Where is China going? - Part Two

State planning has broken down in China, but the state still plays a key role in providing capital investment and in nurturing major Chinese corporations whose role is to compete with the foreign multinationals and guarantee that important economic interests remain in Chinese hands.

The following text is the second part of a three-part transcript of a speech given by Fred Weston at a meeting of the International Committee of the International Marxist Tendency in January of this year.

Building Chinese capitalism

The bureaucracy in China does not want to become prey to imperialist domination. And they are not going to allow that to happen. They know that they must maintain a strong Chinese capitalist sector, and they are doing that by building up and actually strengthening some of the state owned companies. They have huge amounts of capital available. The state banks are being used to pump money into these state corporations. In the document I quoted earlier it says, “China has nurtured over 20 giant corporations and conglomerates that have proven competitive in the international market. Some of these companies are laying off tens or hundreds of thousands of employees, not because they are in financial distress, some of them are hugely profitable, but because they wish to position themselves as important international players. As of 2002 the top 12 Chinese transnational corporations, mainly state owned enterprises, controlled over $30bn of foreign assets and had some 20,000 foreign employees and $33bn in foreign sales.”

So you can see that although these are state owned they are being prepared as major Chinese state corporations to compete with the US and the Japanese, etc., on a capitalist basis.

Just to give some important figures, this is a table called The Composition Of China’s GDP By Ownership Types. We see that already in 1988 the state controlled sector was 41%. By 2003 it had gone down to 34%. What they call the “Real Private Sector”, in the same period from 1988 to 2003 had gone from 31% to 44%. But if we look at the overall Non-State sector, in 2003 the Non-State sector was 66% of GDP. And the document concludes, “the private sector is now the dominant sector of the Chinese economy”. It continues, “the share of the private sector is even larger if we take into account that a significant percentage of the collective farms are in effect privately controlled and that the private sector is in general more productive than the other sectors of the economy.”

We’ve seen this happen before elsewhere on a smaller scale in South Korea, where the state developed the big corporations, but we wouldn’t define South Korea a deformed workers’ state, or a state in transition. It was a weak capitalism that could only be built on the basis of the state, investing the capital, because the bourgeoisie was not capable of doing that. This does not deny our fundamental idea of the inability of the bourgeois class to develop the productive forces in the underdeveloped countries; it actually confirms it. In the context of China we see a similar process on a much bigger scale.

The latest developments we see in China, if you look at the legal structure, the Constitution, the laws… is that important changes have been made to the Constitution – this was in 2004 – stressing the role of the non-state sector in supporting economic activity in the country and protecting private property from arbitrary seizure. Even up until recently you had laws in China which regulated or prevented private companies from entering such sectors as the public utilities and the finance services. In 2005 these laws were abolished, allowing these private companies to enter these sectors. It is happening now also in the banking sector. They are beginning to privatise and are allowing foreign capital to come into the banks. In fact if you read many of the analysts when they write about China today their approach is to go into great detail into the laws and legal structure that need to come into line with the new property forms. They see them as leftovers from the past that have to be removed to facilitate the functioning of private companies.

End of the state monopoly of foreign trade

The question of the WTO is an important one. China joined the WTO in 2002 and committed itself that within five years they would abandon all control over foreign trade and they have been doing that step by step ever since. The reason for China being in the WTO is obvious. The present Chinese economy can only exist if it is tightly linked to the world economy. It depends heavily on exports and it has to have deals on this question. It must participate fully in the world economy. This in turn accelerates the process of capitalist transformation inside China.

Abandoning state control of foreign trade is an important element in opening up completely to the world market. Remember that one of the key elements in the Bolshevik programme   and that Trotsky firmly defended   was that a workers’ state surrounded by a capitalist world must have a state monopoly of foreign trade. This was the case especially in an underdeveloped country.

If you look at the whole history of capitalism in the advanced countries, you see that it is based on protectionism in the early stages and free trade only becomes the favoured policy of the bourgeoisie in the later stages. Even the British bourgeoisie protected their market while they were developing their industry. Once they had developed modern, competitive industries they didn’t need protectionism. They were so competitive they could survive, not only survive, they could dominate the world market.

Up until recently this was also the case in today’s underdeveloped countries. Pakistan, for example, had a lot of tariffs and protectionist measures up to around 20 years ago. But in the recent period they have been forced to open up their internal market. The imperialists are dictating policy to these countries and they cannot tolerate protectionist measures any longer. They have a pressing need to open up all markets to their goods. The difference between China and Pakistan is that the imposition of the so-called open market on Pakistan has meant the destruction of thousands of industries and factories. The level of development of Pakistani industry was too low to resist outside competition. However China is not Pakistan and the Chinese government must be thinking, “We are strong enough now, we have the productivity to face up to outside competition.”

