The Spark

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

China and the Market Economy:
A Great Leap Forward or a Great Leap Back?

Feb 1, 1995

In a recent report, the World Bank stated that China will have leapt ahead of the United States and Japan to become the world's leading economic power by the beginning of the 21st century. Behind this enthusiasm lies the World Bank's desire to make a few political points: trying, first, to prove the superiority of China's new market economy over the state-controlled system set up by Mao, and second, to give credence to the idea that China, in order to achieve rapid development, had to open itself up to the world imperialist market. Whatever!

Commentators point to growth figures for the Chinese economy that are unmatched on any other continent, around 10% per year for the past fifteen years. From there, they quickly extrapolate and conclude that if growth continues at the present rate, China will overtake the U.S. in 20 years.

They are all the more mesmerized by these extraordinary growth rates because of China's immensity. The country is as big as an entire continent, with a population of 1.25 billion that is increasing by 20 million people a year. Imagine the profits that could be made if China, through economic growth, became a solvent market of even a few hundred million people. No wonder that big western companies are competing for the chance to take out options on the future Chinese market of the 21st century.

For their part, the Chinese leaders obviously need to present economic statistics which prove the success of their policy.

But the figures are sometimes contradictory and hardly reliable. "Statistics" are sometimes only surveys that are extrapolated to the country as a whole, despite a notorious diversity between the different regions. Simply to measure this supposed miracle is difficult. So the prediction that China would overtake the United States and Japan in the next twenty years made by projecting the already unreliable growth figures, is obviously an unsupportable extrapolation. The most such figures could indicate is certain trends in development.

China Returns from Banishment

China's backwardness is here presented almost as the consequence of thirty years of "communism" between 1949, when Mao took power, and 1979, when the "reforms" began. In fact China's underdevelopment dates back to the colonial period, to the dismembering and plundering carried out by the major powers for nearly a century. This was followed by the difficulties experienced by a backward country in its attempts to develop in a world dominated by a few imperialist powers.

Mao's regime nevertheless tried to solve the problem of China's national development. The Maoist leaders were essentially nationalists, seeking to transform China into an industrial power freed from the humiliating plunder by the major powers. Despite their communist label, their real goal were to modernize and develop China. They had no intention of going against the interests of the bourgeoisie. On the contrary, they initially sought to persuade the national bourgeoisie to cooperate. There was no so-called dogmatism on the part of the Chinese leaders. The state they set up in 1949 was a bourgeois state which wanted nothing more than to collaborate with the national bourgeoisie and even with imperialism, if it was prepared to help in the country's development.

But Mao, like Castro ten years later, was confronted by the hostility of the U.S., which ordered a full-scale economic blockade of China. Mao, unwilling to prostrate himself before the Americans, had to content himself with temporary aid (until 1960) from the Soviet Union. But the USSR was incapable of providing for all China's needs. China had to live in virtual isolation, depending only on its own resources. It succeeded in doing so only with difficulty, and so its development was limited. China, a bourgeois state, copied the methods of the Soviet Union in trying to develop in a hostile situation. Because of the boycott by foreign capital, the Chinese state was forced to take charge of the country's whole economy, collectivizing, nationalizing and planning it. Obviously the weak, corrupt and greedy Chinese bourgeoisie was unable to do so.

Since 1949, the Chinese leaders were always very empirical in formulating policy. But the U.S. embargo left them only a narrow road with no room to maneuver. China was an underdeveloped country forced to rely only on its own resources. All its leaders could do was put varying degrees of pressure on different categories of the population, starting with the peasantry.

The current reforms were made possible by the turnaround in U.S. policy in the 1970s. Mao had refused to cave in. And the U.S. policy of "containment" was thwarted in Asia, particularly in Viet Nam, where it failed to achieve military victory against the Viet Cong. The American government finally decided to change its policy toward China, renewing links and offering it a role in the policing of Asia. In February 1972, and again in February 1976, Nixon visited Beijing. Trade was more or less resumed. China eventually benefitted from the status of "most favored nation". Loans were negotiated.

