Cracking the Chinese puzzle

The following article was originally published in the British Socialist Appeal in 1992, it provides background material on the processes and forces shaping modern Chinese society today. It looked at the growing influence within the state apparatus of the pro-capitalist elements, a process that has continued and intensified to this day.

The following article was originally published in Socialist Appeal in 1992, it provides background material on the processes and forces shaping modern Chinese society today.


The Chinese government has “opened up” the economy since the late 1970’s, they encouraged foreign investment, the development of an internal capitalist class and private incentive amongst the peasantry. An alliance of pro-capitalist social forces have gained a powerful hold on the state apparatus and are pushing the whole economic policy on the road to capitalism.

For the first time since the 1950s an article appeared in the Chinese press calling for the official abandonment of socialism and for the adoption of the free market system. Splits have re-opened within China’s leadership reflecting the material and social bases of different sections of the bureaucracy. The so-called reformers support a far more rapid transition to capitalism, the so-called hardliners, a slowing down or halting of these processes. Whilst economic growth in China is the envy of the world, the growth figures conceal uneven and contradictory growth in different sectors of the economy.

In March this year the National People’s Congress endorsed what China’s press called “an unusually strong call for more drastic reforms....obviously inspired by Deng Xiao Ping’s recent remarks,” which praised the capitalist experiment in Shenzhen and called for China to continue its current path for 100 years.

On the 71st anniversary of the founding of the Chinese Communist Party, the People’s Daily called on all party members to “emancipate their minds further” and warned that those who “fail to free themselves from the shackles of ‘leftism’ will not be able to build China into a modern socialist country and will be abandoned by the people and history.”

Calls have been made for all officials who oppose reform to stand aside or resign. Reform is focusing on what is known as the three irons – the egalitarian wages system amongst the workers (the iron wages), lifetime employment (the iron rice bowl) and secure posts for enterprise officials (the iron armchair). In state industry wages will be linked to productivity, all workers will be put on short term contracts as will all officials, directors, managers. Free markets for health, housing and labour will be established.

The Chinese Bureaucracy

China’s bureaucracy did not grow out of the degeneration of a relatively healthy workers’ democracy as it did in the Soviet Union. In China, the People’s Liberation Army was already a bureaucratic regime before it seized State power. In the Chinese civil war Mao’s army set up ‘liberated areas’ wherever they conquered.

Liu Bin Yan, former reporter for the People’s Daily wrote, in his book China’s Crisis, China’s Hope.” The first order of business for the military was to gain an understanding of the situation in the new area and determine who were its potential enemies; to do this it was necessary to reorganise the people’s lives and issue new government decrees. In as much as officials of the previous regime were not to be trusted, activists willing to work for the new regime came to the assistance of the military and the party, and the most loyal and competent among them were recommended or appointed by military or party officials as local officials... the Chinese party established a system of control over a nation of one billion people based upon its experiences in military control, in which a given area might be abandoned at any time. It is not a complex system: political loyalty to the party is the prime consideration in appointing an official, far more important than abilities or cultural level; the reinstatement, promotion or demotion of an individual is invariably determined by how an official higher up feels about him, rather than by his character, morals, abilities, or achievements or by how the masses feel about him. The bureaucrats’ children often intermarry, establishing a blood relationship or what is called a kinship relationship. School ties and such things as the place of birth unite the bureaucracy together. If one man commits a crime, the network is mobilised to form a protective cloak around him; it is very effective. In 1957 Mao revealed that ‘there were at the time 1.8 million officials throughout China.’ There are now 27 million.”

In the bureaucratically planned economics bureaucrats are not driven by the profit motive because they do not own capital, they derive their privileges and perks, often illegally, from state coffers. To expect the bureaucracy to behave like capitalists is like painting a donkey with black and white stripes and expecting it to behave like a zebra, which no appeals to “emancipate the mind” can achieve.

A main base of the hardliners is the 95,000 large or medium sized state owned industries, the basis of the planned economy and the urban welfare system. They provide 43 million jobs as well as crèches, kindergartens, pensions, housing, health care and recreation facilities for the workers and their families.

The top 100,000 state firms account for only 2.5% of total industrial businesses, yet they create over 45% of the nation’s industrial production value and pay 60% of total taxes and profits from industrial businesses to the state.

