China workshop: challenging the misconceptions

The recent workshop on China organised by the China Workshop (poster and programme_05062018) in London asked all the questions, even if it did not resolve them.  What are the reasons for China’s phenomenal growth in the last 40 years and can it last?  What is the nature of the Chinese economy: is it capitalist or not?  What explains under Xi the new emphasis on studying Marxism in China’s universities?  Is China’s export and investment expansion abroad imperialist or not?  How will the trade war between the US and China pan out?

In the opening session, Dr Dic Lo, Reader in Economics at SOAS, London University and Zhu Andong, Vice Dean at the School of Marxism at Tsinghua University, Beijing (representing a delegation from various Chinese universities) were at pains to argue that China is misrepresented in the so-called West and not just through mainstream capitalist views but also from the left.

All the talk from the left, said Lo, was about political repression, labour exploitation, inequality or Chinese ‘imperialism’. But then how to explain China’s phenomenal growth and success in taking over 850m people out of poverty (as defined by the World Bank) and reaching national output second only to the US.  China doubles real living standards every 13 years. It now takes the US and Europe 50 years and Japan even longer.  Is this just fake or illusory and if not, how can this ‘capitalist’ and ‘imperialist’ economy have bucked the trend, when the record of all other capitalist economies (advanced or ‘emerging’) can show no such success? “How can it be possible, in our times, for a late-developing nation to move up the world political-economic hierarchy to become imperialist? Can anyone on the left answer this question?

Dic Lo criticised the majority view of left political economists that China could be characterised as “neoliberal capitalist”, the so-called “Foxconn Model” of labour exploitation. This view was pioneered by Martin Hart-Landsberg and Paul Burkett, made most influential by David Harvey, most systematic by Minqi Li; and politically correct by Pun Ngai.  But were they right?

Zhu Andong also critiqued what he considered was this Western view.  In contrast, far from a Marxist critique disappearing in China, there was growing official support for the study of Marxism in Chinese universities, both in special departments and even increasingly in economics departments, which up to recently had been dominated by mainstream neoclassical economics influenced by Western universities.

In my contribution, I also referred to the dominance of mainstream economic analyses on the nature of China – and such theories also still appeared in China’s own financial institutions like the People’s Bank of China.  A recent striking example is Wang Zhenying, director-general of the research and statistics department at the PBoC’s Shanghai head office and vice chairman of the Shanghai Financial Studies Association. For Wang, Marx has had his day in the theoretical limelight (ie 19th century) and for that matter so had Keynes (20th century).  The recent global financial crisis needs a new theory for the 21st century.  And this apparently was the behavourial economics of ‘uncertainty’, not Marx.

I argued that there are really three models of development that could explain China’s growth miracle and whether it would last.  I deal these in detail in my paper on China for the Leeds IIPPE conference in 2015.  So please consult that for a fuller account than this post can provide.

There is the mainstream neoclassical view that: China went through a primitive industrial expansion using its ‘comparative advantage’ of cheap and plentiful labour and investment in heavy industry.  But now China had reached the ‘Lewis point’ (named after the left economist of the 1950s, Arthur Lewis). Put simply, this is the point at which a developing country stops being able to achieve rapid growth relatively easily, by simply taking rural workers doing unproductive farm labour and putting them to work in factories and cities instead. But once this ‘reserve army of labour’ is exhausted, urban wages rise, incomes reach a certain level and a middle-class emerges.  China is now in a ‘middle-income’ trap like many other emerging economies, from which it cannot escape and become an advanced economy, unless it gets rid of state enterprises and heavy industry and orients towards the consumer and services.

This view is nonsense for several reasons – not least because comparative advantage theory is bogus and unrealistic – after all, China has grown exponentially not just because of cheap labour but also because of massive productive investment promoted and controlled by the state sector.  Actually, as a result of that investment expansion, consumption spending is also growing very fast. Would a switch to capitalist companies serving a middle-class consumer be better?

