Why China Isn’t Capitalist (Despite the Pink Ferraris)
A Reply to Eli Friedman
August 17, 2020
In his Spectre essay, “Why China Is Capitalist,” Eli Friedman says that “Twenty-first century China is capitalist. This represents a dramatic transformation for a country that had basically abolished private ownership of the means of production by the end of the 1950s.” Yet today, “Indicators of capitalism abound. The country’s metropolises are adorned with Ferraris and Gucci stores, foreign and domestic corporate logos are emblazoned across the skyline… high-rise luxury housing has sprouted on every major urban core… [and China] has become one of the most unequal countries in the world.” Beyond appearances, for Friedman the definitive proof that China is now capitalist is that “commodity production has been universalized. This is apparent in the vast transnational supply chains that are centered in China, where the exploitation of Chinese workers in factories… is oriented first and foremost towards generating profit rather than responding to human need.”
I would argue that commodity production has not been universalized throughout the economy. Even labor power is not fully commoditized because Chinese companies make extensive use of unfree labor: college students have been forced by the government to work in Apple Foxconn factories at sub-minimum wages on pain of being denied the right to graduate. Chinese companies produce exports with slave labor in Xinjiang and dozens of forced-labor camps across the country.1Jenny Chan, Pun Ngai and Mark Selden, “Interns or workers? China’s student labor regime,” The Asia-Pacific Journal, 13.6 (September 7, 2015), https://apjjf.org/-Jenny-Chan/4372; Adrian Zenz, “Xinjiang’s new slavery,” Foreign Policy, December 11, 2019, https://foreignpolicy.com/2019/12/11/cotton-china-uighur-labor-xinjiang-new-slavery/; Jon Kelly, “The SOS in my Holloween decorations,” BBC, October 29, 2018, https://www.bbc.com/news/stories-45976946. While the market rules most visibly in urban consumer goods and services, retail, and the coastal foreign-invested Special Economic Zones (SEZs), in the larger state-dominated economy state ownership and planning still rule.
Capitalism is an economic system based on generalized commodity production, a system in which all the factors of production—land, labor, means of production and capital—are turned into commodities. Labor, the “special” commodity, is fully dispossessed such that it has nothing left to sell but its labor power. The other side of this process of “primitive accumulation” is that by means violent and otherwise, new classes of agrarian and industrial capitalists secure a monopoly of the major means of production. Such a system of unequal power and property can only be guaranteed by the institution of private property backed up with the state power of police and judiciary. There’s never been a capitalist economy without private property.
China has some of those prerequisites of capitalism but not all. Labor is mostly commodified. There’s a domestic bourgeoisie in possession of significant means of production. But there’s no private property in China. Mao abolished private property in 1956 and it’s never been restored. In China, all land, natural resources, and most means of production remain in the hands of the party-state, i.e. the Communist Party ruling class. Urban middle classes can buy their condominiums but they don’t own the land under the buildings. They don’t really even own their apartments because local governments can and do arbitrarily seize residential buildings, evict the nominal owners, knock them down for new development of infrastructure projects, and compel the former “owners” to accept a take-it-or-leave-it offer or nothing at all.2 Many such cases are discussed in Qin Shao, Shanghai Gone (New York: Rowman and Littlefield, 2013). Also, Aidan Denahy, “In China’s countryside, housing complexes are built to be torn down,” SupChina, July 23, 2020, https://supchina.com/2020/07/23/in-chinas-countryside-housing-complexes-are-built-to-be-torn-down/ Capitalists can set up factories. But they do so at the pleasure of the party-state. Their businesses can be, and sometimes are, arbitrarily seized, with no recourse. And what about the capitalists? If China is capitalist, where are the capitalists? As we’ll note below, many survive but since Xi’s anti-capitalist crackdowns began in 2013, many prominent capitalists have been locked up in prison, their assets seized—for being capitalists. What kind of capitalism is this?
