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July/August 2004 • Vol 4, No. 7 •

Has China Gone Capitalist?

By Nat Weinstein

The bourgeois news media have never stopped celebrating the dissolution and disintegration of the Soviet Union. As far as their public stance is concerned, all these countries, China, Russia and the former satellite “socialist” states of Eastern Europe are again being counted among the ranks of capitalist states, albeit with distortions flowing from their unique trajectory from capitalism toward (but not reaching) genuine socialism, and then back again.

In fact many professional news analysts have been predicting, lately, that “capitalist China” may become the world’s next great economic and military superpower and perhaps one of the American Empire’s most formidable competitors in the world marketplace.

But if one reads what the most serious representatives of the capitalist status quo have to say about China, it can be seen that while they are very happy to see China’s progress toward capitalism, they are also greatly disturbed by China’s refusal, so far, to go more than barely halfway toward a full-fledged market-driven capitalist economy.

Consequently, U.S. imperialism is determined to keep the most intense pressure on the Chinese Communist Party government and state apparatus to force them to complete their half-finished job in the shortest possible time.

This thumbnail sketch of an extremely sharp struggle between Beijing and Washington over China’s “laggard” pace toward capitalist restoration, helps explain Washington’s schizophrenic stance toward China. It seems that almost from week to week, the mass media is filled with headlines celebrating China’s remarkable progress toward capitalist-style industrial development, followed by Cold War-like anti-Communist threats launched by Washington against Beijing!

In order to figure out what Washington and Wall Street really think about the nearly 1.4 billion-strong Peoples Republic of China, let’s first take a look at what some of the most authoritative of their experts are saying about the current stage of its trajectory toward capitalism.

In a report titled “U.S. and China take Small Steps on Trade,” (New York Times, June 25) the author, Chris Buckley, writes:

After nearly a week of prickly discussions on trade…Donald L. Evans, the commerce secretary, ended a six-day visit to China on Thursday [June 24]. Mr. Evans and Elaine L. Chao, the labor secretary, who was also in Beijing, pressed China to make trade-related changes including loosening its currency controls, privatizing its banking system, strengthening workers’ wages and bargaining rights, and rolling back the role of government in the economy.

“Far too many key assets and means of production within the Chinese economy are owned and operated by the state,” Mr. Evans said this week in a speech to the American Chamber of Commerce in Beijing. We have seen too few ‘for sale’ signs on the commanding heights of the Chinese economy….”

There’s no doubt they’re committed to reforms that bring China closer to a truly market economy,” said Grant D. Aldonas, the Commerce Department’s under secretary of international trade, in an interview in Beijing, “but it will take some considerable time.”

What is remarkable about the above extract from the Times is that the three things Secretary of Commerce Evans complains China has not yet done, happen to be three of the most important social, economic and political transformations created by China’s socialist revolution starting more than 50 years ago! :

• China has not yet “privatized its banking system” which remains state-owned and controlled.

• “Many key assets and means of production…are owned and operated by the state,” and:

• “The commanding heights of the Chinese economy” are still under the sole control of the Chinese Communist Party (CCP) government and state bureaucracy.

In other words, the representatives of the U.S. ruling class went to Beijing to demand of their CCP trading partners that they stop acting like they are still the government of a workers state and begin acting as though they are the government of a capitalist state!

But of course, while the Chinese state is not yet capitalist, neither is it exactly what it was before pro-capitalist innovations were superimposed on the Chinese economy. The most serious and the most criminal of all of the CCP’s pro-capitalist transformations, was the dissolution of what the country’s workers and peasants had dubbed, their “Iron Rice Bowl.” That is, the socialistic cradle-to-grave social security system established by China’s socialist revolution1 has by now almost completely been taken away.

While the CCP calls its policy, “market socialism,” it has never been “socialist”—even when its nearly one billion workers and peasants had enjoyed their iron rice bowl, but was then and still is today a little bit closer to socialism than most superficial observers apparently think.

