it launched a small number of special economic zones (SEZs) subject to severe controls.

The basic points of the 1978 reforms were:

  • Peasants were offered the opportunity to lease the land they farmed. To ensure profitability the government would allow the prices of agricultural produce to rise by more than 20% in 1979.
  • Local rural organisations would be permitted to launch collective and/or private business enterprises: these would be known as Town and Village Enterprises (TVEs).
  • Foreign investors were invited to invest in China, subject to strict conditions.
  • Market forces would play a much bigger role in determining prices. More investment was to be channelled from capital investment to consumer goods.

The country began the process of lurching towards the world market.

15.4.1 Agriculture, Land and the TVEs

The disaster that was the Communes has been described in Chapter 13, following the deaths of as many as 20 million through starvation there had been a de facto restoration of personal responsibility for land and livestock. This was achieved by allocating land to individual households on the promise they delivered a certain quota of their harvest to the state. There was a tolerance of a free market in farm produce, peasants were free to sell their surplus produce as they wished. Individual enterprise in the form of the revival of handicrafts was encouraged, after having virtually disappeared during the GPCR: cobblers, tailors, tinkers and vendors became common sights in the cities.

Constitutionally in China urban land was owned by the state and in rural areas by collectives, but these new measures allowed land to be treated as private property. Chinese agriculture was returning to traditional patterns under the slogan of “collective land ownership but individual land use”. There was a massive growth in a free market in agricultural produce. This was accompanied by the removal of state control of prices to help ensure the profitability of the more efficient farms.

In terms of increased production of agricultural produce, Deng’s moves were eminently successful. By the end of the 1980s those who leased land were permitted to sell the lease or even leave it as an inheritance. Just as with the NEP in Russia this led to a differentiation within the peasantry with some peasants growing rich and expanding their holdings at the expense of others. Layers of Chinese peasants lost their lands, were impoverished and were forced to migrate to the cities, providing an inflow of cheap labour for the development of the SEZs. But in China the scale of what happened was unprecedented both in terms of the scope and the speed of the process.

During the period 1978-84 the reforms were predominantly rural with great emphasis on decentralisation and with greater autonomy given to provincial governments.[5] Private enterprise in the countryside was encouraged in the form of the Town and Village Enterprises (TVEs). These usually originated from commune workshops so there were hundreds of thousands of them. With the demise of the communes, the workshops extended their repair of agricultural implements to include manufacturing light machinery for farm use. These TVEs were notionally under the control of local municipalities, but with the effective privatisation of agriculture were in an anomalous position being notionally communal enterprises run for the benefit of the local peasants while becoming increasingly self-funding and self-sufficient.[6]

Because the TVEs were largely independent they were very flexible in terms of organization and ownership, and significantly enhanced economic and infrastructure growth in rural areas. TVEs would all commence as communal ventures but would pass through every shape and form, some retaining their communal nature, some adopting mixed communal and private ownership, and some rapidly became private property. They were a glimpse of what might have been achieved if the creative powers of the peasants and villagers had been unleashed within a planned economy.

However, the TVEs were launched by a Stalinist bureaucracy to better preserve themselves and their privileges. Within this framework the TVEs served the valuable purpose of employing and training many middle and lower level CCP cadres in the smaller towns and villages who were in danger of being left behind by the moves to a market economy, and who could have become a focus for opposition to regime policies. In 1994 the government produced an “honour list” of successful TVE “Peasant Entrepreneurs”; it was noticeable that being a Party member gave one a head start in being successful.[7]

TVEs were market-oriented from the outset and so became a pressure for institutional change at a time when the place of privately-owned companies in the economy and society had not been established; they were a mechanism whereby the managers and local CCP tops accumulated the necessary experience and knowledge to run private enterprises and the capital to eventually acquire them.[8] Initially, only TVEs with fewer than ten workers could become a private firm (within the European Union enterprises with fewer than ten employees were classified as ‘micro’), but in 1987 this limit was abolished which opened the door to the privatisation of all TVEs. In practice, even the supposedly collective TVEs responsible to the local authority were soon operating as private enterprises.

In many townships and villages local officials began a rapid sell off of TVEs (to themselves) for a small fraction of what they were worth. By the time of these sell-offs the Party tops managing the TVEs had a decade of experience of running what were in practice private enterprises, and were well versed in capitalist management techniques. By the year 2000 all TVEs were openly functioning as capitalist firms. Helped by generous state loans and economic decentralisation, the TVEs grew rapidly and in 1996, at their peak, accounted for 30% of GDP and employed 135 million people.[9] However, after 1996 the number of TVEs decreased sharply as the state privatised small SOEs many of which were light engineering companies, which then began to compete with the TVEs.

The TVEs are a good example of how an economic form generated with one goal in mind, to assist economic regeneration in the countryside within a deformed workers’ state, became an important transitional element in the development of capitalism. In supporting the TVEs the state sector nurtured and supported nascent bourgeois elements until they assumed ownership directly.

15.4.2 Foreign Investment, Trade and Market Forces

In 1979 Deng announced the creation of the first four Special Economic Zones (SEZs) open to foreign investment, these being on the borders of Hong Kong and Macao, and in the Guangdong and Fujian provinces on the southern coast. These were to be a means of modernising the productive forces within a centrally-planned and state-controlled economy, and at this stage the bureaucracy was very cautious and made only limited concessions.

In preparation for attracting foreign investment, the Chinese regime introduced a series of reforms which allowed managers of selected SOEs (those designated to be part of joint-enterprises in the SEZs) to end “lifetime” jobs for workers. This was a break with previous policy in which a worker was a state employee and had a job for life (the so-called “iron rice bowl”). For workers in these enterprises job security was replaced by fixed-term contracts. At the time these measures did not affect the great majority of Chinese workers who were employed in heavy industry in the inland, giant SOEs. Nevertheless, to spike workers’ opposition, the right to strike was dropped from the 1982 Constitution; instead a worker had to observe labour discipline and public order. In effect strikes were outlawed.

However, the SEZs were not as successful as expected. For capitalists to invest the bureaucracy had to create more favourable conditions, requiring a compromise with market forces. In 1983 certain of the restrictions were lifted: the necessity for investment to be in a joint enterprise with a Chinese company was removed and wholly foreign-owned companies were allowed to operate; the area covered by the SEZs was expanded to open up almost all of China’s long coastline to foreign investment. The bureaucracy may have been proceeding empirically, but how many compromises and of what kind would be made?

Soon the government was actively encouraging foreign-owned and operated enterprises to establish factories in China as a means of absorbing unemployed young people, especially peasants migrating to the towns, and at the same time helping to increase supplies of consumer goods. On 20 October 1984, the CC adopted a series of measures which marked the beginning of the end for the state monopoly of foreign trade. An important initial difference between Lenin and Trotsky as against Stalin and Bukharin was that they considered a workers’ state in a capitalist world must have a state monopoly of foreign trade. First loosening and then abandoning this control was a key move towards developing capitalism in China.