Not Capitalism but a Hybrid Bureaucratic Collectivist Capitalism
As I explain in my new book, China’s Engine of Environmental Collapse (Pluto, July 2020), there’s plenty of capitalism in China today: there’s state capitalism, crony capitalism, gangster capitalism, normal capitalism—China’s got them all. China has more billionaires than the US3Ninety percent of China’s billionaires are Communist Party members. A few got rich as capitalist entrepreneurs, like Alibaba’s Jack Ma. But most got rich by expropriating millions of peasants to sell their land to developers, by looting the state, state banks and companies, workers pension funds, and other means.; many state-owned industries produce extensively for market, and the majority of the workforce are self-employed or work for private companies. Even so, it’s not a capitalist economy, at least not mainly a capitalist economy. It’s best described as a hybrid bureaucratic collectivist-capitalist economy in which the bureaucratic collectivist state sector is overwhelmingly dominant. China’s Communist Party rulers do not own their economy privately like capitalists. The state owns the bulk of the economy and CCP owns the state—collectively. The market does not organize most production in China. Market reform long ago ground to a halt in China in what Minxin Pei termed a “trapped transition.”4China’s Trapped Transition (Cambridge: Harvard UP, 2006). In forty years of “market reform and opening” China has never missed a Five-Year Plan or failed to set an annual growth target. China remains a mostly state-owned, mostly planned economy. As MIT’s Yasheng Huang put it, “the size of the Chinese private economy, especially its indigenous component, is quite small” and mostly comprised of small businesses and self-employed workers and farmers.5Yasheng Huang, Capitalism with Chinese Characteristics (Cambridge: CUP, 2008), p. 8.
The 50-30-20 Tripartite State-Dominated Economy
Today, China’s rulers preside over an industrial and commercial behemoth, the light industrial workshop of the world, the biggest manufacturer, the biggest exporter, the second largest economy with a $14 trillion GDP, a slew of Fortune 500 SOE companies and the world’s largest $3 trillion sovereign wealth fund. China’s state-owned conglomerates count among the largest companies in the world. In the 1980s, no company from the People’s Republic of China was counted among the Fortune Global 500 list. By 2017 China had 115 companies on the list with State Grid, Sinopec, and China National Petroleum (CNPC) ranking second, third and fourth. All but four of the 115, and all the big ones, were state-owned.6Scott Cendrowski, “China’s global 500 companies are bigger than ever—and mostly state-owned,” Fortune, July 22, 2105 at 9:01 AM EDT, http://fortune.com/2015/07/22/china-global-500-government-owned/. In 2017, four private Chinese firms made the list for the first time: Anbang no. 139, Alibaba no. 462, Tencent no. 476, and Country Garden (real estate development) no. 467. Celine Ge, “Alibaba, Tencent Included in Fortune Global 500 List for First Time,” South China Morning Post, July 21, 2017: http://www.scmp.com/business/companies/article/2103604/alibaba-tencent-included-fortune-global-500-list-first-time. But Anbang won’t make the list in 2018 because its claimed valuation was faked, the company is effectively bankrupt and it’s now (as of this writing, March 2018) on state life support: Anjani Trivedi and Julie Steinberg, “China Conglomerate Gets Lifeline,” Wall Street Journal, March 3-4, 2018. James McGregor writes that “Of the sixty-nine companies from mainland China in the Fortune Global 500 in 2012, only seven were not SOEs [and all of these seven] companies have received significant government assistance and most count government entities among their shareholders.” In key industries, SOEs owned and controlled between 74 and 100 percent of assets. China’s major banks are 100 percent state-owned (there are hundreds of foreign-invested private investment banks but they’re restricted in where they can invest).7James McGregor, No Ancient Wisdom, No Followers: the Challenges of Chinese Authoritarian Capitalism (Westport: Prospecta Press: 2012), p. 4-5, 16-19 (quote from p. 57) and the sources cited therein, including the head of the State-owned Assets Supervision and Administration Commission (SASAC). The government also owns 51 percent or more of the thousands of joint-venture export-oriented industries with multinational companies from Audi to Xerox that have powered China’s rise over the last decades. The government has also bought up at a raft of foreign companies including Volvo, Syngenta, Smithfield Farms, Pirelli Tires, and Kuka Robotics, which it runs more or less as state capitalist firms, plus it owns shares in many Western companies including ten percent of Germany’s Daimler (Mercedes Benz).