The second model is the Keynesian.  This recognises that China’s success has been due to massive investment in productive capital, not just the use of cheap labour.  Infrastructure investment directed and controlled by the state was behind the ability of the Chinese economy to avoid the worst effects of global financial crash and the Great Recession where every other economy suffered.  But what the Keynesian model fails to recognise is that China cannot escape the law of value and imbalances and inequalities that value creation through trade and the growing market economy generates.

The Marxist analysis starts from the basic premise that human social organisation aims to raise the productivity of labour to the point that sufficient abundance will make it possible for toil and poverty to be eliminated.  But the drive for higher productivity in capitalism comes into conflict with capital’s requirement for profitability.  Increasingly, the issue for China is whether the capitalist sector of the economy will eventually override the planned public sector, so that profitability will dominate over productivity and crises will appear, leading to stagnation not expansion.

In my view, that point has not yet been reached in China.  The state sector and public investment through one-party dictatorship still control investment, employment and production decisions in China – the private capitalist sector, although growing, is still subject to that control.  See my post here.

Now this is a minority view among Marxian economists, let alone mainstream economics.  Most consider that China is capitalist just like any other capitalist economy, if with a bit more state intervention.  Indeed, it is even imperialist in the Marxist sense.  But, as I have shown in previous posts, 102 big conglomerates contributed 60 per cent of China’s outbound investments by the end of 2016.  State-owned enterprises including China General Nuclear Power Corp and China National Nuclear Corp have assimilated Western technologies—sometimes with cooperation and sometimes not—and are now engaged in projects in Argentina, Kenya, Pakistan and the UK.  And the great ‘one belt, one road’ project for central Asia is not aimed to make profit.  It is all to expand China’s economic influence globally and extract natural and other technological resources for the domestic economy.

This also lends the lie to the common idea among some Marxist economists that China’s export of capital to invest in projects abroad is the product of the need to absorb ‘surplus capital’ at home, similar to the export of capital by the capitalist economies before 1914 that Lenin presented as key feature of imperialism.  China is not investing abroad through its state companies because of ‘excess capital’ or even because the rate of profit in state and capitalist enterprises has been falling.

Indeed, the real issue ahead is the battle for trade and investment globally between China and the US.  The US is out to curb and control China’s ability to expand domestically and globally as an economic power. At the workshop, Jude Woodward, author of The US vs China: Asia’s new cold war?, outlined the desperate measures that the US is taking to try to isolate China, block its economic progress and surround it militarily. But this policy is failing.  Trump may have launched his tariff hikes, but what really worries the Americans is China’s progress in technology. China, under Xi, aims not just to be the manufacturing centre of the global economy but also to take a lead in innovation and technology that will rival that of the US and other advanced capitalist economies within a generation.

There was a theoretical debate at the workshop about whether China was heading towards capitalism (if not already there) or towards socialism (in a gradual way).  Marx’s view of socialism and communism was cited (from Marx’s famous Critique of Gotha Programme) with different interpretations.  For me, I reckon Marx’s view of socialism and/or communism starts from two realistic premises; 1) that communism as a society of super-abundance where toil, exploitation and class struggle have been eliminated to free the individual, is technically possible now – especially with the 21st technology of AI, robots, internet etc; and 2) socialism and/or any transition to communism cannot even start until the capitalist mode of production is no longer dominant globally and instead workers’ power and planned democratically-run (not dictatorships) economies dominate. That means China on its own cannot move (even gradually) to socialism (even as the first stage towards communism) unless the dominant power of imperialism is ended in the so-called West. Remember China may be the second-largest economy in the world in dollar terms but its labour productivity is less than one-third of the US.

China has succeeded in transforming its economy and society since the revolution of 1949 by the removal of capitalist and imperialist power and through state control of the commanding heights of industry and agriculture.  And it is now succeeding in applying new technology to take it forward as a modern urbanised society in this century.  But at the same time, the law of value and capitalism operates within the country.  Indeed, the capitalist sector in the economy is growing; there are many more Chinese billionaires and inequality of income and wealth has risen; while Chinese labour struggles against exploitation in the workplaces.  And the law of value exerts its destructive influence also through international, trade, multi-national companies and capital flows – it was no accident that when China last year relaxed its capital controls on the advice of neoliberal elements in the monetary institutions that the economy suffered serious capital flight.