At the same time, whatever improvements in the productive capacity of the Chinese economy have been gained through its policy of “market socialism” (and future gains, cannot be excluded), the Stalinist bureaucratic dictatorship is now weaker than it was before because it has lost the support of all those from whom their iron rice bowl has been stolen, to help create the foundation for its transition toward a capitalist state—with nothing but hunger and hardship put in its place for the great majority of China’s people.

China’s one-sided introduction of market forces

Concretely, the capitalist law of supply and demand now dominates China’s internal market, but almost exclusively in the production and distribution of consumer goods. As the American secretary of commerce has conceded, the commanding heights of the banking system and the basic sectors of the productive forces of the Chinese economy remain institutions consistent with a socialistic planned economy. Therefore, capitalist market-relations have only indirect influence over the state-owned and operated heavy industrial sector of the Chinese economy.

This explains why the Chinese Communist Party insists on using measures of direct intervention consistent with the means of regulating production in a planned economy. This is despite the greatest pressure by U.S. and world imperialism on China to use market measures to “cool off” its overheating economic expansion to avoid ending in a “crash landing.”

The fact is, that the indirect methods that China is urged to use would have a different effect than the one it is supposed to accomplish. These methods, consistent with a genuinely profit-driven capitalist economy, such as raising interest rates to starve Chinese industry of capital and thereby, a reduction of investment in the construction of new forces of production and commerce, would hasten China’s return to capitalism.

These methods would not have the effect of reducing investment in new forces of production across the board. Rather, it would allow the private sector to grow while China’s state bank shrinks the state sector! This would undoubtedly be the end result because China’s state-owned and controlled banks primarily finance the state-owned sector—but not the private sector. Thus, the imperialist banks, which lend mostly to the private sector, would find a way—and there always is a way—to allow the relative size of the private sector to expand and thus gain greater influence over the commanding heights of the Chinese economy.

China’s introduction of market forces, by the way, primarily affects consumer goods produced and distributed to China’s domestic and foreign markets—by the private sector.

That means commodity values are determined in the same way as in any ordinary capitalist market according to the socially necessary labor-time incorporated in these commodities, while their prices are regulated according to the capitalist economic law of supply and demand. Capital goods, largely produced by the state sector, are mostly exchanged between state-owned industries in line with the norms prevailing in planned economies, and not according to their market value.

However, depending on how corrupt are the state bureaucrats in charge, these exchanges among state-owned and controlled means of production are certainly influenced to a varying extent by market forces.

What does it all mean

While all the Russian and East European states that have taken the road back to capitalism have introduced a version of bourgeois democracy, China continues to exercise an iron-fisted political dictatorship. Paradoxically, China appears to have made the most extensive progress toward the level of productivity of a market-driven capitalist economy—compared with all workers states today, except Cuba and North Korea, which have not embarked on the road back to capitalism.

However, as has already been indicated above, the only reasonable explanation for China’s otherwise inexplicably successful economic expansion, compared to that of Russia and Eastern Europe, is its having retained a substantial measure of economic independence through retention of state control over the commanding heights of the Chinese economy.

At the same time, while capitalists may now be accepted into Communist Party membership, and a sector of the government and state bureaucracy have established personal links to investments in the private sector, the party’s leading bureaucrats continue to exercise an unchallenged control over the governmental and state apparatus.

As a matter of fact the capitalist class of China poses little immediate threat to the dominance of the bureaucratic caste. Indigenous capitalism in China, in and of itself, is still far too feeble a force in China. The very real threat to the CCP’s rule in China today clearly comes directly from American and world imperialism.

In Russia, however, where imperialism has developed a formidable foothold among the billionaire oligarchy and the petty bourgeois democrats—including the Russian Communist Party—Russia’s “tycoons” and imperialist corporations have converted a far larger share of state property into private property than the CCP has allowed in China. Therefore, the newly created capitalist class is a far more direct threat to what’s left of the conquests of the socialist revolutions in Russia and Eastern Europe. But only because it provides imperialism with an indigenous base of support deep inside Russia’s economic infrastructure

In other words, the CCP continues to rule politically over Chinese society by balancing itself between the two main contending classes in modern society—workers and imperialists—as it did before adopting “market socialism.” However, the big difference between then and now, has two sides.