A “cold transition”?

The question has been posed: How did all this happen? If there has been a transition to capitalism, how did it happen, was it a “cold” transition? There has been no armed counter-revolution, no major confrontation between different wings of the bureaucracy. Trotsky once used the analogy of the film of reformism being played backwards. He explained that for a counter-revolution to take place one would have to have some form of violent conflict and only then would a return to capitalism be possible. He was saying the system couldn’t be “reformed” into capitalism.

Here we must be careful. We must learn from Trotsky. We must take from Trotsky not just single isolated sentences here and there, not one single analysis, but the whole method that he used. He was dealing with Russia in the 1930s where the traditions of the revolution were still alive, where the working class would have resisted capitalist restoration. Also the international situation, as I mentioned earlier, determined a different balance of forces within the Soviet Union. A significant layer of the bureaucracy had an interest in maintaining the state plan.

However, in the Soviet Union Stalinism survived for several decades, for more than 70 years. In that period the revolutionary traditions were eradicated from the consciousness of the masses, and all that was left facing the masses was a system which was grinding to a halt. And sometimes a regime can be so rotten that the ruling class   or the ruling caste depending on the system   is incapable of resisting even the smallest pressure once the movement breaks out from below.

To make another analogy, when we talk about bourgeois revolution we think of the French, sometimes we go back to the English or one or two other cases, where you had the development of the bourgeoisie as a small class building up its wealth within the confines of feudalism and eventually having to break through those limits.

The point however is the following. Once capitalism had developed in a few key countries, such as in Britain, France, the USA… it meant that a repetition of the manner in which capitalism had been developed in these countries became practically impossible in the other less developed countries. We should remember that the problem with the Mensheviks was that they did not understand this question. They just took the formula feudalism-bourgeoisie-revolution-capitalism. They looked at Russia and saw that it was underdeveloped, with a huge peasantry and landlordism. They thus mechanically superimposed what had happened in France and Britain onto Russia. Therefore, for them, the task of Russian Communists was to support the “progressive bourgeoisie”. That is where the idea came from. They did not understand the theory of the Permanent Revolution which explained the process in a completely different way.

However, if we look at the development of capitalism in other countries, it didn’t always come about with a bourgeois revolution and the bourgeoisie leading the masses in the classical manner. That is not how it happened in Japan or Germany. Think about it. These are two of the most powerful countries in the world. But in Japan it was the bureaucracy of the feudal state that guided the movement towards capitalism. Why was this? Because world developments dominate all processes. The future of Japan as a powerful nation could only be maintained if they developed capitalism in Japan. Therefore because the bourgeoisie in Japan was not up to the task, another class carried out the historical tasks. And in Germany it was the Junkers of the old feudal state apparatus.

We have these historical examples, where in a certain sense there was no “bourgeois revolution” but a kind of “cold” transition from one system to another. What we have to understand is that there is no rigid rule of how a social transformation comes about. After all, we have stressed several times that in the most advanced capitalist countries, because of the overwhelming strength of the proletariat you could have a “peaceful” transformation of society. Faced with the total impasse of society the people at the top would not be able to resist.

If we want to go back to Trotsky we see that he said other things as well. He said that in the Soviet Union if there were a bourgeois counter-revolution, it would have to purge far fewer elements from the state than a political revolution. The social basis of the Soviet Union was that of a workers’ state, with a state owned centrally planned economy, and yet if it had transformed into a bourgeois regime not too many people would have had to be purged. This was because they were already privileged elements and they would have transformed themselves from privileged bureaucrats of the workers’ state into privileged servants of capitalism. On the other hand, a political revolution would have had to impose on many of those bureaucrats a workers’ wage. Therefore a bigger conflict would have come about.

In this we find elements that help us to understand the present-day process in China. Here too we are dealing with a privileged caste, which as Trotsky stressed, would want at a certain point to become the owners of the means of production as a guarantee of their privileges.

The process as a whole

So if we look at the process as a whole we have the following situation. There was the massive post-World War Two boom in the capitalist west, with an unprecedented development of the productive forces. This was followed by the crisis of the Stalinist regimes in Eastern Europe and the Soviet Union. We took note of this in the early 1970s. The Chinese bureaucrats must have taken note of it too. The rate of growth in the Soviet Union went down to 3%, 2% and then zero. The system was stagnating. Finally Eastern Europe collapsed and then two years later the Soviet Union collapsed also. The Soviet Union lost huge areas of its territory, losing all the Republics. The Russian economy was devastated. There was a 60% fall, which we have compared to the level of destruction that takes place in a world war.