Forty-two years after market reforms were introduced, the government still owns and controls the commanding heights of the economy: banking, large-scale mining and manufacturing, heavy industry, metallurgy, shipping, energy generation, petroleum and petrochemicals, heavy construction and equipment, atomic energy, aerospace, telecommunications and internet, vehicles (some in partnership with foreign companies), aircraft manufacture (in partnership with Boeing and Airbus), airlines, railways, pharmaceuticals, biotechnology, military production and more. Foreign investors have long complained that they’re frozen out of strategic sectors and are forced to accept Chinese state-owned partners in joint ventures instead of establishing wholly-owned operations in the few sectors open to them.8Tom Mitchel, writing in the Financial Times, said, “Want to enter so-called ‘strategic’ industries currently dominated by Beijing’s 120-odd centrally administered state-owned enterprises? Sorry, the doors leading to China’s energy, rail and telecommunications sectors—to cite just a few examples —are firmly locked. Want to manufacture and sell cars in the world’s largest automotive market? Then the only way through that door is with a 50-50 local joint venture partner. Some of the doors that foreign investors can walk through today were formally opened 14 years ago, when China acceded to the World Trade Organization. However, for the multinational companies that so welcomed China’s accession, subsequent negotiating rounds failed to further open member nations’ markets. To foreign investors and Chinese reformers, the result was a ‘lost decade’ in which Beijing’s appetite for bold market reforms dissipated.” “The door to China’s real investment riches remains locked,” Financial Times, March 31, 2015, https://www.ft.com/content/719b1134-d763-11e4-94b1-00144feab7de In 2018, Tesla was permitted to set up the first wholly foreign-owned auto plant in China.
To be sure, China has an extensive capitalist market economy side-by-side with the state sector. Indeed, today the private sector accounts for almost twice as many workers as the state sector.9In 2016, SOEs employed 61.7 million workers, collectively-owned enterprises 4.53 million, and private-sector employment and self-employment totaled 120.8 million workers. Statista.com: https://www.statista.com/statistics/252924/employees-at-state-owned-collective-owned-and-private-enterprises-in-china/. China’s domestic capitalist sector is mainly comprised of myriad small-to-medium sized businesses and self-employed workers. The vast majority of businesses are small coal mines, local construction companies, small steel mills, textile and garment companies, shoemakers, retail shops, supermarkets, restaurants, self-employed truckers, deliverymen, cabbies, family businesses, farmers, and the like. The private sector also include sizeable companies like Baidu (the internet search giant that dominates the China market since Google left), Tencent (instant messaging), Jack Ma’s Alibaba, Huawei the telecom giant, real estate developers like Dalian Wanda Group and SOHO China, food processors like Wahaha Corp., and insurance companies like Anbang. In the 2000s instant billionaires cropped up like mushrooms after a rain: Anbang Insurance Group, once a sleepy little auto insurance company founded in 2004 by a local guy who married into the family of Deng Xiaoping, suddenly in 2014 listed assets of US$295 billion after children and grandchildren of Deng and other leaders vested vast sums (of unknown provenance), then used Anbang to move their money offshore buying up foreign properties including New York’s Waldorf Astoria.10Michael Forsythe, “Behind China’s Anbang: empty offices and obscure names,” New York Times, September 1, 2016; Idem: “A Chinese mystery: who owns a firm on a global shopping spree?” New York Times, September 1, 2016.
In the deeply opaque ownership picture in China today, it’s all but impossible to know which firms are really, or fully private.11For example, Huawei, the Chinese smartphone and telecom equipment company, says its owned by its employees. Western investigators could not determine who actually owned Huawei, but they concluded with certainty that whoever owns it, it’s not the employees. Huawei is widely assumed to be financed by CCP “princeling” loot stolen from government coffers. Raymond Zhong, “Who owns Huawei? The company tried to explain. It got complicated,” New York Times, April 25, 2019. A good rule of thumb is that the larger the company the more likely the state owns a significant or controlling interest. A US government study in 2011 found that SOEs together with local government-owned (so-called collectively owned) urban, township and village industries account for half of China’s current non-farm GDP. Foreign-invested joint ventures with Chinese government, mostly in the SEZs, account for about thirty percent of non-farm GDP. China’s indigenous private sector accounts for the rest, about 20 percent of non-farm GDP.12Andrew Szamosszegi and Cole Kyle, “An Analysis of State-owned Enterprises and State Capitalism in China,” October 26, 2011; US-China Economic and Security Review Commission, October 26, 2011 (Washington D.C.: Capital Trade, Inc. 2011), pp. 21-22, http://origin.www.uscc.gov/sites/default/files/Research/10_26_11_CapitalTradeSOEStudy.pdf. Other estimates put the state share at two-thirds.13Barry Naughton, The Chinese Economy: Transitions and Growth (Cambridge: MIT 2007) writes that “By 1996, then, China had developed a kind of tripod industrial structure, in which state, collective, and private (domestic and foreign) firms each produced about one-third of total output” (p. 301). Since collectively-owned businesses are just another category of government ownership, two-thirds of GDP is produced by government-owned entities, according to Naughton. Yasheng Huang estimates that the “quite small” indigenous private accounted for only about 22% of industrial GDP in 2005, Capitalism, pp. 8 and 18. Either way, the state owns at least half of the industrial economy, and controls the rest.14On state control of the banking sector, see Carl E. Walter and Fraser J.T. Howie, Red Capitalism: The Fragile Foundations of China’s Extraordinary Rise (Singapore: Wiley & Sons, 2012), pp. 31-33 and passim. Also: Henry Sanderson and Michael Forsythe, China’s Superbank (Singapore: Wiley & Sons, 2013). Naughton, Chinese Economy, pp. 190, 299-304, 325. Farming is nominally private but farmers own nothing, not their farms, not their homes, and tens of millions have had their land seized with no recourse, with and without compensation.