As in all bureaucratically planned economies the quality of products is often poor, only one third of the equipment is up to the international level, 36% of state industries arc loss makers and only one third of the products made are of world standard. The various branches of industry are not effectively coordinated, resulting in colossal disproportions in the economy, oversupply here, shortages there.

Stockpiles of unsold goods have devoured large amounts of working capital and put more, pressure on enterprises that are under heavy financial burdens. About 200 billion Yuan ($36.5 bn) one quarter of the total amount of working capital in the country has been locked in warehouses since the end of last September” writes Lui Li from the State Statistical Bureau.

Furthermore, as in Eastern Europe every region of China has set up a form of “socialism in one province” replicating the industrial structure of other provinces. Inadequate infrastructural development paralyses harmonious economic development.

Central planners in Beijing estimate that an increase of over 20% in electricity supplies is needed just to eliminate present shortages. In Guangdong private enterprises have precedence in electricity allocation, often leaving state industry idle.

China is the world’s biggest coal producer; some 70% of electricity comes from coal power stations, vast

stockpiles accumulate outside coal mines. The railway system will not be able to cope for at least six years, railway goods carriage shortages cripple the entire economy. Access to carriages is often sold to profiteers. The telecommunications system is wholly inadequate. The target for 1995 envisages one telephone for every one thousand people in the major cities. The per capita amount of water in China is only one quarter of the world’s average. 75% of China’s cities want more water to meet the demands from industry and individuals.

The paralysis of the economy is illustrated in the following excerpts from the China Daily (CD).

Statistics show State owned enterprises usually employ 15 to 20% more labour than they actually need.” (9.7.92)

Because the system (of accounting) is highly centralised enterprises do not have the right to use funds without submitting applications to higher authorities. Even such small matters as building a lavatory require special permission” (10.7.92)

..Only 30% of scientific and technological results have been put into production in China. 40% points lower than in that of developed countries” (11.7.92)

A sample survey of 3489 mines shows 70% of cultivated mineral reserves are wasted. Worse still, the Lan Ping lead and zinc mine in China’s Yunnan province, the biggest in the country, squandered no less than 5 million tonnes of lead and zinc ore to produce 310,000 tons in the last five years. A survey of 200 factories recently conducted by the Ministry of Chemical Industry, indicated that just one-third of the total raw materials they consume every year is turned into products.” (14.7.92)

Guarding Against the “Left Deviation”

The 1989 protest movements which focused on democracy was crushed in the name of a campaign against the “right” deviation of bourgeois liberalisation. In the campaign to smash ‘the three irons’ Deng’s clique forced Premier Li Peng to rewrite his report to the NPC several times and include the warning that “major attention must...be given to guarding against (the) “left” deviation.”

The main danger is now regarded as the resistance of the state industrial and government officials, the threat of worker discontent and strikes, or a combination of the two. This is the essence of the “left deviation.”

The official government unions reported in March 1991 that some 80,000 workers had taken part in strikes since the massacre of 1989, the causes were the failure of management to guarantee basic living conditions, the refusal to pay wages and the cutting of pensions and other benefits to retired workers.

The managerial bureaucracy is squeezed between their “superiors” and the workforce, some 50,000 people in 10 provinces and municipalities have been laid off during the first three months of this year by state owned industries, equal to the total number in the last three years. However, in Sichuan, where 40% of state enterprises lost money in the first six months of this year an experimental shake-up of 105 state enterprises employing more than a quarter of a million people only managed to lay off 100 people.

It is the concern of almost every director and manager in China that someday they might be misunderstood or wronged, or become the target of criticism and even be sent to prison for a trifling matter, for an inexplicable reason or for no reason at all... In addition to enterprise management they have to deal cautiously with all kinds of trifles, especially relations with their “superiors”, their colleagues and even their subordinates, in order to avoid unaccountable troubles and underhanded strikes. It is often heard that because of an anonymous “letter from the masses”, director so-and-so has come under scrutiny from superiors.” (CD, 9.7.92)