On the one hand, in order to create one of the preconditions for capitalist exploitation, the workers’ right to an iron rice bowl had to be taken away, along with the right to a job for all able-bodied workers and farmers.

On the other hand, while the CCP continues to balance itself between the working class and imperialism, the center of gravity has shifted further right, toward capitalism and, by the same token, toward imperialist domination of the Chinese state.

The need for an ample supply of unemployed workers with nothing to sell but their labor power must also be achieved before capitalism can be consolidated in China.

That helps explain why tens of millions of peasants have left the countryside for the cities because the remaining collective and cooperative farms are being gradually denied the indispensable material support that the workers’ state had always provided. It’s not, as most bourgeois China specialists have said, merely because they can make a better living for themselves in the cities. It’s because their communes and cooperatives and the growing trend toward family farms cannot survive without adequate government assistance. Therefore, most peasant migrant workers must go to the cities to earn enough to support their families and communities back home!

Behind the CCP’s goal of ‘market socialism’

The first of the Chinese bureaucratic dictatorship’s goals appears to have been the charting of a course toward capitalist restoration while safeguarding its caste interests. And it also appears that a significant minority of the bureaucracy, while jealously guarding their privileges, also sought to safeguard their personal interests by converting as much of state-property into private property as possible.

Thus, in this fashion, many apparatchiks undergo a metamorphosis from bureaucrat to capitalist. And as in Russia and Eastern Europe, it appears that a section of the CCP bureaucracy has begun to cast its lot with the burgeoning capitalist class of China. In any case, imperialism has every reason for aiding and abetting this development.

Consequently, this sector may have decided to make sure that in the eventuality of a successful transition to capitalism, that China is not transformed into a semi-colony of U.S.-dominated world imperialism, as is India—despite its billion-member population. And whether or not this transition could actually be achieved, this sector of the bureaucracy sees its way forward by helping the development of an indigenous capitalist class capable of standing on its own economic feet.

As has already become apparent, China’s productive forces are already powerful enough to challenge the United States for as big a share of the world market as they can get.

CCP control of ‘commanding heights’ appears to work

Let’s take a look at a more recent report in the July 7, 2004 New York Times that discusses the measures employed by the Chinese state to combat the wildly uneven expansion of the private sector of the economy and the threat of inflation, followed by economic collapse and deflation. These measures conflict with the classic capitalist methods of raising interest rates and similar indirect methods. The classic measures are all designed to make borrowed capital more costly, having the effect of discouraging construction of more efficient and therefore, more profitable new plant and equipment.

The CCP, having studied Marxist economics and with long experience managing a planned economy, certainly knows that that is the only way that capitalists can attempt to regulate their economies. They also know how to regulate a planned economy. That is, capitalists are compelled to use only indirect means of “controlling” their economy because they simply cannot abrogate the right of capitalists to use their capital as they see fit! Therefore, all that’s necessary to stop any mistakes in planning, in a bureaucratically-planned2 economy, is to simply order it to be stopped and then make it stick.

It explains why American imperialism is demanding that the Chinese Communist Party government and state end their control over the commanding heights of its economy by privatizing most, if not all, of its nationalized industrial infrastructure.

How the Chinese state has so far successfully managed to slow their economy simply by directly “commanding” a reduction in the rate of economic growth, is more than hinted at in a report titled, “Pondering China’s [interest] Rates Through a Central Prism.” Keith Bradsher, of the Times writes:

Faced with the task of gently cooling such an economy, policy makers at the Chinese central bank and other agencies have so far avoided raising [interest] rates—turning instead to administrative measures like increasing bank reserve requirement, cracking down on unauthorized construction projects and even in at least one celebrated case, jailing local party officials, entrepreneurs and a loan officer who charged ahead with a project without obtaining all the required permits. [Emphasis added]

But there are signs that the economy may be forcing the hand of the central bank, and that the bank may have to raise rates for the first time in nine years….

