The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Is China An Economic Superpower?

Jan 10, 2011

The following translation is from an article appearing in Lutte de Classe (Class Struggle) #133, February 2011, the journal published by comrades of Lutte Ouvrière (Workers’ Struggle), the revolutionary workers organization active in France.

Last August, headlines appeared in the press announcing that China’s economy had surpassed that of Japan. And China was supposed to have the United States, the first world power, in sight. With its 1.3 billion inhabitants, China would catch up with the U.S., and go on to dominate the world. That China is the superpower of the 21st century is now a hackneyed commonplace. For example, a journalist from the French magazine Marianne, who is a “specialist” on China, wrote: “China has gone through a phenomenal development in a few years, unashamedly coming to terms with an international expansion which makes it an irresistible predator. In the hands of the Chinese Communist Party, the country of Confucius doesn’t content itself with being the world’s workshop, or even its laboratory. It has become a kind of world vampire.” This writing is scarcely less disgusting than that of a century ago about “the yellow peril” and other racist hysteria against Chinese people.

Even when they are not expressed with such xenophobia, comments about the economic progress of China generally tend to be grandiose. Most of the time, the corollary of these clichés is that China’s economic development is due to its opening up to capitalism and the liberalization that has been implemented for thirty years. In other words, under Mao’s socialism, China would have stagnated; thanks to capitalism, it makes progress at last.

This piece of propaganda allows us to go back to one of the essential aspects of the Chinese regime: its recent history and its revolutionary origins. Even the most stupid commentators admit it: China is a state different from the other third world countries. Mao’s policy, after the revolution which brought the Chinese Communist Party to power in 1949, allowed it to escape from the direct grip of imperialism.

The Economic Development of the Country: a Result of Government Ownership

During the century before the Chinese Communist Party came to power, the country had been plundered and carved up by imperialism. Through unequal treaties imposed by force and by war, China had had to concede, since the middle of the 19th century, the right of various foreign powers (France, Japan, Great Britain, United States) to trade in a hundred ports under favorable conditions along the coast and, inland, along the Yangtze River. Foreign residents could live in “concessions,” that is, zones removed from the Chinese administration and legal system. Each imperialist power had its zone of influence, where it exploited its own mines, or ran its own railways, and each stationed troops to protect its own interests. Not only did the big powers impose indemnities on China for the wars it had been subjected to, but some of the imperialist powers collected taxes. Each one had its own policy, breaking China apart, undermining its national unity and preventing all development. The country was bled dry.

This plundering was made possible by the outdated structures of China: feudalism, archaic traditions, and “warlords” who reigned like despots in their provinces, taking the place left vacant by the collapse of the Chinese ruling dynasty. The Chinese bourgeoisie was weak, dependent on the foreign capitalists to which it was linked, having for a long time played the role of intermediary with the foreign capitalists. It invested its own capital in land ownership, in usury and in all sorts of trafficking. This Chinese bourgeoisie was a parasitical class that could not bring forth any useful development. Under the regime of Chiang Kai-shek (1925-1949), who benefitted from all the favors of the West, the treasury coffers were used to enrich the close circle around this despot, as well as the different imperialisms. China was thus paying double: it was plundered by imperialism and immobilized within social and political structures of another era. In 1949, with 500 million inhabitants, a fifth of all humanity, China had only 1% of the world’s GDP. To give just one example of what this meant: the central province of Sichuan – with 50 million inhabitants and about the size of California – did not have a single mile of railway.

Hundreds of millions of Chinese aspired to escape the feudal subjection in which they were held. Such national sentiment brought Mao and the Communist Party to power. Contrary to what a number of its partisans in the West were then explaining, the Maoist regime was neither communist nor even working class in its social nature. It defended the essential interests of the Chinese bourgeoisie. And it was determined to have the country escape foreign domination and to have it modernize in a certain way. Achieving this basic modernization was impossible without breaking from imperialism, since, as we just saw, social backwardness and foreign domination were inseparable. Mao and the regime would have preferred to complete the transformation of society with the help of the “patriotic bourgeoisie,” which was part of the “bloc of four classes” on which the regime claimed to rest. But the Chinese bourgeoisie did not trust him and they preferred to safely put their capital in Hong Kong or Taiwan. The state was thus brought to take charge of running the economy, in particular through nationalizations. In so doing it gave itself the means to concentrate wealth, to organize and plan production, to develop industry at a level that a century of foreign domination had prevented. Industry grew at an average rate of 10% a year between 1950 and 1979. Agricultural production also increased, doubling in the same period, thanks to some modernizations (use of fertilizers, mechanization, development of irrigation, use of selected seeds), and yields increased.