The plight and success of Lui Nian Su, chair of the board of directors of the Shanghai Ek Chor motorcycle company is presented thus: “His first attempt to vitalise the old inert state owned enterprise included installing a closed circuit TV system monitoring the work of the assembly line and implementing a new pay scale which ensures workers doing different work get different pay. However these actions were strongly opposed by the workers who thought they were being insulted and their dignity was being undermined by having to work under the supervision of the boss. Neither could they accept the fact some workers would get more than their colleagues overnight. Those who got more felt uneasy, those who received less were angry “ (CD, 7.7.92)

It took the intervention of the Party Trade Union and Youth organisation to persuade the workers to accept the new conditions. Not all restructuring has been so peaceful in Chongqing in Sichuan province plans to close the knitting mill were halted after workers besieged the plant, taking the head of the city’s textile department hostage when he came to negotiate. The Communist Party secretary in Chongqing Xiao Yang, had to intervene promising nobody would lose their job. “I told them that if the factory goes bankrupt, it does not mean they will starve. It does mean they may not eat so well, however,” he said.

The managerial bureaucracy many of whom were victims of the cultural revolution fear that rapid reforms will catalyse a movement which will drive them from their seats. The workers see the cause of economic problems in the mismanagement of the economy and the all pervasive corruption in the bureaucracy.

In a survey in 1987 it was found that the ratio of non-producing employees to workers in factories, is often one out of three or even one out of two. This lowest level of the bureaucracy is the first step in the bureaucratic ladder; each layer of the bureaucracy secures their livelihood, privileges and perks out of the surplus produced by the workers and peasants. The higher up the ladder the more corrupt and wealthy the bureaucracy is, its upper echelons enjoy standards of living just as high as officials in foreign governments. Their basic salary is supplemented by bonuses, gifts from their hometowns or places where they have worked, foreign travel, housing and holiday accommodation in the finest resorts in China and across the world, chauffeur-driven cars, fine banquets, servants to cook for them, clean for them, look after their children, women to cater for their sexual urges – all these things and a myriad of other privileges and perks mould the consciousness of the upper layers. The position of the bureaucrats enables many to use their public positions and public funds to purchase subsidised scarce raw materials or commodities and make huge speculative profits by reselling them at exorbitant prices.

In an incredible article in February 1992 in the China Daily, the State Land Administration

(SLA) discovered that State enterprises and institutions have sold or transferred land use rights to foreign investors and Chinese business people for “huge profits”, the rents are illegally going to land users and traders rather than the State. The loss to the State and gain to these bureaucrats and ‘entrepreneurs’ is 10 million yuan (US $1.9 million) per year in each of the 59 cities with over 500,000 inhabitants, and 500,000 yuan per year in each of China’s 1903 countries. A grand total of 1,5billion yuan per year (US $290 million).

The stock exchange riot in Shenzhen in August erupted because the stocks for sale don’t meet the demand for stocks. One million people crammed into Shenzhen to get lottery tickets with only a 10% chance of winning the right to buy stocks. Corruption was rumoured and violence erupted. Shares are already vastly overvalued, with foreign investors recommending caution in getting involved in the stock markets in Shanghai and Shenzhen, wait for the crash they say. Indeed the riot and police violence have raised fears amongst the hard-liners of many more such incidents on the road to capitalism. The Peoples Daily recently reported that nearly one fifth of China’s 1.16bn people said they planned to buy stocks and other securities.

Regionalisation and Nationalism are rearing their ugly heads, contradictions exist between the richer and poorer urban areas, within the rich eastern areas between the north and south, between the 91.2 million members of national minorities and the Chinese authorities, and between the cities and countryside.

Wang Yu Zhao deputy director of the development and research centre under the State Council said that 60% of the nations 2000 counties rely on state subsidies and that some provinces have given more attention to urban development while counties were overlooked.

The difference between counties in the east and the inland provinces are becoming greater with gross output in a typical North Western province valued at less than 100 million yuan ($18.2m), last year, while annual output value in some other counties had jumped as high as 15bn yuan ($2:7bn)”. Over the past few years there have been regular nationalist clashes between the Tibetans, Xingjiang Turks, and the Chinese army.

Riots have also affected minority nationalities in Yunnan province. The Chinese army will be able to contain the national minorities as long as the dominant Han Chinese remain united.