There is a (permanent) struggle going on within the political elite in China over which way to go – towards the Western capitalist model; or to sustain “socialism with Chinese characteristics”.  After the experience of the Great Recession and the ensuing Long Depression in the West, the pro-capitalist factions have been partially discredited for now.  President for Life Xi now looks to promote ‘Marxism’ and says state control (through party control) is here to stay.  But the only real way to guarantee China’s progress, to reduce the growing inequalities and to avoid the risk of a swing to capitalism in the future will be to establish working class control over Chinese political and economic institutions and adopt an internationalist policy a la Marx.  That is something that Xi and the current political elite will not do.

32 thoughts on “China workshop: challenging the misconceptions

  1. Is Preobrazhensky’s New Economics also studied in Chinese universities ? What is your opinion on Preobrazhensky and his formulation of the law of primitive socialist accumulation to understand China’s economy?

  2. Preobrazhensky’s New Economics was published in Chinese in 1984. Chinese Marxist political economists, though, have not paid much attention to his work and the work of Soviet left opposition in general.
    In contrast, the notion of “socialist primitive/original accumulation” is central to the pro-reunification left in Taiwan in their efforts to make sense of (and defend) China.

  3. Dear Michael, I understand that in China the state sector dominates the economy. Is that an enough reason not call the economy capitalist? Can we also generalise by satying that every state-dominated economy is not capitalist? I, for one, don’t think so. You assert that is it not capitalist, but you never state what it is. I also understand that it is not socialist either. Is it a new type of economy that we cannot name its form? Is it moving toward something? Or is it an resolved theoretical issue and that’s why there is no name for the type of economy China has?

  4. In relation to my questions above, you should have included this in your post, especially the first sentence. It would be useful for both ‘Marxist’ and non-Marxist readers,
    “China‘s ―socialism with Chinese characteristics‖ is a weird beast. It is not ̳socialism‘ by any Marxist definition or by any benchmark of democratic workers control. And there has been a significant expansion of privately-owned companies, both foreign and domestic over the last 30 years, with the establishment of a stock market and other financial institutions. But the vast majority of employment and investment is undertaken by publicly-owned companies or by institutions that are under the direction and control of the Communist party. The biggest part of China‘s world-beating industry is not foreign-owned multinationals, but Chinese state owned enterprises.21 The major banks are state-owned and their lending and deposit policies are directed by the government (much to the chagrin of China‘s central bank and other pro- capitalist elements). There is no free flow of foreign capital into and out of China. Capital controls are imposed and enforced and the currency‘s value is manipulated to set economic targets (much to the annoyance of the US Congress).”

    Click to access china-paper-july-2015.pdf

  5. China is a socialist country for the simple fact that capital, albeit present, is not dominant.

    1) Land is all property of the State (with the exception of some very old land in the hands of original farmers from before WWI in some large cities). When you “buy” land in China, you’re actually buying a 70-year lease (even with this, real estate prices in the tier 1 cities continue to rise at alarming levels, but that doesn’t change the reality of the situation).

    2) The main means of production are all State-owned. There are billionaires in China, but they are mainly concentrated in the area of trade, where China engages with the capitalist world.

    3) The State (and, mainly, the armed forces) is under direct control of a true communist party, the CCP. The CCP depends directly on the satisfaction of the Chinese people, specially from the peasants, their historical supporters, to maintain legitimation (consensus, in the Marxist terminology).