While the United States did not tolerate attempts at independence in the poor countries – especially during the Cold War that opposed the U.S. to the Soviet Union – the Chinese regime did not grovel confronted when by American demands. It benefitted from enough popular support to resist despite all the drawbacks that the American embargo created, despite the impossibility of accessing the world market, not to mention the cost of military expenditures to meet the permanent threat of a war launched by imperialism against China – as the Pentagon tried during the Korean war (1950-1953).

Despite such aberrations as the Great Leap Forward (1958-1960), or the Cultural Revolution (1965-1969), state ownership allowed China to make important progress. The Maoist period (1949-1976) – which today is characterized as a time of stagnation in China – in fact allowed a certain development. People lived in poverty but, as a whole, people had enough to eat. Agriculture, thanks to certain modernizations, increased production. Resources dedicated to consumption were primarily directed to essential needs: food, education, health, housing, clothing, and above all full employment. In these fields, important progress was made under the leadership of the state, which maintained some degree of egalitarianism. While in 1949, only 20% of the population had known how to read or write, by 1978 the proportion was over 75%. Life expectancy was 38 years in 1945; by 1978, it had reached 64 years, a figure closer to that of developed countries than to that of third world countries.

Even a country like India, which did not break completely from imperialism, went through phases when it had to partly control its economy. Just like China and so many other third world countries, it relied on the existence of the USSR to gain a certain level of independence from imperialism. Yet India, which could get international loans and sell abroad, did not make such a clear-cut break with imperialism as did China. As a consequence, it remained a poorer country than China, marked by backwardness, castes and shanty towns. The income per inhabitant in India was one third lower than that of China. Not only was the Indian population much less able to read and write, but it often did not have access to decent housing. In short, India’s resources continued to be more directly plundered by imperialism, a situation that China escaped.

In other words, the Maoist state, isolating itself from the capitalist market and from direct plundering by imperialism, was able to lay down the basis on which the actual economic development was made. The Chinese and international bourgeoisies, which accumulate wealth from China, do so today thanks to this basis laid down between 1959 and 1970.

Nonetheless, by the 1970s, the economic development of China was reaching limits. Escaping imperialist plundering and establishing state control of the economy had allowed some progress that otherwise would have been impossible. But, kept out of the world market, China was doomed to a limited development, a kind of autarky and reliance on exceptional efforts from the population, which became more and more difficult to obtain. But it was at that point that the United States, bogged down in Vietnam, decided to change its policy. It was not that Mao’s regime capitulated to the United States, but rather that U.S. President Nixon went to Beijing in 1972, swallowing his pride. One anecdote says Nixon clapped at the execution of the “capitalist running dogs” when invited by Mao to an opera called The Women’s Red Militia. China replaced Taiwan on the Security Council of the U.N. and was recognized by imperialism.

After this opening, the Chinese state had to make a choice. Its leaders chose to allow foreign capital to enter China, starting during the era of Deng Xiao Ping, in power from 1978 to 1992. It was not a fundamental break with Maoism: it aimed still at defending the general interests of the Chinese bourgeoisie, but in a modified context. We will not describe here the different steps of this liberalization. But it took place in measured steps, and up until today, the regime has been careful not to give free rein to foreign capital. When Western capitalists complain that “Chinese are tough businessmen,” it’s because the Chinese state gives only sparing permission for the penetration of foreign capital, unlike so many third world countries. In addition, the government controls the running of the economy. A large majority of urban workers remain employed by public companies (run by the state, cities, or unions, etc.).

The economic policy of Deng Xiao Ping may have differed from that of Mao, but this was mainly because it corresponded to a different period. And there was continuity from one time period to another. A comparison with the changes in the ex-USSR since 1991 puts the Chinese changes in perspective: whereas, in Russia, the intervention of the central state in the economy disintegrated, leading the country to an unprecedented economic setback, in China it was largely maintained.