The military have been dragooned in to back the reforms, 61 Generals were taken on a tour of Shenzhen following Dengs footsteps. The Lieutenant General for the Lanzhou military district Cao Fan Sheng is stated as having said that “...pivotal socio-economic transition is inevitably accompanied by ideological dispute... It has long been taken for granted in China that ‘leftist’ tendencies are safer than ‘rightist’. Now the time is ripe for changing the conventional way of thinking”. “Emancipating the mind... is an obvious must in military groups so that officers and soldiers can keep abreast of the times” (China Daily News 08:07:92)

In other words there are powerful leftist tendencies in society and in the army, who dispute the present moves towards capitalism. The police force which was largely useless during the ‘89 protests now have specially trained units to deal with civil disorder. The government have called for the re-introduction of ranks into the police force to establish a satisfactory command structure for times of crisis. (The abolition of the militia system and the re-establishment of ranks in the army took place after the fall of the Gang of Four.) It may well turn out that the military will be the power broker when Deng departs from the present world A military regime is also conceivable, in the name of social stability and national unity.

The general increase in living standards since 1978 has been the lowest amongst the mass of workers and peasants and highest amongst a minority of bureaucrats, capitalists and rich farmers. Whilst 8.3 per cent of the population live below the official poverty line of 200 yuan ($37.6 US) per year, barely able to keep body and soul together, the richest ten per cent often spend the same amount on one meal. Whilst a tenth of the population are underfed 13.5 billion kilograms of high quality food is thrown out by restaurants every year, enough to feed 34 million people. The reason for the waste, banquets for bureaucrats paid out of public funds and lavish dinners is to woo businessmen. “It is said that 80 billion Yuan ($ 15bn) is spent on banqueting at public expense” (China Daily.) In addition the cost to public funds of the bureaucracy was estimated by the State Statistical Bureau to exceed 100 billion Yuan annually, nearly half the national revenues.

To many Deng’s actions in moving against Li Peng seem in contradiction to policy supported since the Tianamen bloodshed. Deng appeared to be keen on recentralizing political and economic power, attacking ‘bourgeois liberalisation’, and strengthening the ‘hardline’ faction. In reality Deng was solely interested in strengthening the position of the privileged officials and functionaries that he represents through terrorizing the population. Now that his death impends he wants to ensure that the children of the ancient bureaucrats inherit the earth. This problem of inheritance can only be solved by providing them with a base in property relations.

Events in the other planned economies have added weight to the pro capitalist wing of the bureaucracy whilst also spreading fear amongst the military and industrial bureaucracy in particular of chaos like that in the former Soviet Union taking place in China. A new coup or coming to power of the hardliners in Moscow could strengthen the hand of the military hardliners in Beijing. In such circumstances some form of new Sino-Soviet pact would be conceivable.

The economy is moving in the direction of capitalism, goods produced by the private sector account for 40% of total sales. In June 1991 there were already 13 million private industrialists and businessmen all over China employing 21 million workers. In Guangdong province bordering Hong Kong and Macao there are 97,000 private firms employing 150,000 people spanning commerce, services and manufacturing. It is estimated that half of the Hong Kong dollars in circulation are in Guangdong.

In China as a whole it is estimated that about 5 million households have an annual income exceeding 50,000 Yuan ($9060). The new capitalists flaunt their wealth, China Youth News reported that on January 14th 1992, 50,000 yuan was paid out at an auction in Chongqing – the object of obsession a ‘lucky’ number for a cellular phone – 908888. But even this market is cornered by those who are well connected. “Before the auction, those with relatives or intimate friends in the telephone bureau usually had exclusive access to the most favourable numbers” (China Daily. February 1992)

The world recession has had its impact on small businesses even in China, some closed shop in order to get in on what is possibly the most lucrative market in China – postage stamps. With a population increasing by 17 million (the population of East Germany) each year, if one or two per cent of the population collect stamps demand will constantly rise for stamps in circulation, prices have risen rapidly on what were nationwide stamp markets in the major cities organized and monopolized by speculators with huge wads of bank notes and cellular phones connecting them to other markets. The police swooped on the markets closing them down in mid 1991, the government warned that “people will not get rich by collecting stamps”.

