The Spark

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

How Did the Chinese Economy Develop So Rapidly?

Mar 1, 2013

The following article is a translation from the March 2013 issue of Lutte de Classe (Workers Struggle), published by the comrades of Lutte Ouvriere (Workers Fight).

The Chinese Communist Party (CCP), which has run the country since 1949, held its 18th Congress in November 2012. The largest political party in the world (claiming 86 million members) organized the succession of the heads of state by naming its new Secretary General, Xi Jinping, and its second-in-command, Li Keqiang. In March 2013, they replaced Hu Jintao and Wen Jiabao, respectively, as President of the Republic and Prime Minister. But behind the well-arranged shadow puppetry of the Congress, the bosses of the regime engage each other in ferocious struggles shielded from the sight of the population. The Western media has had a good laugh about the Bo Xilai affair, named for the leader whose fall from power was just as rapid as his earlier rise was dazzling. This affair is without a doubt only part of the conflicts and internal rivalries that made it to the surface within the leading circles of the CCP.

If the succession at the top of the CCP has attracted interest in the West, it is clearly because, since 1949, the CCP has governed the most populous country in the world. But it is also due to the growing place of China in international relations, following from its economic development. It is this economic growth that we would like to discuss here. After thirty years of 10% annual growth, the rise of its gross domestic product (GDP) has slowed down since 2008 and the global economic crisis. However, it has remained 7-8% per year, greater by far than the worldwide level of growth, particularly that of the rich countries. Between 2007 and 2012, China’s GDP increased by 60%, while that of the European Union and the United States increased by 3%. Certain industrialized countries quite simply saw their GDP decline, from Ireland to Greece to Spain.

In terms of volume, China is now the second-largest economy in the world and can count on surpassing the United States in the years to come and – to believe a certain number of economists – on becoming the world’s leading economic power by 2020. We have already had the chance to discuss this matter and don’t intend to pursue it further here, but this is in large part a deceptive achievement if it is considered in relation to the populations of the two countries, which stand respectively at 1.35 billion and 315 million inhabitants. In terms of income per resident and standard of living, China remains an underdeveloped country, ranking between 90th and 100th place worldwide, depending on the system of classification – somewhere between Albania, Jamaica, and Ecuador.

On the other hand, the rise of China is undeniable and manifests itself in several different ways in the realm of international relations, including politically. This development is often attributed to the program of liberalization begun in 1978. This idea has become, from the pen of established commentators, a kind of accepted truth, almost a commonplace: while Maoism and government control were synonymous with stagnation, capitalism and liberalism were supposed to have brought economic dynamism and material progress. Erik Izraelewicz, who was the editorial director of Le Monde and the author of two books on China, wrote the following in a supplement to the newspaper: “The real revolution, which brought about China’s economic takeoff and will permit the Empire to return to its place in the international community, was not in 1949, but much more in 1979,” (China: From the Revolution to the Birth of a Giant, November 2012). Put differently, the contrast between the periods of 1949-1978 and 1979-2012 is supposed to offer a confirmation of the superiority of the market over planning and of capitalism over socialism.

It is this falsehood that we would like to discuss here, all while attempting to answer two questions. First of all, was the Maoist period (1949-1978) a period of economic stagnation or even decline, so often described by the commentators? Following from this, can the economic boom of the period from 1978-2012 be explained by China’s transformation into a market economy? Finally, how does all of this relate to the Chinese bourgeoisie?

1949-1978: The Progress Resulting from State Control

In the 19th century, while Western Europe and later the United States experienced their industrial revolutions, China was incapable of doing the same. However, it had seen a considerable demographic expansion due to an improvement in agricultural productivity, with the population multiplying by five between 1400 and 1820. As in Western Europe, China saw a large growth of its artisan industry (textile, smelting, porcelain) in the 18th century, and so the loans made to China by the West were numerous. Due to its considerable population, China’s manufacturing output was quantitatively greater than that of the West. After the Opium Wars (1839-1842 and 1856-1860) waged by Great Britain and France to subdue the Chinese dynasty – and more precisely to open the interior market – the country went through a decline. The regime was weakened and progressively subjugated to these foreign powers. The economy ceased to progress, and China grew impoverished, becoming the poorest country in the world by the middle of the 20th century. A nation like Japan, which had escaped the outright plundering of imperialism, experienced a modernization and industrial development starting in the 1860’s, carried out from above by its ruling regime. China, pillaged by imperialism, was unable to achieve something similar.