“Pig-Killing List” Decapitates China’s Would-Be National Bourgeoisie
The Communist Party keeps its domestic capitalists on a short leash. Successful entrepreneurs soon find they need a state “partner,” or the government sets up its own competitors to drive them out of business, or they suffer forced buyouts.15Huang, Capitalism, chapter 3 and passim. Worse, those whose names appear on Forbes list of the world’s wealthiest citizens or Rupert Hoogewerf’s Hunrun Rich List risk attracting unwanted government attention; they get arrested or disappear without a trace at “alarming rates.”16Michael Wines, “In crackdown, Chinese home appliance tycoon receives 14 years in prison for graft,” New York Times, May 19, 2010; Michael Forsythe, “Chinese Billionaire [Xu Xiang] is Arrested in Inquiry,” New York Times, November 2, 2015; James T. Areddy, “Mystery Probe Nets Chinese Billionaire [Guo Guangchang],” Wall Street Journal, December 12, 2015; Michael Forsythe, “Chinese Businessman [Xu Ming], 44, Dies in Prison,” New York Times, December 7, 2015. Etc. In just one year, 2015, at least thirty-four senior executives of Chinese companies were arrested by the state, including the CEO of Fosun which had acquired Club Med in the same year.17Michael Posner, “China’s disappearing billionaires—an alarming trend,” CNBC, February 1, 2016, https://www.cnbc.com/2016/02/01/chinas-missing-ceos-and-billionaires-having-a-chilling-effect-commentary.html. Michael Forsythe, “Billionaire is reported seized from Hong Kong hotel,” New York Times January 31, 2017 (on the state-kidnapping of Xiao Jianhua, banker to the ruling class and “white glove” for the Xi Jinping family who, apparently, knew too much). Mr. Xiao has not been heard from since his theatrical abduction from the Four Seasons Hotel in Hong Kong. Chinese call these the sha zhu bang, “pig-killing lists.” As Xi’s anti-corruption campaign gathered force since 2013, tycoons have been taken down left and right.18Rebecca Chao, “Why do Chinese billionaires keep ending up in prison,” Atlantic, January 29, 2018, https://www.theatlantic.com/international/archive/2013/01/why-do-chinese-billionaires-keep-ending-up-in-prison/272633/. In 2015-16, China’s rich funneled more than a trillion U.S. dollars out of the country, mostly via investments in private companies including HNA, Fosun, Dalian Wanda, Anbang and others who bought up hotels (Hilton, Starwood, and others), AMC Entertainment, Legendary Entertainment, Cirque du Soleil, soccer teams and properties around the world – largely to launder their loot and park it in a country where the rule of law would protect their assets.19Michael Forsythe and Alexandra Stevenson, “Murky firm is behind a donation of $18 billion,” New York Times, July 27, 2017. In this case a surrogate “white glove” donated $18 billion, 29 percent of the value of HNA Corp., to a New York-based private Chinese foundation, placing it for the real owners in safe family-related hands, hopefully beyond the reach of the Chinese government. See also David Barboza, “Behind a Chinese powerhouse, web of family financial ties,” New York Times July 19, 2018.