Controls on foreign trade were greatly eased, allowing individual enterprises to engage in direct trading with foreign firms outside the control of the Ministry of Foreign Trade (which was re-named the Ministry of Foreign Economic Relations and Trade). Subsequently, the government introduced another tranche of legislation in 1986 to further facilitate Chinese businesses entering the mainstream of international trade: in particular access to foreign exchange and credit, and reform of the wages system to allow much greater bonuses to be paid to managers.[10]

Beginning in 1979 and throughout the 1980s, the Chinese government was preoccupied with incentivising state enterprises most of which were characterised by gross inefficiency. The Party appreciated the benefits being realised from TVEs and expected that extending the same reforms to the urban industrial sector would have the same effect. It was agreed to introduce market mechanisms such as allowing greater autonomy for management, and permitting horizontal relations between enterprises (previously characterised by a rigorously enforced top-down structure).

At the 12th Congress of the CCP in September 1982, Deng Xiaoping announced the building of socialism with Chinese characteristics; of a so-called “planned commodity economy” which, in effect, was a significant move away from a planned economy. The managers of small (and medium) SOEs were given much greater autonomy, encouraged to produce goods outside the state plan for sale on the market, and permitted to introduce individual bonuses. From this time on the planning element of the economy was applied only to major projects. However, the official position of the Party was that the state sector of the economy was, and would remain, dominant.[11] In the mid-1980s, in total, the state sector employed about 70% of the urban workforce and throughout that period the giant SOEs dominated the overall economic processes in China.

The government also tested a change in financial procedures for selected small and medium SOEs (SMSOEs)[12]: rather than remitting all of their profits to the state, as previously, they were allowed to pay a tax on their profits and retain the balance for reinvestment and distribution as bonuses. Here we have the bureaucracy of a deformed workers’ state, using capitalistic methods to revitalise part of the state sector.[13] However, these measures on their own proved insufficient to change the basic economics of SMSOEs, many of which continued to lose money. Nonetheless, a significant step had been taken in downgrading the importance of the national economic plan.

Determined to reduce the financial burden imposed by the SMSOEs, and to simultaneously increase the number of private companies in China, the government encouraged management buy-outs. These were to be sold off as going concerns or broken up into separate companies, with the more profitable sectors being privatised and the less efficient being closed or remaining under state control. Managers were encouraged to rationalise their companies to make them profitable. Millions of workers faced dismissal. However, SOEs in China were not simply for generating government revenues, they also served many other purposes, including the provision of social welfare.[14] The measures imposed left many of those who managed to keep their jobs with no health care, no sickness payments, and even no pension scheme. Those sacked were left with nothing.

One group of managers of SOEs (those more familiar with Western practices) were busy asset-stripping. The most modern machines in the factory were sold to friends in the private sector at knock-down prices. When the time came to privatise these companies their managers bought them cheaply because they had few worthwhile assets, and then in partnership with their friends re-stocked them with the machines previously removed. Another group of managers, especially senior CCP members with links to the local Party organisation which controlled the local town councils, entered into partnerships whereby the councils designated companies as collective ventures but then ran them for private profit which went to the local Party tops. This latter strategy was Beijing’s preferred option since it gave jobs to Party officials who would otherwise have been unemployed. The number of private companies rose from 1.83 million in 1981, to 11.71 million in 1985.

In 1987 there was a classic “scissors crisis”, too few industrial products to satisfy the demands of the newly-enriched peasants. The peasants responded characteristically and, despite an excellent harvest, there was a shortfall in basic food products (rice, corn) in the shops. In consequence, inflationary pressures exploded. The two years 1988 and 1989 saw the annual inflation rate hit 18%, the real purchasing power of working class families was hard hit, and social unrest ensued. The rationalisation and privatisation of state-controlled companies had led to a marked rise in unemployment, pushing the official unemployment rate above 5% (a real unemployment rate of more than 10%). Workers took strike action and laid-off workers rioted.

In response, in 1988, the regime put a brake on the so-called “reforms” and in an attempt to control inflation tightened the money supply. This provoked a new phenomenon for the Chinese economy, the recession of 1989. This economic crisis was transformed into a political crisis inside the CCP and the General Secretary, Hu Yaobang, was forced to resign for failing to take action against students protesting against the government measures. All this led to growing social unrest and a wave of strikes. This was the context of the protest movement in and around Tien An Men Square in Beijing.

15.5 Tien An Men Square

Initially, its reforms made the Deng Xiaoping regime the most popular since 1949, but the transition to a market-based pricing system and the lifting of price controls, meant prices of goods rose faster than wages, and those living in the Beijing area were particularly penalised. Between 1987 and 1989 an increase of over a third in consumer prices caused workers and students to fear that soon they would no longer be able to afford staple goods; many took to the streets in protest.[15] The government rescinded the price reforms in less than two weeks, but inflation continued to soar.

Oppositionists, many of whom were CCP members and/or ex-Red Guards, put up posters on Democracy Wall in Beijing and began to produce magazines to sell to the crowds who flocked there.[16] The youth on the streets sang the Internationale, as if to say to the regime and to world opinion, “Look we are not in favour of capitalism, we are not counter-revolutionaries.” There was no co-ordinated list of agreed demands but reports concur that that right from the start there were calls for greater democracy (free speech and a free press, removal of restrictions on street demonstrations); and anti-bureaucratic demands such as the call to publish the assets of the CCP tops and their families and – given the nature of the protestors – an increase in funding for education and an increase in teachers’ salaries.[17]

However, what had started as a student and youth protest began to spread to workers. The privatisation of SMSOEs, and the drive for profit meant workers were laid off to cut costs and many who still had a job had suffered a significant fall in living standards. The protestors, initially students but subsequently joined by workers, occupied Tien An Men Square in central Beijing for seven weeks. All around were placards and meetings protesting against poor living conditions, rising unemployment, poor career prospects, and the lack of democracy in China. At its peak, over one million supporters of the Tien An Men Square protest marched in demonstrations in 24 cities across China. The elements of a political revolution were appearing.

Certainly, there were many rank and file CCP members who sympathised with the demonstrators but they had no organisation or structure to make their opinions felt, and they had no theory which allowed them to reach a correct appraisal of events.

At first, a section of the CCP tops were prepared to tolerate the student protests, but having workers join in was far too dangerous for the regime to tolerate. Workers in the Capital Steel Corporation, one of the Beijing steel plants, went on strike, as did small groups of postal workers and bus drivers, and the number of workers involved was growing rapidly. The Beijing Workers’ Autonomous Federation (BWAF) was founded; it existed for only a short time but was the only independent Chinese workers’ organisation in the PRC since 1949. An independent observer present in China at the time claims that similar independent workers’ groups came into existence in Shanghai, Xian, Hangzhou and Guangzhou.[18] This, of course, made the initiative quite intolerable to the Party tops. Those who were prepared to adopt a more relaxed policy towards the protesters were swept aside, and the movement was crushed.

The central demands of the BWAF were published on May 21, a month after the students started their struggle, and it can be seen immediately how the initiatives of the students had sparked an important development amongst the workers.

Firstly, the BWAF demanded total independence, it would not be under the control of any other organisation, and it would be a democratic organisation in which workers would participate of their own free will. It requested that it be recognised by employers as having equal status with other mass organisations.