After the fall of the Manchu Dynasty, the Nationalist regime of Chiang Kai-Shek had the development of the country as its objective between 1925 and 1949. Their goal was not achieved. During the 1920’s and 1930’s, even the embryo of industrialization was limited to some light industries and certain coastal cities. The Nationalists, taking full power in 1925, were essentially just as incapable of bringing about industrialization as the declining Qing Dynasty (1644-1912) had been. And yet China was a market economy, and, according to the logic of modern-day liberal commentators, should have experienced the kind of boom that Great Britain, France, Belgium, Germany, or the United States underwent. Nothing of the sort happened. Even though China represented one third of all global wealth in 1800, it only accounted for a little more than 1% in 1950.

It is to the period that followed (1950-1978) that we must look for the basis of China’s economic growth. When the Chinese Communist Party took power in 1949, after the Japanese invasion (1937-1945) and the Chinese Civil War (1945-1949), very little remained of the industry of the coastal cities. The country counted 550 million inhabitants, around 30% of the global population. But the majority of Chinese were malnourished, in poor health, and barely educated. For example, the infant mortality rate was between 13% and 15% – the same rates as Europe in the mid-nineteenth century. In terms of illiteracy, the figure reached about 80%. The already-weak education and health systems had been destroyed by the wars. In addition, ostracized by the big capitalist powers that had supported the corrupt and worm-eaten regime of Chiang Kai-Shek up until the end, the new state could benefit neither from access to the global market nor from international aide. Until 1971, China (with considerably more than a half billion inhabitants) was even deprived of a seat on the United Nation Security Council in favor of Taiwan (with 8 million inhabitants), an island where the followers of Chiang’s regime took refuge after Mao’s victory. This was the price the regime had to pay for its defiance of imperialism.

Up until 1949, the Chinese bourgeoisie had only been able to skim off a small portion of what imperialism grabbed of the nation’s resources. Inspired by the model of the Stalinist USSR, the state then took charge of entire sections of the economy, with 80% of the wage-earners in the cities working for the state in some form or another. The new regime nationalized industry, planned the economy, and established a monopoly of foreign trade. Industrial production grew by 11.5% per year on average between 1952 and 1978, despite the crises brought about by the catastrophic campaigns that were the Great Leap Forward (with perhaps 30 million deaths from hunger between 1958 and 1961) and the Cultural Revolution (1966-1971). The proportion held by industrial production in the GDP went from 18% to 44%. China gave itself the industrial base that more than a century of the world market had been incapable of delivering.

This development was carried out on the backs of the poor peasantry. Even the countryside was the object of state intervention. The regime regrouped countless peasant landholdings into agricultural collectives – the communes. In doing so, it permitted the rapid diffusion of a certain technical progress, the organization of agricultural production at a larger scale, and the provision of social services in the immense countryside. Furthermore, the centralization and establishment of state control allowed for a “Green Revolution,” in which important scientific advances improved agricultural output. Starting in the 1950’s, the regime set up a research system at several levels. A breed of hybrid corn was introduced in 1961; thirty years later, 90% of cultivated zones used it. In 1974, a high-yield breed of rice was introduced. A nitrogen fertilizer industry was also established beginning in 1973. These innovations were responsible for an increase in agricultural productivity that allowed the country to avoid the great famines of its past.

The results of this period are incontestable. On average, the GDP grew by 4% to 6% each year, depending on the estimates. Life expectancy increased from 42 years for men and 45.6 years for women in 1950 to 66.4 years and 69.4 years for women in 1982. The rate of illiteracy declined over the same period from 80% to 16.4%. The Maoist regime claimed to be egalitarian. In reality, it was not. It did however guarantee access to medical care, education, land, and housing to the whole population.