    4) It doesn’t matter if the FORM of government is dictatorial/autocratic: in substance, the CCP is very dynamic and there are a lot of factions (some of them truly right-wing/pro-West), and many people from the working class end up reaching the upper ranks of the party (regardless of the West’s fetichism with the so-called “princelings”). When the CCP launches an official campaign against their own ranks to fight corruption, or when they rise per capita income ten-fold, it is because their own survival depend on that, not because of propaganda. The CCP is a true organic party, not a fake one, like the Republicans and Democrats in the USA.

    5) Since 1949, all reforms and movements of the CCP are tending to socialism, not capitalism. 1979 happened because they were trying to save the revolution, not to destroy it. Socialism is the theoretical period of History where capitalism and communism cohabit, like the communist version of mercantilism of the 1500s-1700s, where feudalism and capitalism cohabited.

    Now, all of this can change. A capitalist counterrevolution can happen in the future. But it also may not happen. We don’t have crystal balls. A lot of wrong things regarding China come from the intellectual deficiency of the Western Left in the 20th Century. Either it states that socialism is only what happened in the USSR or that socialism is just social-democracy.

    1. 1. That land if formally in the hands of the “state” has little meaning when the individuals in that state dispossess residents, users, peasants, village workers, from the land in for-profit schemes of personal, and corporate, enrichment. Anyone who doubts that such schemes are critical to the accumulation of capital in China simply isn’t paying attention.

      2.State-owned enterprises may account for a lot, but they do not account for the major portion of the economy. SOE’s account for less than 40% and probably less than 35% of China’s GDP.

      3. Gee, that’s good to know, under direct control of the CCP; the same CCP that imposed the 4 Reforms; suppressed the demonstrations at Tiananmen, has suppressed workers’ demonstrations and strikes. I don’t know about you, but I feel safer already.

      4. Glad to hear that the CCP is a true organic party and that the “forms” of rule aren’t important. Somebody tell Marx to get some new categories. The question is where the policies of the CCP are taking China, and the class struggle– towards proletarian power, or towards greater integration with capitalism and towards the bourgeoisie.

      5. Good to know that “to get rich” is tending towards socialism. 1979 happened because Deng and the CCP wanted to save the revolution? OK, but what does that tell us about the nature of the revolution itself, and the relationship of that revolution to relations of land and labor. Not much? Not much good? One would never know reading VK’s remarks. One could say after all, that the 1st and 2nd 5 year plans were developed to save the revolution. Doesn’t mean much.

      1. Anti-Capital writes: “2.State-owned enterprises may account for a lot, but they do not account for the major portion of the economy. SOE’s account for less than 40% and probably less than 35% of China’s GDP.”

        Can you please document that/provide some links. thank you.

    2. So Deng invited Milton Friedman to China in 1980 to ‘save the revolution’? Was that why Pinochet invited him to Chile?

      1. I note that T. Gou, CEO of Foxconn, China’s biggest private employer, has a fortune of £5.3 billion. Do Virgens dispute that this obscene fortune results from the ruthless exploitation of his wage slaves, who enjoy a 72 hour working week, and are forbidden to talk, sing, whistle or even go to the toilet while working. Such workers can be dismissed at a moment’s notice.

        I recall that under the tyrant, Mao, the workers had a 48 hour week and employment for life. But ‘to get rich is glorious’ and ‘some must get rich first’ to quote Mr. Deng.

        ‘ Land is all property of the State ….(even with this, real estate prices in the tier 1 cities continue to rise at alarming levels, but that doesn’t change the reality of the situation).’

        Property is a juridical category. What we have to identify is who has the power to dispose of it. Clearly the peasants are being dispossessed of their land, and have no power over it irrespective of its juridical status. That it can moreover command a price indicates that it is now a commodity.

      2. ” It doesn’t matter if the FORM of government is dictatorial/autocratic: ”

        I find such a statement incredible. Is it really difficult to comprehend that the only form of state appropriate to a transition to a classless society is a democratic one, i.e. one where the unpropertied rule. ALL other forms of the state result in rule by the rich. China is a typical example. If you organise truly Marxist groups in China you are likely to end up in prison.