Liberalization and its Beneficiaries

The results of the economic transformations over these last 30 years are well known. China has become a worldwide leader in many sectors of manufactured goods (toys, textile, watches, computers, telephones), and its total manufacturing production came, in 2009, to roughly three quarters of that in the United States. It produces nearly a fifth of the world’s electronics and half its cell phones. Dozens of millions of inhabitants have been attracted to the cities. Integrating into the capitalist production process has allowed the Chinese and international bourgeoisies to quickly become rich. But Chinese families saw little or no increase in their standard of living. And the overall share of household consumption in the Chinese GDP decreased from 43% to 35% in eight years. Becoming more and more unequal, China may rank second in its number of billionaires, 128 compared to 403 in the United States. The accumulated wealth of these billionaires equals one sixth of the Chinese GDP. According to Forbes, the combined wealth of the 400 biggest fortunes in China went from 173 billion to 314 billion dollars between 2008 and 2009. And a Chinese middle class developed, numbering between 60 and 150 million, depending on the economists’ definitions. This is only a small portion of the population, but it is a juicy enough market that Western capitalists drool over it.

China in the World Economy

Has China really “passed” Japan and is it “catching up” with the United States? These comments look partly like a ploy. First, remember that the calculation of GDP, used to measure the yearly output of a country, takes into account a series of changes that don’t mean any creation of wealth, like the increase of insurance premiums, the surge of prices linked to real-estate speculation, all the price increases linked to multiple intermediaries and to taxes of all kinds. Furthermore, GDP is measured in American dollars and fluctuates with the exchange rates. The growth of GDP is a particularly misleading notion, in China as well as in the Western countries.

But the main subterfuge lies elsewhere. In 2010, China may have passed Japan to rank second in world GDP. Japan had held second place for 40 years. But China has 1.3 billion inhabitants while Japan has only 130 million inhabitants. In other words, with a comparable GDP, Japan remains, in terms of revenue per inhabitant, ten times richer than China (see chart below). Admittedly, the per inhabitant GDP is a relative measure, which does not take into account the differences in prices from one country to another. But even if we take into account “purchasing power parity,” Chinese are on average six times poorer than Americans. With four times the number of people, China has barely a third of the U.S. GDP.

United States Japan China
Proportion of the world’s population 5% 2% 20%
Share of the world GDP 25% 9% 9%
GDP/inhabitant (in U.S. dollars) $47,000 $42,000 $4,280
GDP/inhabitant (at purchasing power parity) $47,000 $34,000 $7,500
IMF figures, 2009

To put it another way, the average income per Chinese inhabitant equals that of Japan 50 years ago, or the United States a hundred years ago. It means that all the bombastic babble about the “irresistible rise” of China aims at glorifying what is only a slow catching up for China, the most populous country in the world. Up to the beginning of the 19th century, the level of development in China was comparable to that of Europe or North America. Colonial and imperialist domination forced it to decline, by systematic plundering. Today China remains an underdeveloped country. It can be seen in the countryside where incomes are on average three times lower than that in cities and where a backward agricultural sector relies on less than one million tractors for 200 million peasant families.

As for the often criticized Chinese “expansionism,” or even its “imperialism,” those are mainly clichés. For example, in Africa, as in other parts of the world, China settles for crumbs. In central Africa, Chinese businesses are competing with Lebanese merchants who often control the production of local goods and trade. But they are not competing with Western companies like France’s Bolloré which holds ports, railways, telecommunication networks, and vast plantations. As a matter of fact, Chinese companies mainly establish themselves in sectors neglected by Western or Japanese multinationals and they make do with the left-overs. China is also trying to make sure it can be supplied with raw materials and energy sources; but it is more a matter of safeguarding access to essential resources than investing capital to make profits, in the aggressive manner of imperialism.

Finally, the Chinese army does not have any troops nor military bases abroad, contrary to the United States (with 1,000 bases and hundreds of thousands of troops all over the world) or to the old colonial powers like the United Kingdom or France.