This evolution should be compared with those of countries that did not move toward massive state centralization. Take, for example, India, which became independent in 1947 but remained on good terms with imperialism and could therefore have access to international loans and could sell abroad. It has remained a country less developed than China, marked by backwardness, castes, and grinding poverty. The income per inhabitant there was less than a third of that of China, and the population was not only less literate, but also partially condemned to live in the streets. In short, integration with the world market meant pillaging its resources, which China clearly stopped. A comparison with Africa would show more or less the same results. The regime of Mao was, without a doubt, an anti-worker power. However, thanks to its radical bourgeois reforms, to a certain consensus from the peasant population, and to state control, it was able to accomplish that which the regime of Chiang Kai-Shek could never realize. It is during this period that the institutional, industrial, and social cornerstones of contemporary China were laid.

1978-2012: From Economic Reform to Liberalization

In 1978, the regime began to engage in the reforms that have gradually led to the current liberalization. Certain of these changes were significant. If the Chinese leadership has kept the red flag, the references to Mao, and certain elements of communist phraseology, the egalitarianism of the previous period has been completely abandoned. Deng Xiaoping, who led the country from 1978 to 1989, could say without shame, “Enrich yourselves.” His successors have not forgotten this message.

Yet, the reforms were only gradually introduced, and it is only in hindsight that their significance completely reveals itself. Mao’s death in 1976 facilitated the transition that took place under Deng Xiaoping. However, the dead end in which the Chinese economy found itself, cut off from the global economy, had already been apparent for some time. Between 1978 and 1984, agriculture was decollectivized. In 1979, four “special economic zones” (SEZs) were created in the southern part of the country. In these free-market zones, the state placed land and infrastructure at the disposition of foreign capitalists, as it did in Shenzhen, which had previously been a small border town of Hong Kong. The Chinese government wanted first of all to interest the capitalists of this British colony, whose mouths watered at the extension of their activities to a nearby city where the costs of land and labor were cheaper.

In view of the success of these SEZs, the government created the “open coastal cities” in 1984, allowing Western companies to install themselves all over the eastern coast and deltas of the country, notably in cities like Shanghai. Prices, which had previously been regulated, were freed up, while businesses – even public companies – benefitted from a certain degree of autonomy. Starting in 1992, this return to the market gathered further momentum. The entire Yangtze valley was then opened to foreign investment. A growing number of Chinese companies were authorized to trade abroad and foreign companies were authorized to invest in China.

In the process, industrial penal colonies were constructed. Strikes, riots, and a series of suicides occasionally lift the curtain on working conditions in some of these zones. A single computer and electronic components manufacturer like the Taiwanese company Foxconn – a subcontractor of Apple, HP, Amazon, Sony, and Microsoft – can employ 1.4 million workers in China, of which 400,000 are in Shenzhen. Super-exploitation is the rule. Even if the wages in the coastal manufacturing cities are significantly greater than the incomes of the peasant families that these cities attract, they are ridiculously low in comparison to the value that these workers add. The wages paid to Chinese workers make up only 1% or 2% of the selling price of a cell phone or tablet.

An Ever-Present State

The economy underwent a considerable expansion, notably by mobilizing this labor force migrating from the countryside. But those who praise the free market forget that an entire large section of the economy remains in the hands of the public sector in its different forms. The State-owned Assets Supervision and Administration Commission of the State Council (SASAC), created in 2003, manages the participation of the state in the economy.

The creation of giant companies is often cited as an illustration of the Chinese “miracle.” In fact, 57 Chinese firms may be listed in the Fortune 500, but almost all of them belong to the state – like Sinopec (oil, gas, and chemicals), China National Petroleum, State Grid (electricity), China Mobile (mobile phone services), and Huawei (telecommunications), which are all officially owned by some of their employees. These are very profitable companies that possess near-monopolies in oil, gas, nuclear energy, electricity, transportation, telecommunications, computing, and financial services. Mostly based in Shanghai and Beijing, these companies are not the major exporters, but they are situated to supply these firms and they permit them to exist. They are either under the direct control of the state or under the control of one of the different levels of public administration (provinces, districts, or municipalities).