      3. On November 15, 2017, police[1] stormed into a student reading group at the Guangdong University of Technology and seized six young participants.

        On the evening of November 15, we were discussing social problems and development over the past few decades. As Yunfan said, we did mention the incident that took place 29 years ago.[3] To our surprise, campus security guards stormed into the room, demanding that everyone present their national and university ID cards.
        ” Shortly after learning this, I was arrested as well.
        On December 5, six or seven police kicked open the door of my apartment and immediately pushed me against the bed, as if I were a dangerous thug in a gangster movie.
        I was interrogated for eight consecutive hours in the Xiaoguwei police station

        Officers from Xiaoguwei Police Station said I was the culprit – the “mastermind” behind some sort of conspiracy!
        And indeed I was – promoting Maoism and working for the sake of the downtrodden were of course what I “premeditated,” or even “plotted over an extended period of time.” I was born to walk this “radical” path, and I’d rather die than repent.
        These charges and accusations are eye-opening: The existence of a reading group is tantamount to “gathering crowds to disrupt social order.” Reading group meetings require division of labor, which is regarded as “conspiracy.” Since I was the first one to publish the friend-seeking post, I was naturally the “mastermind” behind the operation. Zhang Yunfan is a graduate from Peking University, so he must be “mainly responsible” for the plot. Sun Tingting is a girl and looks vulnerable, so she can be “simply” thrown in jail!
        Sun Tingting accurately described the difficult days in the detention center. I cannot identify any trace of the spirit of “the people’s police serving the people” in the deeds of the Xiaoguwei Police Station – or perhaps, for the unforgivable crime we committed, we no longer qualify as members of the people!
        So ridiculous were the charges that I chose to stay silent in the following interrogations, that’s why they labelled me as “remorseless.” They tried to trick me by claiming that this “remorselessness” is what got my friends arrested. (Later I learned that wasn’t true.) Since I was the culprit, they said, I shouldn’t drag other people into this, they had their jobs and lives to attend to. So then I thought, maybe I should just shoulder the burden for everyone. Finally I capitulated an wrote my “confession” by following the sample script they gave me.
        It was only after my release that I learned they didn’t spare the others. Four young leftists — Gu Jiayue, Xu Zhongliang, Huang Liping and Han Peng — are still being pursued!
        I was greatly moved by the open letters of Zhang Yunfan and Sun Tingting, as well as by the good citizens’ petition defending us. I was happy to see that Tingting has received so much concern and attention on Weibo.

  6. Michael, since you emphasize the conflict between the Law of Value and the non-capitalist (Primitive Socialist Accumulation) forces in China, why don’t you make explicit use of Preobrazhensky’s (also Trotsky’s and the Left Opposition’s) theoretical analysis of precisely this historical, political and economic conflict in the Soviet Union?

    1. A good read but too one sided. In China the profit motive dominates. That is to say production is undertaken for the purposes of making a profit. It is capitalist because investment takes the form of capital, that is money to make money. Profits can always be earned because production is based on unpaid labour.

      Where Mr Smith has a point is the rate of profit. The rate of profit is central to a developed capitalist economy because it regulates investment by answering two fundamental questions, whether to invest and where to invest. Whether or not to invest is answered by whether the rate of profit is rising or falling and where is answered by rates of profit rising above or falling below the average rate of profit. It is the second imperative, where to invest, that is addressed by Mr Smith. As Mr Smith says, because of regionalism, capital in China is not mobile. To retain their own fiefdom, these localised state capitalists are responsible for a fragmented, decentralised and duplicated capitalist society.

      Until the rate of profit, rather than the mass of profits organise the Chinese economy, the industrial cycle will be absent, so too the destruction of capital and rising unemployment, so too the trend towards the centralisation of capital. Instead capital will be thrown into production to rescue output rather than be withdrawn. Marx entertained such an idea in Volume 3. However he was adamant, capitalism could only function as many capitals organised by the rate of profit. He argued that should this be replaced by few capitals driven by the accumulation of profit for its own sake, it would become so inefficient it would lose its dynamism. Another way of saying this is that it would be buried in debt.