Secondly, the basic aim of the BWAF was to put forward the majority views of the workers on economic and political questions and never be a simple welfare organisation, as were existing state unions.

Thirdly, the BWAF demanded the authority to monitor the activities of the CCP and other workers’ representatives in firms and businesses that were the property of the state (collectively owned) to ensure that the workers really were genuinely the masters of those firms.[19]

The BWAF challenged the CCP on a crucial issue, calling for the workers to be the real masters of the collective factories. In the context of the direction being taken by the CCP towards capitalist restoration this was clearly a revolutionary socialist demand and one the CCP could not tolerate. The regime had to respond quickly, which it did with a mailed fist. On 4 June 1989, the Chinese army moved into the square killing several hundred demonstrators. It is claimed that the troops entered the square at the point where the BWAF had its headquarters in a tent, and made their first targets the core leaders of the BWAF.[20] The BWAF was declared an illegal organization and disbanded.[21] Through its brutal clampdown, the regime made certain it retained a tight grip on society. The massacre at Tien An Men square marked a definitive victory of the hard-liners in the CCP.

The movement around Tien An Men Square raised the hopes of many workers and youth, and had the potential to topple the Deng regime, but the lack of a coherent leadership and disciplined organisation meant it was never able to realise that promise. The masses were defeated. After Tien An Men the regime sought out all the key leaders many of whom disappeared or spent many years in prison. Indeed at the millennium some 50 protesters from Tien An Men Square remained in jail, nearly all were workers. At the same time the bureaucracy temporarily slowed down the process of market reform to restabilise the situation. The crushing of the Tien An Men protests meant a swing to the right in the political pendulum and once equilibrium was restored, the movement in the direction of capitalism intensified.

In 1989, the Stalinist regimes of Eastern Europe collapsed one after another. The Russian bureaucracy had lost control of the situation and a chaotic transition to capitalism opened up. The Soviet Union resisted a little longer, but it too eventually succumbed to the same process, with the regime collapsing in 1991. These Stalinist regimes were so rotten that they fell with hardly any resistance on the part of the bureaucracy. The system they represented had passed its limits and had decayed from the head down.

Undoubtedly, these events had an impact on the Chinese Stalinists. Up until then they had been introducing market reforms, opening up whole areas of China to capitalist investment, but with the state-owned sector still dominant, and the process could still have been reversed. However, the CCP leadership was united in its determination to accelerate the process of “market reform” as a means of stoking-up the economy and so dampening social unrest. After Tien An Men and the collapse of the Soviet Union a growing proportion of the bureaucracy saw capitalist restoration as the solution to their own crisis, but were determined that the process would take place under their firm control.[22]

15.6 “Socialist market economy with Chinese characteristics”

In 1989/90 the Japanese economic bubble burst and precipitated a market crash across South-East Asia. China assumed the dominant role within the region. Convinced that its privatisation policies had underpinned its success, the CCP accelerated the process. In common with neo-liberals everywhere the CCP hierarchy firmly believed that private firms were more efficient than state-operated ones. Their Stalinist approach meant that the only kind of state-owned industries they could imagine were those that existed under a state bureaucracy, with all the mismanagement that this involved. They could not envisage efficient state-owned industries under workers’ control.

By 1991, China had become the second-largest recipient of foreign capital investment after the US, and by 2012 it would beat the USA into second place with an inflow of US$258 billion against US$193 billion.[23] The amount of direct foreign investment in China is a clear indication of the confidence of imperialists in the new capitalist relations.[24]

The direction in which China was now moving was very clear. In January 1992, old and half-paralysed, Deng Xiaoping visited the Shenzhen SEZ, presenting it as an exemplar of the economic reforms that should be undertaken in all China and launched the slogans by which he is best remembered: “Enrich yourselves!” and “As long as it makes money it is good for China.”[25]

At 14th Congress of the CCP in October 1992 a tough economic programme was agreed with advice from the IMF and the World Bank; the market economy and the law of value as operated in the SEZs were to be applied across the entire economy. The central state economic plan was downgraded in priority to below those of the provincial authorities, each of whom was to develop its own markets in competition with other provinces. The public sector was to gear itself for commodity production. From now on the market would decide prices.

The 14th Congress officially abandoned the idea that a national state plan should dominate the economy. From now on the federal umbrella would guarantee the free flows of goods, capital and labour nationally, while the autonomy of the provinces and major cities such as Shanghai meant close cooperation between local government and business in pursuit of regional development. The Chinese provinces would enthusiastically promote economic growth using their powers over local banks, infrastructure, wage rates, the application of labour law, the unions and police.

The 14th Congress also officially decided to substantially shrink the size of the state sector and privatise all remaining SMSOEs under the slogan of introducing the so-called Modern Enterprise System (MES). The government’s slogan now became “the state retreats and the private sector moves forward”. The MES introduced many Western practices such as boards of directors and shareholders and it is no coincidence that in this period there was a marked trend for top Chinese managers to have been educated in capitalist universities.[26]

Many of the sell-offs were for a song. Chan cites the case of one general manager who is now receiving about US$3 million a year in dividends, more than he paid for the business.[27] Within a decade, the World Bank analysed data from a sample of six cities and concluded that if these were typical of the rest of the country then the privatisation process had gone further in China than in many East European and former Soviet countries.[28]

Finally, the 14th Congress agreed in principle to end the state monopoly of foreign trade, though it would take another two years before this had been fully implemented.[29]

In 1997, under the slogan “Grasp the large, let go of the small”, the state adopted a policy of retaining control of the 1,000 largest SOEs which held 38% of the industrial assets of the entire country, employed many millions of people, some of which provided large revenues for the state, but to let go (privatise) all other SOEs.[30] Thus, in July 2000, the Beijing City Council, for example, determined that state and collective ownership would be phased out in all SMSOEs within three years. Through such privatisations state controlled industry progressively diminished; in 1988 the state controlled sector produced 41% of GDP, by 2003 it had declined to 34% and by 2011 was 26%.[31]

At the same time large SOEs were given a qualitatively greater degree of management autonomy and told to shift their emphasis from meeting production targets set as part of the central national plan to making profits.[32] This was accompanied by a process of rationalisation which, when completed nationally, meant the proportion of the national urban workforce employed in SOEs had dropped from three-quarters to only one third.[33]

1997 was the year of the Asian Financial Crisis. Dr Kai who was a participant in the events revealed how a mix of short-sighted desperation and conservatism, not planning, were the major determinants of the actions of the Chinese leadership. One result of the crisis was that China desperately needed to boost its foreign exchange reserves. Hurried meetings were called of the top level advisors – including Morgan Stanley – and it was agreed that the least controversial action would be to launch a new company, China Telecom on the Hong Kong stock exchange. Those taking the decision did so on the basis of their belief that mobile phones were a peripheral consideration and their actions would have no major consequences! The company was launched for US$4.2 billion. Today that company is China Mobile, one of the largest companies in the world.[34]

By the late-1990s, market determination of commodity prices had become the norm. Although government intervention remained common, it was market forces that determined the pricing and distribution of commodities.[35]

The bulk of the Chinese economy was now functioning on a capitalist basis with only one quarter of GDP being produced by the state sector. However, restoring capitalism is not simply the process of selling state enterprises, and whilst property relations are the decisive factor in social transformations, the relative percentages of state and private ownership are not the only features to be considered, since questions concerning how the various sectors are functioning, and with what aims are relevant. After the Second World War, the UK Labour Government extensively nationalised key industries and introduced several major social reforms – not to introduce socialism, but rather to assist the British capitalist class. Hence, it is necessary to look at the overall direction of the process, and in China this was inexorably towards capitalism.