These state enterprises benefit from many indirect subsidies: land at nearly no cost, very advantageous interest rates, and low levels of taxation. Export subsidies also come in the form of massive public investment in the ports, airports, highways, and industrial development zones that facilitate the access of Chinese producers to the global market. Entire sectors are subsidized. For example, the Chinese state has wanted to develop its auto industry for the past few years – It did this, among other means, with very inexpensive fuel, sometimes at a price lower than the worldwide price of oil. In short, far more than the “invisible hand” of the market, it is the “visible hand” of the state that allows for the present economic expansion. The place of the public sector in China is difficult to evaluate due to the different levels of property possessed (by the central state, but also by the provinces, municipalities, and districts). However, the state enterprises employ about one half of the active population and control around one half of the country’s industrial resources.

The big banks (the Bank of China, the Industrial and Commercial Bank of China, the China Construction Bank, and the Agricultural Bank of China) are also under the control of the CCP. Like the large companies, they were put on the stock market in order to get financing, but the government retains a majority stake. In this sense, the credit risk weighs on the population, even if the beneficiaries are private individuals – these “red capitalists” who amass colossal fortunes under the wing of the state.

This role of the state, inherited from Maoism, has permitted it to construct infrastructure. We can evoke the recent example of the rapidity of the development of the high-speed rail network, with the opening of a 1,400-mile line from Beijing to Guangzhou in December 2012. In twenty-five years, China has built 6,700 miles of railroad and 185,000 miles of roads. It sends humans into space and seeks to rival the big industrial powers in terms of scientific research and advanced technology. All of this is done under the leadership of the state.

A series of foreign interventions are just as much the work of the state. Indeed, it seeks to assure supplies for the Chinese economy. Since the 1990’s, China has invested outside of its borders in the domains of oil, mines, arable land, and the defense of maritime routes necessary to its continued supply. This is the case with its numerous land acquisitions in countries like Ethiopia, Madagascar, Kenya, Tanzania, and Zambia. It has also developed new relations with certain countries of the Near East, Africa, and Latin America.

Moreover, China has acquired shares of sovereign debt from all over the world, starting with that of the United States. The U.S. Treasury bonds held by China, valued at some 1.1 trillion dollars, are not very lucrative investments, but they are reliable, considered by stock market investors and financiers as “safe havens.” These permit the Chinese economy to support the U.S. economy, on which it is dependent, in particular as a market for its exports.

Of course, entire sectors that had been included in state planning have been abandoned. Next to the state sector – or under its protection – an entire market economy also flourishes. However, state intervention remains and continues to represent a major continuity between the pre-1978, Maoist China and modern-day China. At heart, it is the same state, and the first phase of its development was what led to the development of this “workshop of the world” so often presented as a model.

The Frenzied Enrichment of the Chinese Bourgeoisie in the Shadow of the State

The official pundits insist on the positive impact that the past thirty years’ development has had on the Chinese people. Owing to industrialization, a large section of the population has migrated to the cities. In the large industrial cities on the coast of the Pearl River Delta (between Guangzhou, Shenzhen, and Hong Kong), the level of wages has increased by about 20% per year, following strikes and various mobilizations. Set at $200 per month, these wages still remain much lower than their equivalents in the Western countries and are far from catching up. At the national level, wages increase very little overall, especially if one accounts for the considerable rate of inflation and for the cost of housing, food, and healthcare. For example, in Shenzhen, the minimum wage is $230 per month, but housing prices have shot up to $2,830 per square meter.

Migrant workers, who make up the 250 million mingong (“peasant workers” in Mandarin Chinese), are often paid below the minimum wage. They represent 40% of the urban workforce, two thirds of the industrial workforce, and 80% of the labor at construction sites. The portion of wages in the GDP continues to fall, declining from 56% in 1983 to 33% in 2010. Household consumption has also continued to fall to as low as 34% – a world record. Healthcare represents only 2% of public expenditure, while inequalities in education grow wider and wider. China is thus counted as one of the “most unequal” countries in the world.

The frantic exploitation of an increasing number of workers has indeed allowed for a significant enrichment of the Chinese bourgeoisie. The country counts 271 declared billionaires – in reality the figure is probably more than double this – and more than one million millionaires (in dollars). China is the primary global market for luxury items, and news reports about this shameless bourgeoisie continue to multiply. The incomes of the country’s richest 10% are comparable to those of the wealthiest Europeans, but any comparison must take note that the cost of living and of domestic servants is lower there. There is no inheritance tax in China. Audi sells one half of its global output of A6s (lowest price: $52,000) in China, and all of the major luxury car brands do business there.