This was started under Mao, before he died in September 1976. This was what allowed his successors to plan economic development with the help of foreign capital. At the same time, they could try to develop a new, enterprising and dynamic national bourgeoisie. They officially initiated what was referred to as "the reforms" in December 1978. These reforms were the beginning of a legal framework for this new orientation, a framework which was pragmatically modified, added to and corrected over the following years when problems arose.

For thirty years China attempted to develop in spite of the isolation imposed on it; for the past fifteen years, it has again been trying to develop in conjunction with the world market.

However it is far from certain that this latter attempt will be any more successful.

From 1949 to 1979: the State in Control

In 1949, when Mao took power as the leader of a genuine peasant revolution, the Chinese bourgeoisie was completely rotten and corrupt, all the more greedy because the country was so poor. This bourgeoisie offered no prospects for progress because it used its money in all sorts of trafficking which yielded far more profit than productive activity. It was therefore essential for the state to intervene, regulate the economy, bridle bourgeois appetites and oblige the bourgeoisie to produce at least a minimum. To do this, however, the state could not be riddled with corruption. Otherwise state control serves only to facilitate the plundering of public resources by the bourgeoisie.

Fortunately for China at that time, the state apparatus that had emerged from the struggle against Chiang Kaishek was far less corrupt than that of Chiang. It was a bourgeois state apparatus in the sense that it proposed nothing more than the national development of the country. But it was not corrupt, at least not to begin with.

Socially bourgeois, the regime did not wish to attack bourgeois interests. Very quickly, however, it ran up against the greedy and corrupt behavior of the bourgeois. They were speculating, trafficking and stealing from the state through numerous schemes and illegal activities. They supplied non-standard, poor-quality goods and literally sabotaged production. Even in order to force them to produce "honestly", the state had to become increasingly authoritarian. First the state tried simple constraint and repression against the bourgeoisie. Finally, to a greater and greater extent, it replaced them. This was how Mao's system of state control originated.

This state apparatus enjoyed broad popular support. It was able to become a catalyst for economic activity, even against the short-term interests of individual bourgeois and their corrupting power. This allowed China to make a certain amount of economic progress. State control in the economic field first arose from the need to deal with the problem of reviving economic life after the civil war. It was then prolonged by the need to confront the blockade and the pressures of imperialism. State control in China meant a certain concentration of resources. But above all it meant constraint – constraint so that the state could take the little wealth produced in an impoverished countryside in order to build an industrial base. This could not be done overnight. And it was not enough to allow China to escape from underdevelopment.

For thirty years, from 1949 to 1979, the drive not only to develop agricultural production but to ensure the accumulation for industrial development relied essentially on the peasantry. The population's standard of living increased in spite of everything, even though the population grew by two-thirds during this period. Agricultural production doubled during this period; yields increased owing to a certain amount of modernization (use of fertilizers, mechanization, development of irrigation and the use of selected seeds).

Yet it is quite clear that China did not catch up to Britain, neither in fifteen years (the target set by the Chinese leaders at the time of the Great Leap Forward) nor in thirty years. And it has not emerged from underdevelopment. It is still a country whose population is 70 percent rural. Industry is not sufficiently developed to absorb excess labor from the countryside (some 100 million people, or a third of the rural working population, according to official figures), and the productivity of labor is very low.

The state orchestrated all the efforts to escape from underdevelopment. For all those who resisted, repression was harsh. And while China did not become an industrially developed country, the Chinese regime achieved results that are no worse than those, for example, of India, another huge Asian country. India obtained its independence after the Second World War, but unlike China, it was not subjected to an economic blockade. Therefore, India was able to borrow on the international financial market. Its agriculture and most of its industry and its foreign trade have always been privately owned.