Xi, anxious to stanch “hot money” outflows, fearful of government losses on state loans to private companies and determined to prevent the rise of an overmighty class of wealthy capitalists, took the fight to them.20Richard McGregor, “China takes on the tycoons,” Wall Street Journal, October 14-15, 2017; Wang Yanfei, “SOEs outbound risks to be contained,” China Daily, December 19, 2017. He went after the so-called “grey rhinos” whose highly leveraged companies and “irrational” foreign investments threatened financial stability. CEOs were charged with economic crimes, locked up, their assets and companies seized.21Gabriel Wildau et al., “China to clamp down on outbound M&A in war on capital flight,” Financial Times, November 29, 2016, https://www.ft.com/content/2511fa56-b5f8-11e6-ba85-95d1533d9a62; Keith Bradsher and Sui-Lee Wee, “In China, herd of ‘gray rhinos’ threatens economy, New York Times, July 23, 2017. In June 2017 he took down Anbang’s CEO Wu Xiaohui, the car insurer who married a granddaughter of Deng Xiaoping. Wu got 18 years in prison. His company was nationalized and the state is unloading his properties. In July, Wang Jianlin (Dalian Wanda), the bloviating property developer, entertainment mogul, and Hunrun-list richest man in China who once vowed to “defeat Disney,” was ordered to sell off his theme parks and hotels to pay back state banks. Wang Shi, founder of China Vanke, the nation’s biggest builder/developer, though not charged with any crimes, was forced out and his company taken over by state-owned companies in 2017. In March 2018, Chen Feng, CEO of HNA (an aviation-to-financial services conglomerate based in Hainan), biggest of the big spenders who had amassed trophy assets across six continents taking a 10% share in Deutsche Bank, 25% of Hilton Hotels, tens of billions in Manhattan mansions and buildings, Swiss companies, etc., was ordered him to sell off real estate and other assets “that fall outside Beijing’s policy agenda.” Just this week it was reported that Xiao Jianhua’s multibillion dollar empire had been seized and was being dismantled by the state. Xiao, once a trusted financier to the ruling elite including Xi Jinping’s own family, was kidnapped from a Hong Kong luxury hotel in 2017 never to be heard from since.22Alexandra Stevenson, “China seizes tycoon’s empire, 3 years after he vanished,” New York Times, July 19, 2020. And so it goes. As they say in China “the state advances, the privates retreat” (guo jin min tui).
While many private billionaires continue to thrive including Alibaba’s Chairman Jack Ma (Communist Party member long before he got rich) and Pony Ma, founder of Tencent Holdings Ltd. because their companies actively enable the Party’s industrial policy goals like promoting consumerism and collecting intel on customers, etc., Xi has decapitated China’s aspirant national bourgeoisie, nationalized their companies, demoralized the private sector, his intended aim.23Xie Yu, “Regulators remove Anbang chairman Wu Xiaohui for ‘economic crimes’, take over conglomerate,” South China Morning Post, February 23, 2018, http://www.scmp.com/business/companies/article/2134391/regulators-remove-anbang-chairman-wu-xiaohui-economic-crimes-take; Craig Karmin et al., “Luxury-hotel portfolio put for sale,” Wall Street Journal, August 20, 2018; Sui-lee Wee,”A Disney rival in retreat,” New York Times, July 17, 2017; Anjani Trivedi and Julie Steinberg, “China Conglomerate Gets Lifeline,” Wall Street Journal, March 3-4, 2018; “Creditors call time on China’s HNA,” Economist, February 8, 2018; April Ma and Lin Jinbing, “Charismatic Wang Shi stepping down as Vanke Group’s Chairman,” Caixin, June 21, 2017; Keith Zhai and Alfred Cang, “Xi’s Warning to investors: any Chinese billionaire could fall,” Bloomberg, March 1, 2018: https://www.bloomberg.com/news/articles/2018-03-01/xi-s-warning-to-investors-any-chinese-billionaire-could-fall. Xi is a nationalist and neo-Maoist. He’s hostile to capitalists and he doesn’t want government capital, or even private capital, wasted on trifles or funneled out of the country. He wants it concentrated on state industrial policy priorities. Besides, in his push to end poverty in China, bling-encrusted billionaires are embarrassments to his neo-Maoist social leveling.
Deng Xiaoping: Restoring Capitalism or Using Capitalism to Save Communism?
In Maoist interpretations of China, Mao tried to build socialism while Deng Xiaoping “restored capitalism.” This myth doesn’t accord with the history. Deng abandoned Mao’s autarky, introduced market reforms and threw open the economy to Western investment. But from the start he was crystal clear that reform did not mean counter-revolution. There would be no privatization, no restoration of capitalism. In the 1980s-90s, Deng and his comrades were shocked and horrified by Gorbachev’s privatizations that precipitated the collapse of the CPSU and they determined to avoid that error. Thus in 1985 he reassured worried comrades that:
We are trying to achieve modernization in industry, agriculture, national defense and science and technology. But in front of the word “modernization” is a modifier, “socialist”, making it the “four socialist modernizations” . . . Socialism has two major requirements. First, its economy must be dominated by public ownership . . . our publicly owned economy accounts for more than 90 per cent of the total. At the same time, we allow a small proportion of individual economy to develop, we absorb foreign capital and introduce advanced technology, and we even encourage foreign enterprises to establish factories in China. All that will serve as a supplement to the socialist economy based on public ownership; it cannot and will not undermine it.24Deng Xiaoping, Fundamental Issues in Present-Day China (Beijing: Foreign Language Press, 1987), p. 13 (my italics).