Many economists … contend that the government should be using market measures like higher interest rates in place of the blunter methods now employed. Among other things, the lending restrictions and other administrative controls that the central bank and the China Banking Regulatory Commission have tried so far have been anything but uniform in their effects. [Emphasis added.]

As we can see, these “blunter” methods are conscious, direct, and have allowed China to endure nine years of accelerated economic expansion largely through the direct methods flowing from what capitalists call a “command economy,” and what socialists call a planned economy. At the same time, the Chinese politely ignore the “advice” of Donald L. Evans, the U.S. secretary of commerce, and Elaine L. Chao, the labor secretary, and other “friendly” capitalist advice-givers.

The real protagonist in the China drama

However, if all we had to consider were these two protagonists, in order to figure out the possible ways the CCP-versus-imperialism drama will be resolved, the future of socialism in China would be bleaker than bleak. That’s probably why most of those who consider themselves to be socialists of one kind or another have little to say about the future of socialism in China, Russia or Eastern Europe.

The road to capitalism in China and elsewhere in the world is far more complicated than many China experts think. Like any complex coordinate system, there are a host of conflicting variables at work, some barely perceptible, than would be apparent to the expert observer, much less to lay persons.

But that’s not all there is to the algebraic equation: W (Chinese workers state) + X (bureaucratic dictatorship) + Y (imperialism) = Z (the final and still to be resolved outcome). Actually the major variable in this equation will prove to be the Chinese working class and peasant allies.

Chinese workers and farmers are now being driven by their spontaneous struggle for the restoration of their cradle-to-grave social security toward forging an even more powerful alliance than the one that led to their socialist revolution more than 50 years ago. And no one should underestimate the weight of close to a billion deeply wounded and very angry Chinese workers and peasants on the balance scale of the Chinese social, economic and political equation.

Where we are and where we are going

No one can foresee the end result of this struggle in China by the CCP to create the social and economic foundations of capitalism. But while this question will be decided primarily by the forces indicated in the equation above, what happens in one place is always influenced, more or less, by what happens everywhere else. And since economic crises, social polarization, corruption, and class struggle are on the increase in the strongholds of world imperialism, these will inevitably have repercussions in China, as well as in Russia and Eastern Europe.

The class struggle in any country is affected by the class struggles in all countries. And in the final analysis, the only alternatives before the human race are as Rosa Luxemburg declared long ago: “Socialism or Barbarism!”

But aside from whether or not socialism can actually be achieved in China, the Cold War proved that a socialist revolution in one or a number of countries is no solution to unending wars and preparations for war. Not to mention not solving the problems of the two-thirds of the peoples of the world living without the barest necessities of life!

And to make bad matters worse, even if as much as half the world were socialist, the danger of mass self-destruction would still not have been removed, so long as there remains even one superpower armed with enough weapons of mass destruction to destroy the world several times over.

Therefore, the two key questions that must be answered because they are central to a strategic perspective for reaching a favorable outcome to the dilemma faced by humanity are: is socialism in one country possible? And, will that solve the dilemma we face today of Socialism or Barbarism?

What Marx and Engels had to say on these questions

I will conclude this analysis of the class nature of the Chinese state by reproducing three paragraphs from an “Address of the Central Committee to the Communist League” written by Karl Marx and Frederick Engels in 1850.

But first some explanatory remarks are necessary to put the three paragraphs in their proper historical context:

By 1848, in their most famous work, The Communist Manifesto, the founders of scientific socialism had already begun to address the questions relating to the struggle for socialism and communism.

Their address to the Communist League of Germany was designed to report on the conclusions drawn by the Central Committee of their world organization regarding the lessons to be learned from the defeated German democratic revolution of 1848. History up to that time had demonstrated that the capitalist democratic revolution would be led by the nation’s capitalists, but in the person, so to speak, of the democratic petty bourgeoisie.