At the moment there appears to be a consensus amongst the Party tops: the rationalisation process whereby the 1000 largest remaining SOEs under state control was reduced to only 112 will be continued until only about 40 are left. The reduction will likely be achieved through mergers and rationalisations not sell-offs. Most of these SOEs have been partially floated on the stock exchange so that their shares are traded, but the proportion of their capital in private hands is always less than 50%. These companies attempt to operate according to the laws of the market but have to fall in line with government requirements when so ordered. Shares in SOEs are considered blue chip since they are 100% safe, but return on capital invested is as low as half that in the private sector. These SOEs are largely confined to banking where the government must retain the Big Four banks because of all the bad debts they have accrued, and a mix of telecommunications (security reasons), energy (to guarantee supply) and heavy industry (debt laden).[36]

As the newly privatised enterprises were streamlined for greater efficiency, the workers paid dearly, with the loss of millions of jobs; with women over 43 and men over 48 being the initial targets. Indeed, during the decade 1994-2003, as many as 60 million workers were made redundant.[37] These have generally found alternative employment in the expanding capitalist sectors but usually with lower pay, with no job security and the accompanying loss of important benefits. Likewise, the flow of rural workers who poured into the cities has been largely absorbed, and although they generally took the lowest paid jobs, they still earned at least twice what was paid in the rural areas.

The 20th People’s National Assembly met in Beijing in March 2003 to confirm Hu Jintao as General Secretary and approve changes in the leadership of the executive bodies of the People’s Republic of China. This was accompanied by the dissolution of the State Commission for Planning and Development, responsible for the five year plans. The content had disappeared ten years previously but now even the symbol of a planned economy was eradicated, and with it the market was publicly installed as the regulatory mechanism of the Chinese economy. “Guidelines” were introduced in 2006 after the tenth, and final plan.

The scale and speed of economic development was phenomenal. In 2004 China consumed half of the concrete used in the world. It was possible to drive from Hong Kong to Shenzhen, through the SEZ, along a modern eight lane motorway and as far as the eye could see on either side was an unbroken gigantic construction site where factories, warehouses, offices, shops and blocks of flats for workers were being constructed in their thousands and millions.

Until the present time, there has been no national bourgeoisie capable of managing the major manufacturing corporations on the scale of, for example, Pfizers or GlaxoSmithKline (both of which now operate in China), without the help of the state. However, in 2013 the PRC announced that many of the large SOEs that are profitable, such as the China National Pharmaceutical Corporation which appears on the Fortune 500 list, are to be privatised. These companies are already stock exchange listed because they have minority shareholders, but private shareholders will now become the majority and company structures will be radically changed by the profitability imperative.[38] This move suggests, that while investment in certain strategic areas will remain tightly controlled, the CCP believes it is on the last lap of creating a Chinese bourgeoisie that can adequately support itself without state assistance. By 2014 the 112 remaining SOEs employed about 20% of the national workforce.

The service industries, however, are outstripping their western counterparts. In 2014, Alibaba which handles 80% of all online commerce in China, is bigger than Amazon and EBay combined and claims annual profits of over US$1 billion, was floated on the US stock exchange.

In principle the capitalist transformation of China is complete, there is no longer either monopoly of foreign trade or a central economic plan, and those nationalised industries that can are being progressively privatised.[39]

15.7 Integration into the World Economy

In Chinese schools great emphasis is placed on the opium wars, the prostration of China before British and French colonialism and the terrible suffering of the Chinese people that resulted. The bureaucracy in China has no intention of becoming prey to imperialist domination. However, this goal is achievable only if a strong Chinese capitalist sector is created, and this is being done by building up and strengthening key companies, such as Sinopec (oil and gas), China Mobile (telecommunications), China State Construction Engineering (construction) and SAIC (automobiles). These companies have access to huge amounts of capital from the government’s trade surpluses with the US and the rest of the world, which the bureaucracy is ready to pump into these corporations.

According to Nicholas Lardy,[40] of the Fortune 500 list of the world’s biggest firms, 95 are Chinese companies, giant corporations and conglomerates that are competing successfully in the international market. These huge companies have achieved this success by laying off millions of employees to cut costs and streamline their businesses. They compete with the Americans, Japanese, and other imperialists on a capitalist basis. Without doubt, a strong bourgeoisie has been created in China, but as yet it lacks the experience of its competitors.

Property relations have changed qualitatively and much has already been done to bring the legal structure into line. However, there is never perfect matching and the development of new property relations will always lead and, at times, conflict with the old legal forms. That said, sooner or later, the “superstructure” must come into line with the economic base. As Karl Marx pointed out in 1859 in his preface to A Contribution to the Critique of Political Economy: “The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.”

In China we are not dealing with a social revolution, but rather a counter-revolution. Nonetheless the point Marx made remains valid. If one looks at the legal structure in China it is readily apparent that changes have been made to bring the legal framework into line with the new property relations. Initially, the new employment laws were introduced in a piecemeal fashion, but the 1994/95 Labour Law attempted to consolidate the scattered workplace regulations and adapt them for a market economy.[41] To obtain worker support the government attempted to curb the excesses existing in many industries where it had become (and still is) routine for workers (especially on construction sites) to have to wait until the end of the year for their pay, with the inevitable result that many workers received no pay whatsoever.

In 2004 important changes were made to the Constitution, stressing the role of the non-state sector in supporting economic activity in the country and protecting private property from arbitrary seizure. A year later (2005), the laws which regulated or prevented private companies from entering such sectors as the public utilities and the finance services were abolished.

On 1 January 2008, the Labour Contract Law of the People’s Republic of China (LCL) was implemented. Previously in China managers would, as a matter of course, call on the CCP to resolve industrial disputes. But with the moves towards a capitalist economy the government has determined that, using Western capitalism as the model, courts are to be the final arbiters and companies must rely on the legal system not the state. Such a move will take a considerable time to implement not only because of the conservatism of the bureaucracy and the close family and political ties between local Party tops and the new companies but also because such a system requires a legal agreement between employer and employee, the written contract.

The LCL had the goal of bringing all workers within this contract system, that is to say, within a capitalist relationship, and offers sweeteners to get them to accept the contract system. All workers are supposed to have a written contract and any employer that does not sign a contract with an employee is supposed to pay that employee double his or her wages for every month worked without a contract; any employee who has worked for an employer more than ten years or who has already signed two successive fixed-term contracts should be being taken on the permanent staff (a non-fixed-term contract).