Agriculture and the Peasantry

The contract responsibility system (R.S) introduced in 1978 enabled peasants to lease land from the state. Once they have fulfilled state purchasing quotas they can sell their surplus on the free market. Land was divided up on the basis of household numbers, individual incentive promoted a rise in agricultural output. Peasant incomes rose from an average of 133 yuan in 1978 to 463 yuan in 1987. Some farmers grew rich by establishing private rural industries or by contracting businesses and plants they have been strengthening their political influence in countryside towns and villages. Deng has established a powerful base of support within the village committees through making concessions to the individualistic tendencies of the peasantry.

In Zhejiang, the province with the most developed rural industry some 40 per cent of the 70,000 elected village leaders were such (rich) farmers, amongst the 300,000 members of village committees they constitute 70 per cent. They promote political and economic policies to further enrich the minority. One such committee chairman Jiang Lin You is quoted by Xinhua news agency saying “In the past I was poor. It was the policies of the Party and Government that made me rich and now it is my duty to help others become wealthy. And I would not be able to do this if I had no powers”.

The appetite comes with the eating, the rich peasants are demanding more; more money, more power and above all more land. It is an illustration of the dialectic of history that a central demand of the supporters of the Chinese road to capitalism is “land to the peasants”, the very demand by which the Bolsheviks gained peasant support for a socialist revolution in Russia.

Whilst the expansion of the economy has brought science and education to hundreds of millions of peasants, in many areas life is little different to that under the Emperors for thousands of years. Not here the universities of Beijing or Shanghai but 200 million illiterates, not here space technology but humans working as beasts of burden, not here the modern medical facilities of the cities, but witch-doctors.

Peasants feel that the urban areas are promoted at the expense of the land, rich peasants have profited on the basis of local economy and the bureaucracy has met with difficulty in collecting taxes. “Nationwide statistics for 1987 through 1991 showed 12,415 cases where persons used violence to avoid paying taxes; 11,146 tax collectors

were beaten, of whom 1,221 were seriously injured, 26 were disabled and 21 were killed”. (China Daily February 1992)

Village bureaucrats are often corrupt and abuse their power, when there are good harvests state officials try to lower state purchase prices, when harvests are bad they try to force peasants to sell as much as possible.

The Peoples Daily in 1989 urged township governments to “insure the houses, livestock, trees, young crops, property and personal safety of village cadres”.

Increasingly there are reports of peasant hostility toward cadres, including verbal abuse, spitting and rock throwing. During last summer’s floods vast armies of peasants were mobilised to help the repair and relief operations. In an incident in Hubei province, hundreds of thousands were brought to flooded fields to work on drainage, there were no sanitary facilities, there was no clean drinking water and no modern equipment, a riot broke out with peasants demanding to be sent home army trucks were burnt out and the peasants were allowed to leave.

Since 1978 there was a rise in the living standards for most farmers alongside a massive polarisation of wealth, 15% of rural farmers have become affluent, with every family member earning at least 1,000 Yuan (US $180) a year. The Ministry of Labour admits that rural labour surplus now exceeds 100 million per year, by the end of the century 200 million labourers will be unemployed. The reformers plan to introduce a social security net in the cities but talk about such a scheme for the countryside remains as talk about the distant future. At the rural development unit at the Chinese Academy of Science, Chen Ji Yuan and Yu De Chang suggest “abandoning the existing household registration system which they say, has prevented many rural residents from moving into cities and as a result saturating the labour market in rural areas.” (CD 10/7/92)

Such moves would promote a migration unprecedented in history. Tens of millions would move to the cities, the purpose of the proposal is to create a huge pool of surplus labourers who would undermine the resistance of the urban working class to capitalist reforms. Deng’s policy of leasing land to the peasants and giving them greater individual incentives through sales on the private market saw the communes split up into tiny plots of land averaging 6 mu (1 Acre). Yet agricultural specialists the world over recognised that in China greater yields could be secured on the basis of larger units averaging 20 mu.

From over centralization the bureaucracy swung to excessive decentralization. To be sure the gross value of agricultural output grew from an average of 4.3% between 1971-1978 to 7.5% between 1980-1982 and 13% between 1982 and 1986. Much of this growth was due to the irrigation projects and fertilizer supplies undertaken and made available in the mid 1970’s.