These must have been very powerful factors determining the thinking of the Chinese bureaucrats. They started off with what was basically a Chinese version of the NEP, trying to get the economy to be more efficient, because the Chinese economy was still growing at quite a fast pace, but inefficiencies were creeping in. They were looking around at world developments and the whole situation was pushing them in a certain direction.

However, they wanted to maintain control. In all the deliberations of the party it was “market economy yes, but with state domination”. I think that it is not a small detail that it was at the XIV Congress in 1992 that they took that important decision to change. Just across the border they had absolute chaos and disaster. They must have thought, “we are not letting that happen here. We are going to control the process”.

So they did it gradually, step by step. But now we have ended up with a situation which I have just described, giving the figures. The latest figures show that China now has become the 4th economic power in the world. They revised the figures for GDP in 2004. Even then, what emerged was that it was the 6th largest. They then calculated that if China in 2005 were to sustain 9% growth it would become the 4th. Well, it did grow by 9% in 2005. The latest figures confirm that. So now it is the 4th largest after the USA, Japan and Germany. It is becoming a major power, not just militarily, which it already was, but also economically.

When this started, the foreign capitalists thought they could open up China in the same way they had opened up Pakistan. The idea was they would force China to open up and then they would flood it with goods. That, at least is what they thought would happen. They had done it to countries like Pakistan and Nigeria. In these countries what used to be factories have now become warehouses where foreign goods are stored!

By the way, the irony in these countries is that most of those goods are Chinese! Consider this. If you are a reasonably paid worker in the west you might still consider buying a Grundig or a Sony because you think of “quality”. However, if you are a Nigerian worker with a relatively reasonable standard of living for Nigeria (but still earning wages far lower than workers in the advanced countries), you are going to buy Chinese DVDs, Chinese TVs, Chinese everything. That is because they are high quality and cheap, in fact much cheaper. They correspond to the purchasing power of workers in Pakistan or Nigeria; that is the point.

As we have already stressed, China has emerged somewhat differently from what was expected by the imperialists. China is now a big exporter. The US has a deficit in goods with China that has reached a record US$205bn. They are complaining now that China is exporting, exporting to Europe, to the USA, to the whole world. They discuss regularly about tariffs, trying to limit imports. But in order to stop Chinese goods they would have to slap on very high tariffs, extremely high tariffs, because the level of productivity is so high and the goods are so cheap.

Chinese imperialism

Now China, thanks to the huge development of its productive forces, the enormous change in the economy, is behaving like an imperialist power. It is importing raw materials. One of the factors determining the increase in the price of oil is the huge demand from China. It is exporting capital. In 2004 close to one billion dollars were exported to Latin America. In Venezuelan oil alone they are planning to invest US$350million. They are competing with India for oil resources in Asia. They have even sent Chinese troops to serve on the UN force in Haiti. They are building up a big navy. There is a reason for that obviously, as they need to control sea-lanes in the Pacific and elsewhere. It has become a major competitor on a world scale. World trade in 2004 grew by 5%. China was responsible for 60% of this growth. Almost two thirds of world trade growth is thanks to China.

This is the China we have now. The old deformed workers’ state didn’t collapse like in the Soviet Union. The bureaucracy guided the process, step by step, gradually, being very careful. There have been moments of conflict like Tien An Men. If you look at how the bureaucracy reacted to these moments of crisis, we see that it put a brake on the process for a period in an attempt to stabilise the situation, but it never took a step back. It waited for the situation to stabilise and then moved on again, pushing the process forward.

Massive proletarianisation

With this development comes another important element. Together with the massive development of the productive forces comes an enormous working class. People are moving into the cities at the rate of 20million a year. They calculate that in the next 15 years something like 300 million rural Chinese will move into the cities. That would create an urban population of something like 800 million. This would be an unprecedented phenomenon. It would be the biggest movement of its kind in history. And it would bring into existence the biggest proletariat that has ever been seen in history. It will be the most powerful on a world scale.

We also have to see what is the thinking of these peasants who are flowing into the cities. They have been living in terrible conditions on the land. The collectives have been destroyed. The collectives used to provide a whole series of benefits, healthcare, pensions, etc. Two thirds of the rural population of China have no pension schemes. So they are looking for jobs in the cities, any jobs.