Today the percentage of workers with a contract can be as high as 95% in some local government offices and the average nationally is nearly 60%. However, for migrant workers, in their majority women, only about a third have signed contracts.[42] Despite the right to strike being outlawed it is precisely these female migrant workers who are leading the fight for better pay and conditions in the huge factories owned by or servicing foreign companies.

15.7.1 Entry into the WTO

Before 1978, the combined value of Chinese imports and exports had seldom exceeded 10% of GDP, in 1986 it reached 35%, in 2007 it was 40%, and today it is nearly 50%.[43] The present Chinese economy can exist only if it is tightly linked to the world economy. It depends heavily on exports and must have international agreements on trade and participate fully in the world economy. On 11 December 2001 it joined the World Trade Organisation (WTO) as its 143rd member.

Marx and Engels wrote in the Communist Manifesto: “The cheap prices of commodities are the heavy artillery with which it (the bourgeoisie) batters down all Chinese walls … ” now the Chinese themselves describe joining the WTO as “opening the door to the world”, no doubt in the hope it will be their cheap products that batter down the walls of the older imperialist countries.[44]

By joining the WTO China formally committed itself to abandoning state control over foreign trade by 2007. As would be expected, despite the permissive legal framework the bureaucracy has proceeded cautiously and has placed severe practical limits on, for example, foreign banks wishing to become established in China. Thus the approval process is made painfully slow, the banks must provide large capital sums to ensure ongoing solvency, there are restrictions on how much and to whom monies can be lent, there are constraints on where the banks can be located, and so on. The People’s Bank of China (PBOC) is still promising to relax restrictions in preparation for enhanced integration into the world’s financial markets, but is slowing the process until the new generation of Chinese banks have a head start.[45]

The PBOC recognises that bad debts renders the Big Four banks unprivatisable and has approached bank privatisation from another angle. From the commencement of the so-called reforms the PBOC encouraged provincial and city governments to set up local banks and, since around 2000, the PBOC has encouraged these banks to increase their services to the private sector and now is proposing that the route to bank privatisation is for these local banks, e.g. Bank of Shanghai, to be sold off as private companies. This has the added advantages of ensuring that the finance industry servicing China is largely in Chinese hands and puts local governments in control of the privatisation process.

It has also determined that the Bank of Shanghai will be the focus for the free, international movement of capital, the capacity to settle payments and trade freely in China’s currency on world financial markets. This financial free-trade zone will be a significant move in China’s march to a fully neo-liberal capitalist economy and further confirms the plans the CCP has for China as a whole.

15.8 China Now World’s Second Largest Economic Power

In the three decades since Deng Xiaoping began to introduce free-market reforms China has bounded up the world league of economic powers. It outstripped Britain and France in 2005 and Germany in 2007, and at the end of 2010 overtook Japan‘s faltering economy to become the world’s second-largest.[46]

China sales across the world are prodigious because it has very cheap labour and, in some industries, very modern means of production.[47] In 2014 the US trade deficit with China exceeded US$300 billion and is expected to exceed even that in 2015. The European trade deficit with China is about US$125 billion. The imperialists are of one voice: China is exporting too much, to the USA, to Europe, to the whole world.

China’s highly competitive industry is in direct conflict with US imperialism but the relationship between the two powers is deeply contradictory. Major US companies and most large internationals have invested heavily in China, are producing cheaply and selling their goods in the USA (and elsewhere) at prices determined by the world market. This is highly profitable for them. At the same time the US is one of China’s biggest export markets and because of the US trade deficit, China is the biggest holder of US Treasury bonds, and thus, for the moment, has an interest in maintaining the American dollar buoyant.

The CCP bureaucrats would prefer this cosy relationship to be ongoing, but that is out of the question. With the huge development of its productive forces and the consolidation of capitalist relations, it is logical that China behaves like an imperialist power. It imports raw materials and capital, and exports manufactured goods and capital in direct competition with the old imperialist powers.

The flooding of America and Europe with Chinese goods is likely to continue while China continues to be a major pillar supporting the profitability of US and European companies, and those countries are prepared to run up ever higher debts. However, the essential relationship between the US and China is conflict over world markets and resources, especially in Latin America. Already voices are being raised on Wall Street, Congress and the Senate that “unfair” Chinese competition must be curbed.

In 2003 the Bush Administration claimed that the Beijing trade surplus with the United States (about US$120 billion at that time) caused the loss of more than 1 million American jobs. The opposition of the USA to China’s expansionist aims were seen in August 2005 when Washington blocked a takeover of the American oil firm Unocal (which has extensive interests in Asia) by Sinopec, China’s largest oil refining company. That skirmish symbolises the growing trade and political tensions between China and the USA.

Nearly half of China’s foreign investments are in Latin America and the Caribbean, mostly through joint infrastructure products. In January 2015, the South China Post reported that China was planning to invest US$250 billion in Latin America over the next five years and increase bilateral trade to over US$500 billion in ten years. Specifically, in Venezuela, China concluded two large oil investment deals which were announced during the Venezuelan President’s visit to China in September 2013. China has agreed to invest a total of US$42 billion in two oilfields in Venezuela’s Orinoco Belt. Additionally, it is in the process of establishing a “strategic alliance” with Mexico in mining and energy projects.[48]

US Congressmen worried about the growing level of Chinese involvement in Latin America are invoking the “Monroe doctrine” that no foreign power should have more influence than the USA in Latin America. In response, China is building a large navy because it is clear that in the future it will need to control sea-lanes in the Pacific and elsewhere. This will inevitably bring China into increasing conflict with the USA. There can be little doubt that whichever of the Republicans or Democrats are in power, there exists the potential for a trade war which could plunge the world into economic chaos.

China might seem hugely successful but its very success is its Achilles heel. Exporting so much makes China highly dependent on the state of the world market. But there are signs of overproduction on a world scale – in large part due to Chinese growth – and any significant decline in world markets would drastically and adversely affect the Chinese economy. The reverse is also true, any slowing down of China’s rate of expansion would have a serious knock-on effect on national economies around the world.

This is causing alarm because already, many Chinese industries including, coal, iron ore, steel, heavy machinery and ship-building have problems of over-capacity. The result is falling prices and decreased demand on a global scale. In the UK, for example, the Thai owners of the Redcar steel plant (sited in the north-east of England and the second largest in Europe) placed it in liquidation in October 2015 as no longer commercially viable. In an area already hard-hit by recession the remaining major employer fell victim to the anarchy of the world capitalist market. The Guardian of 25 July 2015, estimated that some 12,000 workers in the South African mining industry would be laid off as a result of the fall in demand for raw materials. These are symptomatic of the problems that China and the world is increasingly going to continue to face in the future.[49]

Currently China’s rate of economic growth (7.3% for 2014) means it is doubling its productive capacity every decade, a rate of growth that in a capitalist economy will, inevitably, lead to a an even more massive crisis of overproduction. However, every indication is that the CPR’s solution is to wade even deeper into market reforms because with a capitalist economy it needs a rate of increase of at least 7% to maintain present levels of employment.