The dynamic of betrayal of the 1848 German Revolution against that country’s feudal aristocracy was laid out by Marx and Engels before the Communist leaders of the German workers. Their analysis of the historic events of 1848 goes a long way toward explaining why it had become next to impossible for neocolonial and semi-colonial countries to gain genuine independence from imperialism under the leadership of today’s capitalist class and its democratic petty-bourgeois leadership.

Looking back from the vantage point of the 21st century, it can be seen that imperialism brought along with it more than a century of war and revolution—with no end in sight. In fact, from the mid-19th century on, with the exception of Japan at the beginning of the 20th century, no pre-capitalist country won genuine independence from feudal or semi-feudal society, except by means of socialist revolution.

The second lesson drawn by Marx and Engels relates to the impossibility of constructing a genuine socialist society within the boundaries of one country, especially one as economically backward as was Russia in 1917, as are all the other post-capitalist countries of today. But no less important, this lesson helps explain why the scores of political revolutions in Africa, Asia and Latin America have gained nominal independence, but remain totally under the thumb of Western and Japanese imperialism.

Without the rise of a new upsurge of class struggle in the advanced industrial countries of the world, the super-exploited masses in the colonial world have not, and will not, be able to break out of the constraints imposed on them by their capitalist and petty-bourgeois leaders.

That will change only after the world working class emerges from its more than half-century of relative passivity. While no one can exactly predict when workers in the strongholds of world imperialism, which have been on the defensive for decades, will say: we have taken all we will take, and won’t take it any more—it is nevertheless an inevitability.

Moreover, the antiwar mood that has steadily grown everywhere from the time of the Vietnam War until the present day, has become almost as anti-imperialist as it is antiwar. It strongly suggests that when the next mass worker upsurge erupts in the advanced industrial countries of the world, they will not only have an economic and domestic political dimension but also an internationalist and anti-imperialist character as well.

But the question of the consolidation of world socialism will remain unresolved until the third American Revolution removes the last major obstacle to a world socialist society.

Now, I will leave it to Marx and Engels to say in their own words why socialism in one country is impossible and why world socialism is the only solution to capitalist barbarism:

Brothers! We told you as early as 1848 that the German liberal bourgeois would soon come to power and would immediately turn their newly acquired power against the workers. You have seen how this has been fulfilled. In fact it was the bourgeois who immediately after the March movement of 1848, took possession of the state power and used this power to force back at once the workers, their allies in the struggle [against the feudal party], into their former oppressed position.

… [I]t is our interest and our task to make the revolution permanent, until all more or less possessing classes have been forced out of their position of dominance, until the proletariat has conquered state power, and the association of proletarians, not only in one country but in all the dominant countries of the world, has advanced so far that competition among the proletarians of these countries have ceased and that at least the decisive productive forces are concentrated in the hands of the proletarians. For us the issue cannot be the alteration of private property but only its annihilation, not the smoothing over of class antagonisms but the foundation of a new one….

But [the workers] themselves must do the utmost for their final victory by clarifying their minds as to what their class interests are, by taking up their position as an independent party as soon as possible and by not allowing themselves to be seduced for a single moment by the hypocritical phrases of the democratic petty bourgeois into refraining from the independent organization of the party of the proletariat. Their battle cry must be: The Revolution in Permanence.3

1 And by every other state that had followed the example of the world’s first socialist revolution in Russia in October 1917.

2 “It is possible to build gigantic factories according to a ready-made Western pattern by bureaucratic command—although, to be sure, at triple the normal cost. But the farther you go, the more the economy runs into the problem of quality, which slips out of the hands of a bureaucracy like a shadow. The Soviet products are as though branded with the gray label of indifference. Under a nationalized economy, quality demands a democracy of producers and consumers, freedom of criticism and initiative—conditions incompatible with a totalitarian regime of fear, lies and flattery,” Leon Trotsky, The Revolution Betrayed, 1936.

3 The selection appears on pages 197, 110 and 117, of Volume I, Karl Marx and Frederick Engels, Selected Works, Foreign Languages Publishing House, Moscow 1955.





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