We’ve seen this phenomenon in the USA with the immigrants from Latin America; we see it in Europe with the immigrants from Africa and Asia. They are prepared to do the worst jobs. They live in terrible conditions, four to a room, and ten to a room sometimes. But compared to what they had, at least they have an income, however small. It gives them income, money to send back to their families. At the same time they are creating huge working class districts in the cities, with an accumulation of enormous contradictions.

Let us take other historical examples, the movement of May 1968 in France or the Hot Autumn in Italy in 1969. These movements were not the products of a recession. That didn’t materialise until the mid-1970s. They were the product of precisely the kind of conditions we are observing in China today. Millions of peasants were flowing into the cities, living in crowded conditions. The cities were growing at a rate where they were not able to provide all the services that make for a civilised existence. On this basis huge contradictions developed, and then they exploded in the late 1960s. The same peasants that had come into the cities in the preceding 20-year period finally rose up and challenged the capitalist system.

Therefore in China, it is not a question of looking with a magnifying glass at the statistics for growth, trying to work out when there is going to be a recession and from that deduce when the class struggle is going to erupt. It isn’t that simple or mechanical. The conditions are already being created now for class conflict in China. Already we have some strikes, some bitter strikes, that are an indication of what is to come. From this point of view, from the point of view of the creation of a huge proletariat, the process has its progressive side.

Trotsky on the rate of growth

I would like to quote Trotsky again. Trotsky, wrote an article in 1925 called Towards Capitalism or Socialism? In chapter 7 called Russia and the Capitalist World he says something very relevant to this discussion. It is amazing actually how many latter-day “Trotskyists” can get it wrong so easily. In some cases you don’t have to even think too much. It is enough to read Trotsky.

In this article he was referring to the rate of development of the Soviet economy. Some bureaucrats of the Gosplan had issued a statement saying that the march towards socialism was guaranteed because the economy was growing, although they added “though it be only a step at a time.”

Trotsky replied to this saying that that was not enough. He wrote, “for as a matter of fact the rate of advance [my emphasis] is precisely the decisive element.” It’s not enough to grow. If there are two systems and one is developing faster than the other, developing the productive forces at a faster rate, that is raising productivity faster than the other, even though both are growing, then the one with the slower rate of growth is facing doom.

He says, “far more important is the relation of our total development compared with the development of the world economy.” And he adds that, “it becomes quite evident that as we become part of the world market, not only our prospects but also our dangers will increase.”

At one point he says, when he is comparing “socialism”   i.e. the system in the Soviet Union   and capitalism outside, “This plain statement of the case by no means contradicts the fact that the socialist mode of production, in its methods, tendencies, and possibilities, is incomparably stronger than the capitalist mode of production. The lion is stronger than the dog; but an adult dog may be stronger than the lion’s cub.”

What Trotsky was emphasising here was that capitalism in the advanced capitalist countries still had a much higher level of productivity than the system in the Soviet Union. He actually says, “We are acquainted with the fundamental law of history, the victory ultimately” – and he stresses ‘ultimately’ – “falls to that system that provides human society with a higher economic plain.” He continues, “The historical dispute will be decided, and of course not all at once, by the comparative coefficients of labour productivity.”

This was Trotsky in 1925. He is absolutely clear that in the Soviet Union they were trying to build socialism, but he is very realistic and concrete in terms of the relationship between the level of the economy in the Soviet Union and the world economy.

The failure of Stalinism

As I said at the beginning, what we have here is the failure of “socialism in one country”. It is not the failure of socialism or the planned economy as such. It is the failure of Stalinism and the inability of the bureaucracy to develop the productive forces beyond a certain level. And because the crisis of these systems came about when capitalism was still expanding and developing at a relatively high rate this has determined the death of the system. Trotsky had predicted this possibility. He actually raised the possibility of a situation where the working class could be defeated and capitalism restabilised for several decades. This is in fact what has happened.

In China, to go back to what I said before, this process has now led to the development of a massive working class and it is continuing to develop it even further. Of course, with this comes the fact that the Chinese economy is now governed by the laws of capitalism. There has been massive investment, which is based on the perspective of an ever-growing world market. But of course that is not possible, and therefore at a certain stage the contradiction will emerge, and China too will face a crisis. We can’t put a time on that and say exactly when this will happen. But it will come in the future. And when it does come it will be a massive crisis and it will have an impact on the whole world.

Now, this working class that we are talking about is a relatively new and fresh working class. There was, and still is, quite a sizeable working class that worked in the state industries. This layer, in spite of the bureaucracy, had won some amazing conditions, such as life-long guaranteed jobs with so many other benefits linked to those jobs. Now they have changed those conditions. The relationship between the workers and the company is more like in the West. So the workers are going to have to struggle to reconquer what they have lost – and they will.