15.9 The Chinese Communist Party and Chinese Capitalism

At the moment the Communist Party dominates and controls China. But what kind of Communist Party is this? The CCP has over 85 million members.[50] Since at least 1949 the Party has been a haven for opportunists looking for a career in the state bureaucracy, and has a long history of corruption. In 2001 the Party launched a campaign to co-opt so-called “red capitalists” drawn mainly from larger enterprises. At the time this was not considered a major decision because these people were, in their vast majority, Communist Party members, state officials and their relatives. But this group of entrepreneurs has taken on a life of its own within the CCP, and become a powerful force representing the non-state sector of the economy.[51]

The 16th Congress of the CCP (8-14 Nov. 2002) carried out a major reform of the Central Committee and Politburo, strengthening the Party’s pro-capitalist representation. A number of prominent capitalists were elected to the CC, further consolidating the weight of the bourgeois within the Party. For ordinary Chinese, joining the CCP is a lengthy, bureaucratic and formal process involving having a sponsor who is already a Party member, having a track record of supporting the Party’s policies, and attending an interview that includes questions on which approved texts have been read. After that there is a probationary period. Nevertheless, 6% of the population are members of the CCP, but by 2004 the Party included as many as one third of all private entrepreneurs.[52]

Large numbers of these were already CCP cadres, senior managers of privatised SOEs, who, by definition, became entrepreneurs on privatisation. It is this group that has been favoured for membership of local people’s congresses and other bodies with responsibility for leading local privatisation measures, for health and safety policies in the factories, etc. The CCP’s strategy appears to have been to provide political advancement for so-called “crony communists” as a means of controlling the rate of economic change and to prevent non-CCP elements from using official institutions to pursue any alternative political agenda.

The efforts made by the CCP to build a market economy are the means by which it justifies and sustains its rule and protects the privileges and properties of its members. Hu cites the so-called ‘Prince Party’, a grouping within the CCP consisting of the offspring of the older generation of leaders who have been appointed to occupy top political positions to protect the vested interests of Party members.[53] About half of China’s most senior leaders fall into this category.[54] Today, the CCP is being used by those at the top, who have state power in their hands, to defend the interests of the bourgeoisie, because they, themselves, belong to that category.

The CCP has demonstrated an astonishing tolerance at the bribes Party members have been given by the business sector. Bribery is widespread, offered as payment of tuition fees at overseas schools for children, stocks and bonds allocated to family members, etc. The rise of TVEs in rural China and the privatisation of SOEs in the mid-1990s, allowed many Party cadres to benefit personally, and sowed the seeds of the tolerance that prevails today.[55]

In 2002 there were three, as late as 2005 only ten, but in 2014 China had over 150 US$ billionaires, second only to the United States. The familial ties linking Party tops to these super rich are often very direct. In 2005, the richest of all was Larry Rong Zhijian – son of a former Vice President of the PRC and leading “red capitalist” Rong Yiren, who did a great deal to open China to the global market.

A New York Times investigation found that the close family of Wen Jiabao, China’s Prime Minister until November 2012, had wealth amounting to around US$2.7 billion. The family of the new President and anti-corruption hero, Xi Jinping, has interests including investments in companies with total assets of US$376 million; an 18% indirect stake in a rare-earths company with US$1.73 billion in assets; and a US$20.2 million holding in a publicly traded technology company. Control of the communications industry and state censorship ensures information such as this is not available in China.

Because in China there is no significant divide between Party and state there are few, if any, effective checks and/or balances on top officials so corruption is absolutely rampant. It is true that the government has a policy of “killing the chicken to frighten the monkey” and occasionally demotes, imprisons or even executes an official as a warning to others, but the money to be made is so fantastic and the chances of being caught so small that these measures are generally ineffective. An accidentally leaked PBOC report revealed that between 16-18,000 CCP officials that have fled China in the last 20 years, took a total of about US$160 billion with them!

Given that most, if not all, state officials are considered corrupt, corruption charges are a means of dealing with one’s opponents. Two recent and major trials fall into this category. Zhou Yongkang had been a member of the 17th Politburo Standing Committee (PSC), China’s highest decision-making body, and Minister for Public Security with responsibility for overseeing China’s security apparatus. At the 18th Congress of the CCP in November 2012 Zhou was removed from the PSC.

Zhou, it appears, was an opponent of Xi Jinping who attempted to build a power base in the CCP to challenge Xi’s election to leader. He also opposed moves to further reduce state support to the remaining SOEs, many of which are controlled by the Party elite. Zhou lost the faction fight and with his removal from the PSC, there was a purge of those he had placed in senior positions, particularly in the oil and gas industry.[56] However, as Minister of Security, Zhou had gathered a lot of dirt on senior Party officials and there was a fear of what he might do with it. Xi took on this “tiger” to consolidate his own authority, safeguard the reputations of his colleagues, gain respect within the CCP and break the opposition to his economic policy. Officially, Xi was “scrubbing the party clean”, but really he was purging his political enemies.

Zhou was convicted of abuse of power, accepting bribes and revealing state secrets, the last being a certain indication that more then corruption was involved. He was sentenced to life in prison.

At the same time Bo Xilai, (ex-Minster of Commerce) a fast-rising protege of Zhou was waging a controversial war against organized crime in Chongqing, a major city in south west China. Bo introduced a comprehensive surveillance system that monitored all phone calls and internet communications, but overstepped the mark by tapping into phone calls to and from President Hu Jintao, and using information gained against fellow Party members. The Party tops rallied and in a short time Bo Xilai was brought to trial for having taken bribes in the form of, amongst other things, a luxury villa in France. He was sentenced to life in prison.[57,58]

Of course smaller “flies” get caught up in the anti-corruption measures. Wei Pengyuan, Deputy Chief of the National Energy Commission, had generated a local scandal when he publicly threatened to kill his mistress. A police raid on his home followed in October 2014, and found the equivalent of US$30 million in cash at a time when the average salary in China is less than US$5,000.[59] Wei was subsequently charged with corruption, found guilty and jailed for life.

How serious President Xi is in tackling corruption can be seen by the arrest of three anti-corruption campaigners: Liu Ping, Wei Zhongping and Li Sihua, who dared to ask for China’s top 200 officials to disclose their assets. They were initially arrested on charges of subversion, later changed to illegal assembly. The court in which they first appeared was surrounded by lines of police and independent observers denied access. Just to make clear the position of the government their lawyer was subsequently harassed by the police, including being detained for questioning.[60] In June 2014, Liu Ping and Wei Zhongping were each sentenced to six and a half years in prison and Li Sihua to three years.[61]

The stench of sleaze and vice hangs over the super rich leaders of the Chinese bourgeoisie, an all-pervasive corruption flourishes at every level, an inevitable consequence of a bureaucratic and totalitarian regime that is founded on the consumption an undue share of the wealth created by the working class. The super rich are supported by a stratum of wealthy Party and state bureaucrats, their corporate partners. Private entrepreneurs and compradors serve multinational corporations some, such as Foxconn, are economic giants in their own right. Next comes the “new middle class” of cadres, business people, managers, professionals, and academics, large in absolute numbers – estimated at 100-200 million – though still proportionately quite small. It is these well-to-do strata who are the most enthusiastic about the new capitalist economy.[62]

As long as the economy continues to develop at a sufficiently fast rate, the Party leadership will be able to contain the situation and maintain a certain stability within society and within the Party. However, the CCP is not a political party as usually understood, it has been an integral part of a state apparatus since the 1930s and contains within itself representatives of all the political currents within government and the state. Any major economic crisis would be accompanied by major class, national and social conflicts which would be reflected within the Party which, in turn, would be subject to strong centrifugal tendencies. Groups who felt their vital interests were threatened would surface as factions threatening the unity of the Party, and its grip on the state could be broken. In the case of the Russian bureaucracy this happened in a convulsive way. The old, monolithic, Stalinist party shattered into numerous parties representing different interest groups. For the moment the Chinese Party remains in control.