Chinese Companies and Foreign Companies

Cheaply selling its work force to imperialist countries and their multinationals gives China its place in the world market. The structure of the exchanges testifies to the real situation: many American, Japanese or Taiwanese firms in electronics or information technology have their products assembled in China because the workforce is cheap. But research and development remain in the parent company, just like the profits. Only 4% of new patents registered in the world are of Chinese origin.

China may well be the world’s foremost producer of mobile phones, but Nokia, Samsung, LG, and Sony are the ones who have them produced and who sell them. Apple’s “fifth generation” iPod device is the perfect example. Its hardware is produced by the Japanese company Toshiba; microchips are produced by the U.S. Broadcom and PortalPlayer; and its memory card is from Korea’s Samsung. All these sophisticated components are imported into China, then assembled. Each item exported from China is sold for $299 in the United States, increasing the U.S. deficit by $150. But only $4 of the production remains in China, of which $1.50 goes for labor. The rest is divided among the different companies involved in the production, the lion’s share going to Apple ($80).

All the important Western and Asian companies – as well as many smaller companies – have set up in China in order to exploit the cheap workforce and to penetrate the Chinese market. The Taiwanese firm Foxconn, which was in the headlines because of several suicides of young workers in the spring of 2010, employs 900,000 workers in China, mainly subcontracting them to HP, Apple, Sony, Motorola, or Nintendo. There are also about 4,000 French companies present in China. Some sectors of the Chinese economy, like aeronautics, automobile, or nuclear, are dominated by foreign companies. For example, two thirds of the automobiles sold in China are produced by Volkswagen, Toyota, Nissan and other foreign multinational companies. It is one more proof that the opening of China benefits foreign capitalists much more than the Chinese bourgeoisie.

Chinese firms’ success is limited. China may well account for 46 of the 500 biggest companies in the world, but most of these big firms are not the result of an organic development of capitalism in the country, nor the result of a concentration of capital achieved by competition, as in the imperialist countries. They are all privatized state companies. Most of these firms are giants only in China, with its interior market as a basis. But the capital of Chinese companies remains mainly or entirely in the hands of the state. About 110,000 Chinese companies – among which are many of the biggest ones like Petrochina, Sinopec, Chian Railway Construction – are owned by the state, and by the provincial or municipal authorities. Those that are entirely privatized come from this public sector. All of them have access to considerable public financing. For example, the producer of household appliances, Haier – a private company created in 1984 from a collective that once produced refrigerators – recently benefitted from a program of subsidies meant to help villages get equipment. Meanwhile, Chinese public works companies share the 300 billion dollars invested by the state to equip the country with high speed railway lines. And while some Chinese companies established themselves on the world market, it is mainly in labor-intensive industry (Haier in household appliances, China Railway Construction in public construction).

Exchange Reserves and the War over Currencies

One of the main arguments supporting the thesis of the Chinese “superpower” is the country’s huge currency reserves. At the end of September 2010, China owned 2.6 trillion dollars of reserves, a good portion of it in dollars and U.S. treasury bonds, making it the world’s biggest holder of U.S. bonds. The size of these reserves can be explained by the structure of Chinese-American exchanges: China exports to the United States much more than the United States exports to China. This is no surprise: While China has four times the population of the U.S., Americans consume six times more than the Chinese in current dollars. Thus China accumulates a large commercial surplus. The fact that this surplus is invested in U.S. treasury bonds, as opposed to other currencies or stocks or precious metals, reveals China’s dependent status. The money China lends to the U.S. is missing from the development of China itself. Treasury bonds bring in little money, but they are reckoned to be secure. But these investments are not productive investments, in China or anywhere else. In other words, China lends money to the United States, allowing it to buy goods “made in China.” If China should stop buying treasury bonds, the dollar would fall, lowering the value of the Chinese reserves as it falls. Both countries are admittedly interdependent; but it is an unequal relation, in which the United States remains dominant.