Not only has India remained an underdeveloped country, it is even more underdeveloped than China. Its per capita GNP is more than a third less than that of China. Industry's share of GDP is only half that in China. More than half the population is illiterate, compared to a quarter in China. Indeed, the Indian Finance Minister admits that his country is currently battling against "the prospect of beginning the twenty-first century as the poorest country in Asia".

This fact alone illustrates the dishonesty of all the forecasts about the glowing future awaiting China if it integrates itself still further into the capitalist world market. In India - a country which is in many respects comparable to China - capitalism has had all the time it need to show what it can do. And it has done so. India is even poorer than China, precisely because it has "benefitted" more, and for a longer period, from integration into the capitalist world. Plundered earlier than China in the distant past, it has continued to be plundered to a greater extent over the past few decades. The prospect for China, if it integrates completely in the world capitalist system (and in fact it was never able to exist completely outside it), is not "catching up to the United States" but trying not to sink to the level of India.

The Reforms of 1979

China's financial and commercial isolation was aggravated by its break with the Soviet Union. China found itself literally suffocated. By imposing more and more sacrifices on the population, especially the peasantry, the regime confronted an explosive situation. Thus when borrowing became possible again with the end of the American blockade, the government seized the opportunity in order to relax somewhat the pressure on the peasant population.

However, Mao's successors, trying to inject new life into the countryside, encouraged increasing social differentiation. The regime chose to allow a layer of rich peasants to emerge and accumulate wealth.

A series of measures were taken in 1978 and 1979 in order to implement this policy of individual incentives.

The state increased prices an average 25 per cent for agricultural produce. But this mainly favored the richest regions, those with the most produce to market. At the same time, the state increased its investment in agriculture by 50 per cent in order to modernize the countryside.

Individual plots that covered 5 to 7 per cent of arable land, were increased to as much as 15 per cent. Finally, the generalization of the "system of responsibilities" quickly led to a decollectivization of the countryside. Each family was contracted to supply a certain quantity of products at the fixed price. They were allowed to sell the rest (after taxes) on the free market. This signalled a return to family farming, complemented a few years later by the explicit right to sublet land, hire labor, personally own heavy farming equipment, and form "new economic alliances" enabling several families and local authorities to pool their resources to build installations, warehouses, roads, small power stations, etc.

Later, the duration of the family contracts was extended from one, two or three years to fifteen or twenty-five years, to encourage families to invest in their farm.

Very quickly, the productivity of agricultural labor improved and production increased. In the space of five years, cereal production increased by nearly 30 per cent, cotton production nearly doubled and meat production accelerated.

For the first time, peasants' income began to increase faster than that of the urban population. Also for the first time, levies on the countryside were reduced to nothing: the rural population was no longer being pressured to finance industrialization.

In state industry, the same system of "responsibility contracts" was gradually extended to all sectors. Management autonomy was granted to directors and production was to be regulated by the market. On top of this, the go-ahead was given for private investment of all sorts, including by foreign capital.

The state itself brought in foreign capital, both through borrowing and by seeking to attract investment in Special Economic Zones (SEZ). This capital benefitted from fiscal, commercial and financial advantages. And of course the Chinese state paid for improvements in the infrastructure. In 1979 and 1980, four zones were created on the South East coast: three in the province of Guangdong, whose capital is Canton and one, Xiamen, across the straits from Taiwan in the province of Fujian. Many more such zones have been created since.

The Old Evils Resurface

Very quickly, economic and social problems arose, which led the government to "rectify" or put a brake on the process, in an attempt to contain the centrifugal forces appearing at every level, reduce inflation and limit speculation and corruption.

One of the most serious crises occurred in 1988-89. Inflation was accelerating. There was a dangerous development of corruption and trafficking of all kinds. And the "economic development zones" were mushrooming, reaching the point where the situation was explosive. Starting in 1992, the government once again attempted to deal with the same problems which now are presenting themselves on an ever greater scale.