Again in January-February 1992, just weeks after the collapse of the Soviet Communist Party in December, Deng undertook his famous “southern tour” of Shenzhen and other SEZs to bolster pro-reform forces against conservatives who were ready to close down the SEZs. He insisted that while market reform and opening were the only way to save the Communist Party, he was no Gorbachev:
The SEZs bear the surname “socialism” (shehui zhuyi) rather than “capitalism” (ziben zhuyi ). In Shenzhen, public ownership remains the main body of the economy, and foreign investment accounts for one-fourth. . . . We still hold superiority, because we have large and medium-sized state-owned enterprises and township and town enterprises. More importantly, we hold the state power in our hands. Some people think that an increase in foreign capital will lead to the development of capitalism and that an increase in foreign-funded enterprises will lead to an increase in capitalist things. These people lack common sense. . . . “[T]he foreign-funded enterprises are constrained by the overall political and economic conditions in our country, and thus form a useful supplement to the socialist economy. In the final analysis, they are beneficial to socialism.25 ‘Central Document No. 2 (1992)’ trans. in FBIS April 1,1992, p. 2, quoted in Smith, “The Chinese Road,” p. 85.
Chen Yun, Mao’s chief planner, likened China’s utilization of capitalism to “a bird in a cage.” The cage must not be too small, lest the bird suffocate, but the bird must be contained or it would fly away—capitalism would get out of control. And so it remains to this day. There is no end of “capitalist things” in China today. But there has been no wholesale privatization of state assets to oligarchs as in Russia.
James McGregor who spent more than twenty years in China as Wall Street Journal Beijing bureau chief and president of the U.S. Chamber of Commerce in China, describes the pervasive control of the state and the marginal role of capitalists and markets in China in the 1990s and 2000s thusly:
SOEs monopolize or dominate all significant sectors of the economy and control the entire financial system. Party leaders deploy the SOEs to build and bolster the economy and undergird the Party’s monopoly political control. The private sector provides a lubricant for growth and the opportunity for people to become rich as long as they support the Party.”26James McGregor, No Ancient Wisdom (Westport CT: Prospecta, 2012), p. 2
Carl Walter and Fraser Howie, authors of Red Capitalism and also veteran investment bankers and participants in China’s IPOs, wrote in 2011:
The state is involved at every stage of the market as the regulator, the policy maker, the investor, the parent company, the listed company, the broker, the bank, and the banker. In short, the state acts as the staff for China’s major SOEs.27Carl E. Walter and Fraser J.T. Howie, Red Capitalism (Singapore: Wiley 2011), pp. 22-25, 212.
And not only the commanding heights. As investment banker Joe Zhang explains, the state’s reach extends throughout the economy to all manner of ordinary consumer-goods industries:28Joe Zhang, Party Man, Company Man (Honolulu: Enrich, 2014) pp. 48, 175, 181-182 and passim. From the late 1980s through the mid-2000s, Zhang worked variously as Deputy Head of China Investment Banking and also Chief of China Research for UBS Hong Kong, as an official of the People’s Bank of China, and also as COO of a Chinese government-owned investment bank in Shenzhen. So Zhang has an unusual insider’s view of the operations of both systems in China.
They not only monopolize (or nearly monopolize) many “strategically important” sectors and industries…but they also maintain massive operations in mundane and competitive sectors such as manufacturing, metals, food and beverages, gas and water utilities, retail operations, hotels, and real estate.”29Party Man, pp. 96, 115-116, 175-176.
What’s more, as a state-based ruling class determined to “catch up an overtake the US,” China’s leaders spent some of their growing wealth renovating, modernizing, upgrading and vastly expanding their state industries, turning them into “national champions.” Today, of China’s top 500 companies, SOEs overwhelmingly dominate: SOEs account for 63 percent of all companies, 83 percent of all revenues, 90 percent of total assets.30“Infographic: A Glance at Chinese State-Owned Enterprises,” CNPolitics.org, China Digital Times, August 24, 2012: https://chinadigitaltimes.net/2012/04/infographic-a-glance-at-chinas-state-owned-enterprises/.