China is a huge country and the different provinces and even different regions within provinces have significant leeway in the interpretation of Beijing’s directives. Chinese history shows that the bureaucracies of the different provinces inevitably have different views and interests. There are divisions within the Party hierarchy over proposed anti-corruption measures and in proposed changes in the laws governing property rights, both of which would impact on the more acquisitive wing of the Party. Xi Jinping and the majority of the bureaucracy appreciate the dangers of an accelerating class polarisation and call for a clamp down on the most flagrant examples of corruption, for social reforms and increased social spending to soften the blows being experienced by the masses and give the appearance that the regime is listening to the masses and can self-correct.

Present conflicts within the CCP are not between those who want to “go back” and those who want capitalism, but rather about how best to maintain the stability and continuation of the present system. Capitalist relations have been established and, inevitably, this process has been accompanied by differentiation between wage labour and capital. The bureaucracy of the CCP in its overwhelming majority stands on the side of capital. The irony is that in the long run this process will tear the CCP apart. The key element in such a situation is that the link to the state could be broken.

Of course there will be elements within the CCP that genuinely wish to serve the people, but the fact such elements exist does not alter the real nature of the CCP. It is highly likely that opposition to the current leadership of the Party will dress its ideas in Maoist rhetoric, harking back to a period when the masses had job security, better welfare coverage etc. Thus, striking miners in the coastal province of Shandong protesting wage arrears placed a large picture of Mao at the front of their demonstration on 22 March 2015.[63]

In 1995 direct foreign investment was about 5% of national total investment, by 2002 it was about 12% and by 2012 the level of was about 20%. It is important to realise that over 80% of investment in China’s capitalist industries came from within China, from primitive capitalist accumulation.[64] The monies invested by these entrepreneurs was from the high rate of surplus value extracted from the workers because of state enforced low wages, high rents paid by urban workers and robbing workers of their pensions, medical and housing schemes.

Many wealthy Party members began to acquire fortunes when they gained control of successful TVEs. The ownership of nominally collective enterprises was gradually consolidated in the hands of their managers or local Party officials, often the same person.[65] In towns, many Party and government officials were able to translate their managerial positions into ownership of privatised SMSOEs. Party cadres, generally, found the property sector a particularly fertile ground for amassing quick riches. Permission for construction projects valued at billions of dollars depended on the say-so of local Party tops who, not surprisingly, soon acquired extensive property holdings. On 12 September 2014, CNBC News claimed the number of dollar millionaires in China had reached more than 1 million. Many of these, if not the majority, are CCP members who use the loophole of a lack of central land records to salt away their ill-gotten gains from bribery and corruption, buying the leases of prime city-centre apartments under pseudonyms.

Outside of the Party many capitalists emerged in private retail and business services, beginning as small tradesmen or professionals. A good example of how crony capitalism and the end of central planning combined to enable the meteoric rise of those with good Party connections is Liu Yongxing. In the early 2000s, the China Aluminium Corporation (Chinalco, an SOE), had a 98% share of the aluminium market in China. The central government gave Chinalco exclusive rights over all national bauxite deposits. Yet, by 2008, the market share of Chinalco had dropped to less than 50%, due to the entry of large private firms into the aluminium market.

Liu Yongxing, the moving spirit of the East Hope Group understood the Achilles heel of Chinalco; that its exclusive right to purchase Chinese bauxite was given by central government and not the local governments that had actual physical control over the minerals. With the end of central planning, the East Hope Group went to the local government of Sanmenxia, a mid-size city in Henan Province with large deposits of bauxite, and effected a deal with the local Party secretary who had strong links with Li Keqiang, Chinese Premier. The East Hope Group started to produce aluminium in 2005 and today Liu claims to be worth US$5 billion.[66]

15.10 Summary

The question of the class nature of China had been a key question for the Marxist movement and it is not possible to grasp the processes that took place in China from the point of view of formal logic and abstract definitions. There is no simple litmus test that can be applied here, complex historical processes do not admit such an elementary approach. Only a method, which takes the process as a whole and concretely analyses its contradictory tendencies as they unfolded, stage by stage, can shed a clear light on the situation.

The Stalinist bureaucratic counter-revolution in Russia in the period 1923-36 was by no means a preordained event determined in advance. Trotsky followed the process through all its stages, showing concretely the relation between the balance of class forces in Russia, the different tendencies in the Communist Party and their relationship to the classes, the evolution of the world situation, the economy, and the subjective factor. As the situation developed and the different factors changed their specific weights, Trotsky’s position developed accordingly, finally concluding a new regime existed in the Soviet Union, which he termed Soviet or Proletarian Bonapartism.[67] Such a development did not reflect vacillation on Trotsky’s part, but rather the way his analysis followed the process of bureaucratic degeneration as it unfolded.

In In Defence of Marxism, Trotsky outlined the way in which a Marxist should pose the question of the class nature of the Russian state:

“(1) What is the historical origin of the USSR? (2) What changes has this state suffered during its existence? (3) Did these changes pass from the quantitative stage to the qualitative? That is, did they create a historically necessary domination by a new exploiting class?.”[68]

The method of our analysis of recent and present events in China is in no way different from that of Trotsky. The demand for an immediate answer to the question “workers’ state or capitalism” reveals, not intellectual rigour, but a formalistic “either … or” approach. However, the situation in China has now developed to such a stage that we can give a definite answer.

The return of capitalism was an ongoing and complex process but it is possible to date the process by the Central Committee meetings at which key decisions were made. We can see that the transition lasted from 1982, when selected SOEs began to produce outside the state plan according to market forces, to October 1992 when the 14th CCP Congress finally buried state planning and the monopoly of foreign trade and agreed to begin wholesale privatisation of SMSOEs with the perspective of selling-off the larger companies as soon as suitable arrangements could be made.

The fear of chaos has always been central theme in Chinese history. The PRC itself emerged following a long period of war and chaos and the events of that period were still alive in the memories of the CCP leadership during 1991/92 when the Soviet regimes in eastern Europe and the Soviet Union collapsed. The Chinese Party tops saw the resulting chaos, the break away of the different national republics, the collapse in production, the rise of the Russian mafia and they were appalled and terrified. But at the same time they came to an understanding and agreement between themselves, no doubt spurred on by the recent events in Tien An Men Square, that they had to remain in control of the situation even if that meant adopting capitalist measures.