The fact is that the encouragement of personal enrichment, with the emergence of both an agrarian and urban bourgeoisie, automatically opens the door to the past. This layer of nouveau riches has exactly the same aspirations and the same behavior as the bourgeoisie did before. Above all, they want to get rich quickly and easily by any means. And, particularly in a poor country, the means concerned are often trafficking and illegal trading, speculation, theft of public property, fraud, the ferocious exploitation of virtually free labor and the satisfaction of all the vices that money can pay for, including prostitution and drug-dealing. If the state cannot control such problems, these problems will only eat away at the country's economy, and lead to catastrophe, provoking outbursts of revolt among the great mass of the poor population, which is increasingly exploited and humiliated.

With each successive crisis, the central authorities have more and more difficulty regaining control of the situation. The local and provincial authorities are also gripped by the fever of trafficking, and are riddled with corruption. The fact is that the entire state apparatus has never been under the control of the masses. And by its nature, it is inclined to come to an agreement with the rich, share their aspirations and become their instrument.

Over the past fifteen years centrifugal forces have begun to emerge at all levels of the administration, as officials try to free themselves from central control and go about their business without constraints. Each wants to be master of his own territory. All the nouveau riches and all the authorities are gripped by a frenzy of speculation, including in real estate and stock markets, by an eagerness to make money quickly and easily.

The example comes from on high, from those called "the princes", the sons and daughters of top dignitaries of the regime, the ones who now head the developing business world.

In the countryside, the authorities are explicitly ordered to support rural enterprises and rich peasants, and to go into business themselves, thereby taking part in the modernization. Those officials who hesitate are called to order! This policy was implemented after the 1979-81 state budget for the countryside was found to be insufficient, and the difference in the standard of living between the countryside and the towns again began to widen.

In all provinces, the local authorities have jumped into business and are using their positions to obtain the necessary funding. The competition to set up businesses is not just between different towns, provinces or regions, although sometimes they are redundant. They also try to attract foreign capital, and they all want to have their own "economic zone", often just to build a hotel or a golf course. As a result, in 1993 there were no less than 1,200 free trade zones, of which only 30 were "official". The rest were unauthorized, and the government stepped in to close 1,000 of them!

To offer gifts to foreigners and to finance their own trafficking, these people all need money, so they embezzle an increasing share of the taxes that they are supposed to collect and to pay to the state. Since usually this is still not enough, they have begun to levy all sorts of new indirect and direct taxes on the population! A case has been reported of peasants having to pay a toll on a road that they had built for free! And the following paradoxical situation has been reached: the state now takes only 15% of the national income compared to 30% fifteen years ago. Yet at the same time, a major part of the poor population has seen its tax burden increase. More and more often, local authorities extort indirect taxes by violence, beating up those reluctant to pay. Confronted by peasant discontent, the government had to abolish 27 of these local taxes or surtaxes; it reduced 17 others. Nonetheless it maintained 29 taxes and imposed 43 manual chores on peasants! At the end of 1994, the government promulgated a complete reform of the fiscal system. But will this be enough to eliminate practices which have resurfaced from another age? This is far from certain. Some in fact are already questioning whether the central government is still able to impose such a reform on local and provincial authorities.

Not surprisingly, the police went back into the business of controlling and then managing gambling halls and karaoke bars, and taking its share in prostitution and foreign currency trafficking. A year ago, the Minister of Public Security even praised the "triads", the old secret crime societies which Chiang Kaishek used to such advantage before 1949, and which had been prospering ever since in Hong Kong. Now they are heavily involved in China, which they use to launder a large part of their drug money. In thanking them for "investing" in China, the Minister claimed, "The members of the triads are not all gangsters. So long as they are good patriots and are concerned with the prosperity of Hong Kong [which is due to be returned to China in 1997], we must respect them".