Profit Maximization Is Not the Maximand
Yet China’s state-owned “corporations” are not profit maximizers per se like, say, Singapore’s state-capitalist Temasek and similar sovereign wealth funds. They’re happy to make money when they can. But they’re not obliged to. Many have been effectively bankrupt for decades but the government won’t let its “zombies” fail so rolls over their loans in perpetuity. In forty years of market reform, not a single significant SOE has been permitted to go bankrupt. Their existence and purpose is dictated by the Plan not the market. Thus when the head of a major state-owned conglomerate was removed for embracing market economics a bit too enthusiastically, a Beijing University expert on China’s state enterprises remarked:
There’s a system in place, not just one person. The party’s appointee draws his position from patronage… and the task is to engage with state leaders and safeguard government assets, not to maximize profits.31James T. Areddy and Laurie Burkitt, “Shake-up at China firm shows reach of graft crackdown,” Wall Street Journal, 23 April 2014.
No “withering of planned economy” either
Lastly, the market has not replaced planning in the state controlled economy either. Back in the 1990s Western market-enthusiast China experts predicted that China was “growing out of the plan.”32Barry Naughton, Growing Out of the Plan (Cambridge: CUP, 1995); Nicholas R. Lardy, Markets Over Mao (Washington DC: Peterson Institute, 2014). But this never happened. While leaders hinted that someday they would “let the market allocate resources” they never got around to this, beyond the margins. And they could not do so because to overtake the US, they need to build those state-owned “champions”; so they need to steer resources into developing key industries and plan the overall economy. Thus, as the annual U.S. Congressional Economic and Security Review reported in November 2015:
Soviet-style, top-down planning remains a hallmark of China’s economic and political system. Five-Year Plans (FYP) continue to guide China’s economic policy by outlining the Chinese government’s priorities and signaling to central and local officials and industries the areas for future government support. The FYPs are followed by a cascade of sub-plans at the national, ministerial, provincial, and county level that attempt to translate these priorities into region- or industry-specific targets, policy strategies, and evaluation mechanisms.”33US-China Economic and Security Review Commissi000 people, on, 2015 Annual Report to Congress November 17, 2015: Section 3, p. 140: http://origin.www.uscc.gov/sites/default/files/Annual_Report/Chapters/Chapter%201%2C%20Section%203%20-%20China%27s%20State-Led%20Market%20Reform%20and%20Competitiveness%20Agenda.pdf. Also Naughton, The Chinese Economy, p. 305.
The 11th and 12th Five-Year Plans set national priorities and outlined how these were to be met down through thousands of sub plans grouped under three categories: “comprehensive plans,” “special plans,” and “macro-regional plans.” Regional plans included the massive Western Development Program focusing on industrializing western China, the Pearl River Delta Program emphasizes tech innovation, and so on. Hundreds of special thematic plans included five-year plans for individual industries including pharmaceuticals, food processing, chemicals, cement and textiles. Broader thematic plans support science, technology, energy efficiency, rails, highways, power, disaster mitigation and more.
In an important article in Modern China in 2013, Sebastian Heilmann and Oliver Melton debunked the “withering of the planned economy” argument:
Contrary to this widely held [view]…a “demise of the plan” has not taken place in China. From 1993 on, development planning has been fundamentally transformed in terms of function, content, process and methods. It has provided room for market forces and the decentralization of decisionmaking authority, while preserving the state bureaucracy’s ability to influence the economy and insuring that the party has retained political control even as it has abandoned many of its former powers.34Sebastian Heilmann and Oliver Melton, “The reinvention of development planning in China, 1993-2012,” Modern China, August 2013: http://journals.sagepub.com/doi/abs/10.1177/0097700413497551, p. 2.
Today, instead of issuing thousands of detailed production targets, China’s central planners mostly just write checks to fund their projects.35Richard McGregor, The Party (New York: Harper, 2010) p. 65. Yet even as planning has been modernized and monetized, plans still list dozens of mandatory and indicative targets. The 12th FYP (2011-2015) for example targeted a 7.5 percent increase in economic growth, a 3.1 percent increase in non-fossil fuel usage in primary energy consumption, a 16 percent decrease energy consumption per unit of GDP, a 30 percent decrease in water consumption per unit of GDP, a 1.3 percent increase in forest coverage — even a 1.6 percent increase in the numbers of “patents per 10,000 people.” The plan also stipulated numerous quantitative targets: the high-speed railway network should reach 45,000 kilometers, the express highway system would grow to 83,000 kilometers, the government would create 45 million new jobs over the five year life of the plan, and more. The Plan also ordered new ports, dozens of new airports, and so on to be built.36Heilman and Melton, op cit., p. 4ff and Tables 1 and 2. State Council,12th Five-Year Plan, op.cit.