What is happening to the Communist Party?

At the moment the Communist Party dominates and has control over the situation. But what is happening to the Communist Party? Five per cent of the population of China is actually made up of members of the Communist Party. That is a lot of people, anything between 60 and 70 million! However, if you look at another layer of Chinese society, the Chinese capitalists, we find a very significant figure. Thirty per cent of Chinese capitalists are members of the Communist Party.

A few years ago they changed almost half the Central Committee, obviously removing some of the older bureaucrats who were probably regarded as an obstacle. Thus, the Communist Party is being used by the capitalists as an instrument to defend their class interests. Undoubtedly in the ranks of the party there must be many who still believe in the Communist Party and some of them will be well acquainted with Marx. But those at the top, the ones that count, that have the levers of power in their hands, have thrown their lot in with capitalism.

So what is the future of the Chinese Communist Party? There is clearly not just a pro-capitalist wing. There is this large bourgeois sector within its membership and also right at the top. As long as the economy continues to develop at the present rate the Communist Party leadership will be able to hold the situation and maintain a certain stability within society and within the party itself. But faced with a serious major upheaval, a major economic crisis, major class conflicts, national conflicts, conflicts of all kinds, the tendency would be for the different factions to break apart at some point. We can take the example of the Russian bureaucracy; there it happened in a convulsive way. All those people who belonged to that old monolithic Stalinist party broke up into so many parties representing different interest groups. But this is something for the future. At the moment the former bureaucracy is in control of the situation. And the party is being used to develop capitalism.

On an international scale, obviously, China is coming into conflict with US imperialism. However, there is a contradiction in the relationship between the two powers. Among the biggest holders of US Treasury bonds are China and Japan. Therefore the Chinese have an interest in maintaining the American economy buoyant. After all, it is one of their biggest export markets. They don’t want to see a crisis in the United States. They would of course prefer a nice cosy relationship, but they inevitably come into conflict with US imperialism. They are in conflict over world markets; there is a US balance of trade deficit, which is huge, and a large part of it is with China. This is provoking contradictions within the United States. So there are contradictory pressures at play, and the conflict will continue to grow in the future.

The task of Marxists

To conclude, together with the development of capitalism also comes the growth of enormous class differentiation. This is laying the basis for class conflict in China. It has actually become one of the most unequal societies on a world level. We see these new giant skyscrapers, these modern cities, surrounded by immense areas of urban poverty. This alone is enough to provoke class struggle in China.

What would be the tasks of the Marxists in the present situation? Obviously, the first task is to explain, explain what is happening. If we want to enter into a dialogue with workers, students, genuine Communists, honest Communist Party members, in China, we must make sure that our analysis corresponds to the real concrete situation. Therefore we must study in detail all aspects of the Chinese economy.

The worse thing you can do is to go into a country with a ready-made formula which does not correspond to what the workers and youth are living through. With such an approach you would not get anywhere. Already, there is a historical mistrust among the Chinese – and understandably so – of Westerners and so on, because of the history.

Also, we need to take into account the traditions of China. The Russians, at least had the tradition of the Bolsheviks, of Lenin and Trotsky. The Bolshevik party was not imported, it was built by Russian revolutionaries. In China that particular tradition is missing. The Chinese tradition is mainly a Maoist one. Although we do have to remind ourselves that one of the key founders of the Chinese Communist Party, Chen Tu Hsiu, later moved towards Trotskyism. His writings have to be reclaimed for today’s Chinese Communists.

Considering what is happening now, there must be many people who think, “well, what we need is another Cultural Revolution” in the sense of a movement against the capitalists and the privileged bureaucrats. This reflects the desire to move towards a genuinely egalitarian society, which can only be a socialist one based on wokers’ democracy.

We must state clearly what we think has happened in China, explain the superiority of a planned economy, but also analyse the crisis of the Chinese bureaucracy and why this has come about, why the Maoist regime did not survive.

Basically, from a Marxist point of view, the main task in China now to struggle for socialist transformation. Of course, there are still strong remnants of the old state-run industries. These should be kept in the hands of the state, but they would also have to be restructured because they have already been reshaped to work within a market economy. But now the bulk of the economy is in private hands, therefore the task is one of expropriation of this new capitalist class. In this process sections of the Communist Party would move to the left, most likely in the ranks, the lower ranks.

Our task is to sharpen our analysis, say what is, how this came into being and why, and where it is going. On that basis, we can link up the international Marxist movement with that of genuine Chinese communists.

(To be continued)

January 2006

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