The restoration of capitalism slowed and accelerated as the different groups within the CCP leadership argued out their differences. Added unevenness occurred in the process due to the specific conditions in the different regions of this enormous country and in the different sectors of the economy. China has a long history of dispersed power, with considerable provincial, county and even city autonomy. In fact, an integral part of the transition to capitalism was encouragement and greater decentralization of state powers.[69]

To accelerate the process it was determined, at an early stage, to delegate substantial responsibility for enacting the reforms to Party tops in the provinces and the four great cities of China (Beijing, Shanghai, Chongqing and Tianjin). To further accelerate the process, the revenues of local governments throughout China were made dependant on local business taxes and taxes on sales. The promotion of Party cadres came to depend on their ability to deliver economic growth, employment and foreign investment.[70] Many local Party members served as brokers and deal-makers between the public and private sectors, others greased the wheels through black-market deals, bribes and informal networking. It was only natural that these came to have stakes in private businesses or took posts as advisors on company boards or senior management positions in private companies.

However, for Marxists, this does not exhaust the problem. Have the new property relations established themselves unequivocally and irreversibly? Or, on the contrary, is it possible that the return to capitalism can be reversed? It is necessary to analyse the process as a whole and lay bare the relations between the different class forces involved. These factors are discussed in the next chapter.


[1] Trotsky, L. The Class Nature of the Soviet State, October 1933.

[2] Rogovin, V. 1937 Stalin’s Year of Terror, Mehring Books, 1998; Rogovin, V. Stalin’s Terror of 1937-1938, Mehring Books, 2009.

[3] Trotsky, L. Revolution Betrayed, Ch9, 1936, ww.marxists.org.

[4] Brook, D. Modern Revolution, U.P. of America. 2005.

[5] Suliman, O. China’s Transition to a Socialist Market Economy, Quorum Books, 1998.

[6] Fan, Y. et al., Chinese Village Entrepreneurs, Durham University Business School, 1996.

[7] Ibid.

[8] Ibid.

[9] Hart-Landsberg, M., and Burkett, P. China and Socialism, Monthly Review Press, 2010.

[10] Wu Jinglian, 30 Years of Reform and Prospects for the Future, Development Research Centre of the State Council of PRC. 2008.

[11] Suliman, Op. cit.

[12] At this time the European Union was coming to the end of a similar process of modernising small and medium enterprises to make them more efficient and profitable. It appears that the Chinese had studied the European initiative and were following a similar path.

[13] OECD, State Owned Enterprises in China, 2009.

[14] Jie Dong, Mergers and Acquisitions, PhD Thesis, Manchester University, 2006.

[15] Vogel, E. Deng Xiaoping and the Transformation of China. Harvard U.P. 2011.

[16] Jung Chang, Wild Swans, Flamingo, 1991.

[17] Kosuth, D. Tiananmen Square …, International Socialism, Issue 66, 2010.

[18] Thompson, P. Democracy and Popular Power in Beijing, Radical America, 22(5)17-26 1990.

[19] Mandel, E. For the Beijing Commune, July 1989, http://www.ernestmandel.org; www.tsquare.tv/links/Walder.html.

[20] Thompson, Op. cit.

[21] China Labour Bulletin, 26 Nov 2014.

[22] Shambaugh, D. China’s Communist Party, University of California Press, 2008.

[23] OECD, FDI in Figures, 2013, latest figures available at time of going to print.

[24] Reuters, Jan 2014.

[25] Wikipedia.

[26] Cheng, L. China’s Changing Political Landscape, Brookings Institution Press, 2009.

[27] Chan, A., and Unger, J. A Chinese State Enterprise under the Reforms, China Journal, No. 62 (Jul., 2009), pp. 1-26.

[28] Garnaut, R., et al., China’s Ownership Transformation, International Finance Corporation, World Bank, 2005.

[29] China’s Foreign Trade, www.china-embassy.org/eng.

[30] Garnaut, Op. cit.

[31] Lardy, N. The Rise of Private Business in China. Institute for International Economics, 2014.

[32] Sweetman, A. and Zhang, J. Economic Transitions with Chinese Characteristics, McGill, 2009.

[33] Lardy, N. Markets over Mao, Peterson Institute, 2014.

[34] In Nicholas Lardy on Markets over Mao, www.youtube.com.

[35] Carpenter, T, and Dom, J. China’s Future: Constructive Partner or Emerging Threat? Cato Institute, 2000.

[36] Economist Intelligence Unit, Grappling with Leviathan, 12 January, 2015.

[37] IMF, Country Reports, China, 2004; Hurst, W. The Chinese Worker after Socialism, CUP, 2009.

[38] Economist, 30 Aug 2014.

[39] Walker, R and Buck, D. The Chinese Road, New Left Review 46, July-Aug 2007.

[40] Lardy, The Rise … Op. cit.

[41] Pringle, T, Trade Unions in China, Routledge, 2013.

[42] Becker, J and Elfstrom, M, The Impact of China’s Labour Contract Law on Workers, International Labour Rights Forum May 12, 2010.

[43] The World Bank, http://data.worldbank.org.

[44] www.wto.org.

[45] Price Waterhouse Coopers, Annual Survey of Foreign Banks in China, January 2014.

[46] http://data.worldbank.org.

[47] Economist, 19 Feb 2013.

[48] United Nations, Chinese Direct Investment in Latin America, Nov. 2013.

[49] China Daily Mail, 8 Jan 2013.

[50] http://english.cpc.people.com.

[51] Hsu, S., Wu, Y., and Zhao, S. In Search of China’s Development Model, Routledge 2011.

[52] Dickson, B. Wealth into Power: The Communist Party’s Embrace of China’s Private Sector, CUP, 2008.

[53] Hu, R. China’s Paradoxical Reforms, Global Business and Economics Review, 2011, 8(3)11-21.

[54] BBC News 12 Oct. 2012.

[55] Chong-En Bai, et al., Crony Capitalism with Chinese Characteristics Tsinghua University, School of Economics and Management, May 2014.

[56] BBC News, 11 June 2015.

[57] BBC News, 11 November 2013.

[58] Morley, D and Congyue Da, China: Growing Strikes, Corruption and Debt are Harbingers of Coming Revolution , marxist.com, 23 October 2013.

[59] BBC News, 31 October 2014.

[60] BBC News, 13 October 2013.

[61] Guardian, 19 June 2014.

[62] Weil, R. A House Divided: China after 30 Years of ‘Reforms’, Economic and Political Weekly, 43(52)61-69, Dec. 2008.

[63] China Labour Bulletin, 5 Aug 2015.

[64] U.S. National Bureau of Statistics, 2003.

[65] Hart-Landsberg, M and Burkett, P, China and Socialism, Monthly Review, 56(3) 2004.

[66] Chong-En Bai, et al., Crony Capitalism with Chinese Characteristics, Tsinghua University, School of Economics and Management, May 2014.

[67] Trotsky, L. The Revolution Betrayed, www.marxist.org.

[68] Trotsky, L. In Defence of Marxism, www.marxist.org.

[69] Jae Ho Chung and Tao-Chiu Lam, China’s “City System” in Flux, The China Quarterly, No 180 (2004), pp945–64.

[70] Ibid.