Then there is the army. After it carried out the repression of June 1989 in Beijing, the government wanted to reward it. But the government did not have the money. So it simply authorized the army to go into business for itself. Since then, the army's activities have extended to all fields: domestic appliances, cosmetics, souvenirs, counterfeiting CD's and computer software, textile workshops, hotels, karaoke bars, and even the selling off of Chinese army weapons – a practice which Chiang Kai-shek's army had sunk to in its time! Each military region has a base in the Special Economic Zone of Shenzhen. The army command of Guangdong province, meanwhile, has actually set up its own "economic zone" near Shantou. Some commentators are now speaking of warlords, who at present compete in the race to get rich quick. One could imagine that in other circumstances, they could contribute to the break-up of the country. And the succession of Deng Xiaoping, who is 90 years old and seriously ill, is likely to provoke a period of a weakening of the central government, which will tend to reinforce the centrifugal tendencies.

An Explosive Situation

Not everyone is benefiting from China's economic growth. Far from it !

The poor population in the countryside has a standard of living two to four times lower than that of the urban population. It has to put up with the arrogance of the nouveau riches and officials who think they have the right to do anything. When the central government has no money, it pays peasants for agricultural produce with "green bills", which are mere promissory notes. The post office, which speculates with the money entrusted to it, has begun doing the same thing, and gives peasants "green bills" instead of the money which was wired to them.

In 1993 there were more than a hundred peasant revolts and riots against the local authorities, protesting against extortions and abusive taxes. Unrest is endemic in the countryside.

The regime is now powerless to prevent the mass exodus from the countryside: tens of millions of peasants are leaving to look for work in the coastal zones or big cities. But industry is unable to absorb this labor. And the Labor Ministry predicts that in the year 2000, China will find itself with more than two hundred and sixty million unemployed people!

The working class is not benefiting from the much-vaunted "economic take-off" either. The tens of millions of peasants who have left the countryside constitute an inexhaustible reserve of very cheap labor used by all the new companies, with or without foreign capital. In the Special Economic Zones, for example, the conditions of exploitation are worthy of the nineteenth century, with working hours up to 15 to 20 hours a day. Workers often sleep on site, and are sometimes even locked in by the boss. It was under these conditions that eight hundred workers in the Shenzhen zone died, locked inside their workshop, which had caught fire. Safety conditions are obviously close to zero. And all of this for wages that are often half of the average Chinese wage, roughly eighteen dollars a month - far less than in Hong Kong or Taiwan. The government has had to send a circular reminding employers that child labor is prohibited! There have been increasing numbers of strikes in foreign companies, in particular to demand work contracts, less wretched wages, days off, etc.

Obviously state companies cannot compete with these "sweat-shops", and already for a number of years there has been talk of making them more productive by reducing their workforce. These state companies employ more than 100 million people, two-thirds of the urban working population. The government is obviously reluctant to confront these workers head on, especially since there have been more and more strikes at state companies. The discontent is linked to threats to employment: state workers know what the new working class condition is in China, and they have no wish to be reduced to it. The discontent also concerns inflation. At more than 25 per cent this year in the big cities, it is eating away at the purchasing power of workers and pensioners, who have also started to demonstrate.

Toward Genuine Economic Development ...

In 1992, Deng Xiaoping was chosen as "Man of the Year" by the Financial Times. Undoubtedly the Times has plenty of reasons to be satisfied with the way the Chinese economy and society has developed. Despite all that has been said, however, the image of a China taking giant strides toward industrialization is phony.

The private or semi-private companies which absorb a considerable quantity of available capital are no guarantee of the country's real industrial development. Very many of these companies are in the service sector, real estate, hotels, large-scale distribution, catering, night-clubs and other areas such as karaoke bars, which are apparently all the rage in Shanghai.

Meanwhile, foreign investment has totalled only 60 billion dollars since 1979. That is only 2.2% of total investment, scarcely enough to industrialize the country. The Chinese state claims to need 233 billion dollars between now and the year 2000 just to modernize the energy, transport and telecommunications sectors. Energy and transport are veritable bottlenecks, throttling the economy! Yet that is not where the foreign capital is going. 75% of foreign investment comes from Hong Kong, Taiwan or the Chinese diaspora. And it goes to finance the profitable implanting of Hong Kong or Taiwanese companies producing goods not for China but for export.