The so called reformers bemoan the failure of the peasants to invest in irrigation machinery and fertilizers, increased output is attained by working longer hours and employing extra labourers. This they conclude is due to the fact that the land belongs to the state and therefore the farmers don’t invest. However, the exact opposite is the root cause, the fact is that the state largely abandoned agricultural investment, instead relying on the rich peasants who spent their money on building mansions and accumulating consumer durables. Peasant incomes poured into consumer goods inflating prices, the incentives to produce more characterizing the early 1980’s disappeared and agricultural production fell. Basic infrastructural development which could have encouraged greater output has suffered criminal neglect. The fruits of the government policy culminated in peasants constantly demanding more money for their produce prior to the student protests of 1989.

Further moves towards capitalism in the countryside may precipitate a clash between the workers and peasants, not just as buyers and sellers on the market but as classes. The tens of millions of surplus labourers enables peasants and rural enterprises to pay slavery wages, work them from dawn till dusk and pay them irregularly, after long delays, or not at all. One such incident was recounted to me from Nanjing, a worker stood opposite a restaurant watching in silence, a student went to ask him if he had eaten, when pressed he admitted he had not eaten for a week. He had been unemployed as a construction worker after coming to the city, the workers were fed whilst working and promised wages on completion of the job, when it was done they didn’t get any pay. He couldn’t pay his train fare home and hadn’t heard from his family for months. The surplus labourers pour into the cities to look for some means of getting money, apart from begging, and prostitution, gangs organize the maiming or killing of enemies for a fee.

Marxist Policies

A genuine Marxist government, run on the basis of elected workers and peasants councils accountable and recallable at any time would release the enormous initiative and knowledge of the whole people, freed from the shackles of bureaucratic rule, the economy could expand far more harmoniously and rapidly.

The poor peasants would be systematically supported by state credits and the provision of modern agricultural equipment, encouragement would be given for peasants to voluntarily combine their tiny plots of land into collectives on a scale most suitable to secure maximum output and minimum ecological damage. The poor would be freed entirely from taxation and a part of the unemployed provided with work in irrigation projects, agricultural machinery and repair workshops, and fertilizer plants. Local agronomic institutes would be established whose purpose would be to apply the most advanced scientific technique to agriculture, developing hybrid strains able to resist diseases and be grown in unfavourable climatic and soil conditions, and to utilize bio-technology which enables extra or multiple annual cropping. Science, technology and industry would be brought to the peasant poor, middle income peasants could be welded together in their material interests to such genuinely voluntary peasant co-operatives.

The rich exploiting peasants would face a steeply progressive tax system, and the strictest supervision and control by elected bodies of the organized poor. The exploiting peasants must be barred from participation in the collective farms, from the local peasant committees, and from holding office in the state.

A solution to the problems posed by the surplus population on the land alone would require a radical distribution of tens of millions of people among various branches of the economy, and the gradual elimination of the contradictions between the city and village, but on the basis China alone it is impossible to construct a socialist society.

The idea of a Chinese road to socialism as advanced by the leaders of the bureaucracy is pure Utopia. Central planning and state ownership of the economy do not constitute socialism although they are the economic pre requisites for it. The victory of socialism is only possible on the basis that the productivity of labour equals or surpasses that of the most advanced capitalist countries.

Leon Trotsky wrote in 1929 in Next tasks for the Worker Correspondents: “Socialism, after all, does not consist only in the abolition of the exploiters. If people lived more prosperously under the exploiters, more abundantly and freely, and were materially more secure; if they lived better with the exploiters than without, then they would say, “Bring back the exploiters.”

The gross national product of China is about $300 US per head, that of the United States is 50 times larger. According to official Chinese estimates they will catch up with the U.S.A. towards the end of the century, the twenty first century. This too is Utopia because internal and external contradictions will blow their plans apart.

Thus on the basis of China alone it is impossible to establish a socialist society. It is criminal that the former Soviet bureaucracy and the Chinese bureaucracy instead of integrating their economies on the basis of one plan and a mutual division of labour, which could have given a colossal boost to both economies, squandered this potential even fighting border wars for their national privileges, power and prestige.

A genuine workers democracy in an economically backward country such as China would participate in the world market and advance the idea of a Eurasian federation of workers democracies.

Autumn 1992