In sum, while there’s considerable capitalism in China, mainly concentrated in the more or less fully capitalist joint-venture SEZ export zones, China cannot be properly understood as a capitalist political economy. It’s a “new class” society, a hybrid bureaucratic collectivist-capitalist economy in which state ownership and state planning dominate and capitalism is confined as “a bird in the cage.”
What Political Implications Follow from the Foregoing?
Turning to the political implications of his analysis Friedman asks, is China just another capitalist power “in competition with the US” for global imperial hegemony? Or, should “we believe the Chinese state and its opposition to the US-led order embodies a liberatory politics[?]” My response is that there has been nothing “liberatory” about CCP politics for many decades. The Chinese Communist Party has not been credibly a socialist party since the 1920s when it was overwhelmingly comprised of proletarians. After the workers revolution was crushed in 1926 by the Guomindang, leadership of the party fell to Mao’s nationalist wing of the party. Mao abandoned the proletariat to construct a “substitute proletariat,” a party-army-bureaucracy drawn from heterogeneous petit bourgeois elements and based on the peasantry. He rejected Marxism and materialism for idealism and voluntarism, rejected workers’ democracy for party dictatorship, rejected proletarian internationalism for nationalism and Han chauvinism; and rejected workers’ insurrection for a strategy of “people’s war” and military conquest. In the event, Mao’s “new type” Stalinist party-substitutionist revolution proved a stunning success, liberating China from foreign occupation, warlordism, landlordism, capitalism, and emancipating women from Confucian patriarchy. That’s what was “liberatory” about the Chinese revolution. But the new type revolution then installed a new type Stalinist party-army-bureaucratic ruling class, a nationalist, Han chauvinist, totalitarian police state dictatorship that has exploited China’s workers and peasants for seven decades in pursuit of their leaders’ vainglorious project of restoring China to its “rightful” place as the world’s greatest nation, and leading superpower.37On which see Mao Zedong, “Strengthen party unity and carry forward party traditions,” August 30, 1956, https://www.marxists.org/reference/archive/mao/selected-works/volume-5/mswv5_53.htm; Liu Mingfu, China Dream (New York by CN Times Books, 2015), Chapter 1; and Angang Hu, China in 2020: A New Type of Superpower (Washington DC: Brookings Institution Press, 2011). See also Richard Smith, “Mao Zedong and the first party-army ‘substitutionist’ revolution,” Against the Current, vol. 1, no. 1 (Summer 1981), http://www.richardanthonysmith.org/mao-rev-1. As a state-based ruling class and communist nation in a world dominated by more advanced and powerful capitalist nations, Mao and his successors understood, like their Soviet comrades, that they must “catch up and overtake the United States”– build relatively self-sufficient high tech superpower to fend off the capitalist imperialists. The Soviets’ failure to win the economic and arms race with the United States doomed the Soviet Communist Party. Deng Xiaoping and his successors, notably Xi Jinping, have been determined to avoid that error. Today, the Chinese Communist Party is on a suicide mission to maximize economic growth to overtake the US and dominate the world economy even if the CO2 emissions resulting from this hyper-growth end in climate collapse and eco-suicide.38Richard Smith, “The Chinese Communist Party is an environmental catastrophe,” Foreign Policy, July 27, 2020, https://foreignpolicy.com/2020/07/27/chinese-communist-party-environment-co2/; idem, China’s Engine of Environmental Collapse (London: Pluto Press, 2020), https://www.plutobooks.com/9780745341576/chinas-engine-of-environmental-collapse/.
Today, two radically different social systems are united in a common mission: to maximize economic growth till we hurl ourselves off the cliff to ecological collapse. Our only hope is to support democratic struggles everywhere to bring those systems down before they destroy us, and to replace them with ecosocialist societies based on public ownership and democratic governance. As much as we stand against Trump and his fascist base, so we must “Stand With Hong Kong” and Stand with East Turkestan (Xinjiang) against the Chinese Communist Party39Richard Smith, “We’re all Hong Kongers now,” New Politics, August 19, 2019, https://newpol.org/were-all-hong-kongers-now/. because if we don’t succeed, we face extinction.