The interpenetration of this bourgeoisie and the state apparatus is blatant at every level. The 70 richest deputies in the National People’s Congress own a total of 90 billion dollars. One third of the 50 richest Chinese officially “advise” the government. Thirty percent of the 1,000 wealthiest Chinese occupy an official position. The leaders of the Party and of the state are among the first to be served. In this way, a New York Times investigation (October 25, 2012) estimated the fortune of Wen Jiabao, the departing Prime Minister, to be at least 2.7 billion dollars. “Grandpa Wen” nevertheless displayed a certain sobriety in public, made more public appearances with ordinary people, and warned against the rise of inequalities, all in the name of the necessary “harmony.” However, it was his close relations whose pockets he lined. His ninety-year-old mother, of whose past poverty he loved to remind the public, possessed in this way, among other items, 120 million dollars worth of stock in a financial company. His younger brother benefitted from more than 30 million dollars worth of state contracts for treating waste water and garbage. His wife was nicknamed the “diamond queen” and played a key role in this state sector. Their son’s private equity firm has become one of the country’s most prosperous, etc.

Another example: Xi Jinping, the new General Secretary of the Party – a “red prince,” as the wealthy children of revolutionary families are called – possesses a fortune estimated at 345 million dollars, a pittance when compared with that of Wen Jiabao, but nevertheless equal to 70,000 years worth of the average Chinese income. Of course, he too owns almost none of it by himself, but his family possesses luxurious residences in Hong Kong, stakes in publicly traded companies, etc.

As for Bo Xilai, the fallen leader of the “autonomous municipality” of Chongqing, whose national ambitions were obvious, he also was a “red prince.” He is the well-to-do son of Bo Yibo, one of the “Eight Immortals” (historic leaders) of the Chinese Revolution and an old comrade of Mao. If the young Bo Xilai was a Red Guard adept in “revolutionary violence” during the Cultural Revolution and was then himself a victim of it, he has long since put aside Mao’s Little Red Book in favor of the golden calf. In Chongqing, a sprawling city of 32 million inhabitants with a growth rate of 15% per year, he earned a reputation as a tough guy, carrying out a ferocious war against the local gangs with the aid of torture, abuse, and expedited convictions. The former Minister of Commerce, he was well-positioned to succeed to the summits of state power before he was stripped of his functions in March 2012.

Undoubtedly, Bo was not the white knight that he made himself out to be. His wife Gu Kuilai, a former corporate lawyer, was arrested for the cyanide poisoning in November 2011 of Neil Heywood, a British businessman who was linked to them, also an agent of the British intelligence service in his idle hours. After this fantastic episode worthy of a good crime novel, Bo Xilai himself was arrested and publicly accused of “massive” corruption and of having wiretapped important leaders of the Communist Party, including President Hu Jintao. He was expelled from the Party in April 2012 and now awaits his trial, while his former lieutenant and his wife languish in prison for long terms. Was the Englishman given the job, as was indicated, of moving colossal sums of money out of China – a total of six billion dollars has been mentioned – for the Bo family? We cannot say, but these practices are widespread in Chinese ruling circles. Certain agencies specialize in these investments – for example, a half million dollars to finance a bridge near Seattle – allowing the right to a permanent residence abroad. Sending not only one’s fortune but also one’s family abroad has become a common practice for members of the privileged ruling classes. The children are placed in posh British private schools and universities (such as Harrow and Oxford, where the son of Bo Xilai studied) or in their U.S. counterparts (such as Harvard, where the daughter of Xi Jinping studies under a pseudonym, as does Bo’s son).

The CCP itself claims to have punished 660,000 of its cadres for corruption and to have criminally judged 24,000 over a five-year period. In a certain sense, the greed of its own cadres threatens to provoke a social explosion and thereby kill the goose that lays the golden egg. However, at the same time, the Chinese bourgeoisie and the leaders of the CCP want to extract the maximum profits from the liberalization at hand. In doing so, they benefit from the Maoist legacy to which they never fail to pay an homage just as pious as it is empty – an homage nevertheless merited, because it is this legacy that laid the groundwork for the country’s current development.