For all concerned: government officials, nouveau riches, Chinese bourgeois or foreign capitalists – the aim is to make as much money as possible, as quickly as possible, by taking advantage of cheap labor, opportunities for speculation in the stock market, real estate, and from any other lucrative schemes, including gambling and prostitution.

The huge Chinese market taking shape remains more a hypothesis than a reality. The rich today are the 60 million Chinese who earn over a thousand dollars a year. And the (yuan) millionaires, the people who possess more than a hundred thousand dollars, number only one million, which does not represent a very big market.

A few big corporations with enough money to try their luck (with limited risks) have established a foothold in China to make sure they have a share of the potential market. But as we have seen, they represent only a small proportion of foreign investment. Although Dannon has already made a breakthrough with its yogurt, cars, for example, are not so easy to sell as yogurt. For the moment there are only 50,000 car owners in the whole of China. Companies like Chrysler and Peugeot sell their cars mainly to the country's governmental authorities, which are under orders to save money this year. Peugeot has cut its production by half and now produces 45 vehicles a day. This, however, has not prevented five or six car manufacturers from competing with each other to obtain the best conditions and the best contracts. Since each regional capital is keen to have "its" car industry, the possibility is there!

The rivalry between local authorities, their greed for profit and the slowness of authorities to pay back loans have created number of misadventures for foreign capital; this could dampen their enthusiasm, at least as far as loans and productive investment are concerned. As for picking up easy money, there will always be plenty of takers.

In this respect the misadventure of McDonald's in Beijing is quite symbolic of the whole atmosphere of greed and the race for profits. The Beijing authorities are prepared, like those of all the big cities, to sign contracts with companies that wish to use buildings or districts in town centers, even if this means evicting the inhabitants overnight. But this time McDonald's has been asked to move, after it had opened the biggest McDonald's in the world right in the middle of Beijing. The reason is that the Beijing authorities found a Hong Kong financier who is prepared to pay an even higher price to use the whole district! At this rate, real estate speculation is booming.

All of this is part of the "investment", that is supposed to be behind China's miraculous growth!

Or Toward a Tragic Return to the Past?

For the moment then, what is striking is that a large part (indeed a very large part) of the population, both in the countryside and the towns, is being left without a stake in the profits of the economic take-off. The vast majority of the Chinese population is not taking off!

On the other hand, a bourgeoisie which is as greedy, corrupt and brutal as in the past is emerging. The government officials are just as arrogant and mercenary, and have not taken long to fall in step, trying frantically to fill their pockets. Foreign capital, meanwhile, is as ready as ever to suck the population dry for a few dollars more.

The old colonial concessions are now re-emerging in China. Already there is a Japanese zone, a Taiwanese zone, a Korean zone and a German zone. France has just been assigned its own zone as well. Shanghai already has the same night club areas as in the past and brothels, still under the guise of karaoke bars, are springing up rapidly with the complicity of the police. The difference is that the opium of the past is being replaced by heroin or crack.

With the arrival of imperialism come the evils of the past, and not the hope of a better future for China.

How could it be otherwise? Why should China become, under the protective shadow of imperialism, what India has not become? How could capitalism be an opportunity for one and a calamity for the other? No, as in India, if the process goes through to its conclusion, if the popular masses do not defend themselves, and if China does not experience a new revolution, a proletarian revolution, hundreds of millions of people are going to sink into the direst poverty, like all the poor who are already massed around the cities, without prospects and without hope, and who are already prey to secret societies linked to the criminal world. There will be a tiny minority growing rich from the impoverishment and distress of the rest, selling everything that rich foreigners may wish to buy.

All the garbage of the past may indeed return, and it is the most likely outcome, if the working class does not intervene. It is, at any rate, more probable than the industrialization of the country. In this world, dominated by imperialism, no country, even the size of China, can achieve development either in the grip of imperialism or when left to its own resources. The example of China is likely to provide tragic proof of this fact.