In recent months, debate centered on the question of currencies. In fact, and differently from the rich countries’ currencies, the yuan is not directly convertible, and its exchange rate does not float; in other words its exchange rate is determined by the regime. In order to relaunch the American economy, the Obama administration is carrying out a policy of a weaker dollar aimed at abroad, in order to export American goods more easily, and to limit imports. With the same objective, it is trying to persuade China to increase the value of the yuan. In fact, China has already revalued the yuan by 24% since 2005. But this was not enough for the United States, which raised the question at the G20 meeting in October 2010. China was accused of flooding the world market through the under-valuation of its currency and, thus, precipitating outsourcing of jobs and increasing unemployment in other countries, and even jeopardizing a revival of the world’s economy! This criticism, which recalls the anti-Japanese tirades of the 1980s when Japan was presented as a threat to American hegemony, piles hypocrisy on top of hypocrisy. The competitiveness of Chinese goods derives above all from the low wages and exploitation of the Chinese workers – which benefits especially those Western and Asian multinationals established in China. At least 55% of the Chinese exports in 2009 were made for foreign companies. If China revalued the yuan, the price of its goods would increase accordingly in the Western market. Walmart, the leading American retailer, is by itself responsible for 15% of American imports from China. And as a whole, imperialism benefits from the economic policy of the Chinese state, which can provide a cheap flexible work force.

In addition, the United States itself is pursuing a policy of competitive devaluation. In November 2010, the Federal Reserve announced that for the next half year, it would put as much as 600 billion more dollars in circulation by buying treasury bonds from financial institutions, in addition to the 300 billion it had already used to purchase bonds starting in August 2010. Instead of reviving the economy, the Fed was issuing 900 billion dollars of electronic currency. This artificial creation lowers the value of the dollar and therefore favors U.S. exports while making imports more expensive. In other words, the United States is practicing the same competitive devaluation for which it castigates China.

China has inserted itself in the capitalist economy not as an imperialist country but as a dependent country. It depends on the dollar, on the multinationals’ production decisions, and on the American market for its exports. China no longer lives in quasi-autarky, but it finds itself in a subordinate position.

The Chinese Working Class, Key to the Future

The developments of recent years in China – the growth rate of 10% a year, the investments by Asian and Western multinationals, as well as the enrichment of the bourgeoisie – rely first and foremost on the exploitation of the Chinese working class. The country remains largely rural, but dozens and maybe hundreds of millions of people who lived in the countryside have been attracted to the cities by the possibilities of employment. They are employed primarily as textile, industrial or construction workers, in exploitative and primitive working conditions comparable to those seen in Europe at the beginning of the industrial revolution. Men and women workers live in compounds or dormitories; there are countless fatal accidents, for example in the coal mines; pollution by unscrupulous industrialists ruins the air and the waterways, etc. These workers are paid poverty wages ($60 to $100 a month) for 50, 60 or 70 hours a week or more. They can be laid off at any time, with no certainty they will be paid for the work done. In the end, the Chinese proletariat has borne a heavy toll for the “economic miracle” that the Western media revel in.

It is certainly not easy for these workers to organize, because of the dictatorship and because of the absence of independent organizations. The only legal union, the Federation of Chinese Unions, is openly in favor of the bosses. However, it seems that numerous struggles, sometimes important, take place in different factories around the country. They may take the shape of petitions, road blockades, demonstrations, sit-ins, but they can also be strikes. For example, in June 2010 Honda workers near Canton and Toyota workers at Tianjin struck, winning their demands for wage increases and better working conditions. The struggles that have been covered by the Western media give only a hint of the thousands of struggles. On average, in the region of the Pearl River Delta (Szenzhen, Canton), there is supposedly one strike a day involving more than 1,000 workers. Fighting spirit is not enough for the consciousness of the interests of the proletariat to assert itself. But these fights may bring hope: hope that the immense Chinese proletariat may start to move, and after all these years of shameless exploitation by the Chinese and foreign bourgeoisie, that it may defend its own interests, have its own demands heard and intervene politically.

This collective and political consciousness of the Chinese workers, of which we know very little, will be decisive for the future. At this level, let’s hope that the new generation of young intellectuals, faced with the violence of capitalist exploitation, appropriate the revolutionary ideas of Marxism. They will need internationalism too because, as we have seen, there is no future on the isolated scale of one country. These ideas did exist in China long before the Maoist regime cloaked them in a grotesque caricature. They still represent, for the Chinese intelligentsia, and beyond, for the huge working class of this country, the only perspective for escape from the insoluble contradictions set up by capitalism.