      1. Confucius supposedly said that truth is more important than facts. This might apply to Smith’s positivistic piece on China, which seems reasonably factual, but leaves a rotten taste. Why should an American scholar harp on China’s political and environmental disasters, when the Chinese at least speak openly about them, and they are more than equalled by the United States (given US massive influence on world trade and China’s industrial development)? As an American, why doesn’t Smith courageously (like the Chinese dissents he admires) put the blame where it obviously lies, and tell all that to the American oligarchy? because they have market solutions rather than jails to silence ineffective or with which to employ co-opted academic ecological dissidents?

        Who knows? Whatever his motivation, Smith plays a dangerously destructive game. The immediate ecological threat is not from China’s industrial pollution or from its non-existent imperial ambitions, but from another US fomented war of aggression, maybe a nuclear one.

      2. ”This might apply to Smith’s positivistic piece on China, which seems reasonably factual, but leaves a rotten taste.”

        Agreed totally. Smith claims that China is not democratic. But there are no democratic states in the world, certainly not the U.S., which is a plutocratic despotism, engaged in the slaughter of millions.

        Moreover, we are to understand that China is the biggest pollutant of the planet. But this is not true on a per capita basis. Anyway, if one includes the pollution caused by the U.S. military ( all those warships), why does Smith highlight the minor threat from yet to be launched Chinese cruise ships?

        Smith hopes that the Chinese people will ‘stand up’ again. Being resident in the U.S. one can only pray that Smith is also endeavouring mightily to get the American people to stand even once!

      3. ‘ to get the American people to stand even once!’ Should have said ‘stand up.’

      4. Ucanbe: Rather than signifying China’s, “inefficient,” failed capitalism, doesn’t China’s “regional state capitalists’ “throw[ing] capital to rescue output” (rather than making the averaged rate of profit)–signify that China exists in a state of limbo between capitalist and socialist value systems? How can it be otherwise, inasmuch as the imperial powers, structurally, cannot allow any nation (including their own) to freely develop, either socialistically or capitalistically?

      5. I should have added a final sentence to the above: There seems to be an insuperable structural contradiction between the system’s need for super-exploited labor (in terms of actual worker productivity) in the peripheries to subsidize its falling rate of profit and falling real wages for workers at its centers–and its need for expanding markets in both realms. The “solution” (in Meszaros’ term) has been “destructive production”: ecological, of course, but mainly increasingly capital and human destructive wars.

  7. My issue with considering China as socialist is practical: what is the point of even thinking about revolution if that is an acceptable end point? It would be better just to reform what we have have and avoid useless death and suffering.

  8. Sir,

    I think that there is a factual error in your graph titled “china’s public sector dominates…” You calculated the ratio of public sector asset to private sector asset in China to be nearly 3. But when I uploaded the stats from the IMF’s web page, I found that as of 2014, the last year the data about capital stock for both public as well as private sector in China is available, the total capital stock of Chinese public sector stood at 98391,07 billion yuans while that of private sector in China was around 76970 billion yuans. Therefore, according to my calculations, Chinese public sector has only approximately one and quarter times as much asset as private sector does.

    Can you explain the difference between my calculations and yours?


    1. Hi Sait

      I have taken the average ratio for 2000-14 to get my comparison figures as there is a lot of volatility in the annual ratios for each country. So an average over a longer period of time was better. But as I also show, the pub/priv ratio in China has been shrinking fast.

  9. MR: I always wonder: since you hold that China is not capitalist (‘state-‘ or otherwise), but don’t consider it socialist, what stands in the way of your using the term ‘bureacratic collectivist’?

    (Which term you could further modify: ‘with capitalist characteristics’, or something.)

    1. Elvin, your term has some merit. Actually I am not quite sure what the best term is with something that is a moveable feast or dialectical. The most important thing for me is that the Chinese economy operates in a qualitatively different way from the major capitalist economies.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: