Where is China going? – Part One

Nearly thirty years have passed since Deng first introduced his “market reforms”. What started as an attempt to stimulate growth within a planned economy has ended up by establishing capitalist relations in the Chinese economy. How did all this happen and where is China going today?

The following text, to be published in three parts is the 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.


More than one fifth of the world population lives in China, a vast country that is becoming more and more a key player in the world economy. What happens in China affects the rest of the world in a big way. In the past period the Chinese economy has been an important factor in determining the degree and depth of recessions on a world level. The growth of the Chinese economy in the recent period explains why world recessions have been milder than would otherwise have been expected. But in the future this will turn into its opposite with China becoming a big factor in determining a major crisis on a world level.

What is happening in China takes us back to some basic ideas of Marxism. First of all, it confirms on a grand scale the basic postulate of Marxism that socialism in one country is not possible. It wasn’t possible in the Soviet Union, and it isn’t possible in China, and yet we are not talking here about small countries such as Cuba but countries of continental dimensions. Even with their vast resources these two huge countries have not been able to advance towards genuine socialism.

Both these countries in different periods of their history were extremely underdeveloped and it is especially considering this that they were duty bound to participate in the world market if they wanted to develop their national economies. The Bolsheviks never had the idea of autarchy and closing the borders of the Soviet Union. They maintained the monopoly of foreign trade of course. This was a mechanism to defend the young workers’ state and the young planned economy from the encroachments of world capitalism.

However, they never had the idea that they would not trade with other countries or that they would not seek advanced technology from the more developed countries. And most importantly, they understood that without world revolution they faced the serious danger of capitalist restoration. Lenin wrote about this on several occasions.

Mao’s perspectives prior to the revolution

No country can escape from the processes taking place in the world economy. It is world economy, world events that in the last analysis determine the outcome of the processes taking place in any one country, even a country the size of the former USSR or China.

Let us now look at the processes unfolding in China. In 1949 we had the coming to power of the People’s Army, based on the peasantry and led by the Chinese Communist Party under Mao. The perspective that Mao had then was not of the immediately passing over to socialism. Mao’s policy was to root out landlordism but to promote capitalism. In fact his perspective was one of 100 years of capitalism before the prospect of socialism could be posed. This was based on the idea that because China was an underdeveloped economy it had to go through the capitalist “stage” first, and only once capitalism had become mature would the possibility of socialism be posed.

Events were to unfold somewhat differently. The aims of the Maoist leadership were to carry out the national democratic revolution. What they did not understand was that under modern conditions, with imperialism dominating the world, the national democratic revolution would either move forward towards socialism or fail. There was no so-called “progressive bourgeoisie” upon which a modern capitalist China could be built. The coming to power of the People’s Army meant that the bourgeois state of Chiang Kai Shek in China had been smashed. There was no bourgeoisie with which to “share” power. It had fled to Taiwan together with Chiang’s corrupt and hated Kuomintang. Thus all power was concentrated in the hands of Mao’s Communist Party. In these conditions the only way of developing the economy was for this new state to take over control of all the major economic resources of the country. In spite of his earlier perspective Mao found himself carrying out the expropriation of the bourgeoisie and the setting up of a centrally planned economy. Capitalism was snuffed out in China.

All this also came about within the world context where we witnessed the strengthening of the Soviet Union with a widening of its sphere of influence, particularly in Eastern Europe. We also had the colonial revolution unfolding around the world with the defeat of imperialism in several key countries. India is one of the most striking examples of this. There was also the fact that US imperialism could not intervene militarily in China. Its troops were war weary after the end of the Second World War and could not be mobilised for another major effort in China.

The Permanent Revolution in a distorted manner

This created a situation whereby, in spite of their own perspective, the Chinese Communist Party leadership carried out the Permanent Revolution in a distorted manner. Starting with the bourgeois democratic tasks they were forced to move beyond these if they were to maintain the reforms they had already carried out.

The setting up of a centrally planned economy in turn led to a huge development of the economy over a period of several decades. In actual fact it was this economic development that laid the basis which allowed the present situation to develop. But we will deal with this later.

With China adopting a planned economy, the prospect was there for an international cooperation between China, Russia and Eastern Europe. Had the leaders in Russia and China been internationalist in their outlook, a socialist federation between these countries would have allowed for an even greater economic development.

But the narrow nationalist outlook of the Stalinist bureaucracy in the Soviet Union and in China led to conflict between the two countries which eventually led to the Sino-Soviet schism in the late 1950s to early 1960s.

Our tendency at the time predicted that this would happen. If you look at Ted’s writings in 1948-49, you will see that we predicted this even before Mao had come to power. The reasons for this were to be found in the limited nationalist outlook of Mao and because he had an independent power base. He did not come to power on the back of the Russian Red Army moving in as in most of Eastern Europe at the end of the Second World War. Mao found himself in a similar position to Tito in Yugoslavia (where a similar process unfolded).

After having consolidated the new regime, the Chinese Communist Party leadership revealed its own narrow nationalists interests. As the Chinese revolution had not been led by the working class, as there were never genuine organs of workers’ democracy, the Chinese Communist Party in power became the expression of the interests of the bureaucracy, and this bureaucracy of the new regime had its own interests to defend.

On the other hand we had the position of the bureaucracy of the Soviet Union. Prior to the coming to power of Mao, the Russian Stalinists had no confidence whatsoever in the ability of the People’ Army to take power. The Russian made secret deals with Chiang Kai Shek and basically betrayed their Chinese comrades. However, once capitalism had been smashed in China and Mao was in power, they accepted the accomplished fact, but throughout the 1950s they tried to impose their own will on China. The Chinese bureaucrats were not going to be dictated to. All this led to a conflict.

Thus China broke with Russia, and the Russians withdrew all their advisers, and their technology and aid. In those conditions the Chinese bureaucracy attempted to go down the road of autarchy, i.e. complete self-sufficiency, cutting off China from the world economy, to the degree that there were such phenomena as the “Great Leap Forward” or the “Cultural Revolution”. You had attempts to reach the level of steel production of countries in the west, by such means as having a little furnace in every village producing steel. They actually achieved the quantity they had aimed at, with huge amounts of steel being produced, but much of it was totally useless of course, because it was of such poor quality. Therefore, making enormous efforts in terms of labour, they failed to achieve the desired results. In agriculture we had similar attempts which actually led to periods of famine.

So it is actually in spite of the crazy zig-zags of the bureaucracy that the Chinese economy developed at quite a rapid pace. What this demonstrates is the superiority of the plan, even in its most distorted fashion. Of course, it was a bureaucratic plan. It wasn’t under the control of the workers. If there had been genuine workers’ democracy it would have been a completely different situation. If the Soviet Union, China and the East European countries had all been healthy workers’ states, then you can imagine a situation where it would have been possible to bring together the resources of all these countries under one genuine, democratic, international plan. The growth of the productive forces would have been much bigger.

The same ideas that Trotsky developed for Russia apply to China. So long as the bureaucracy was developing the basic infrastructure of a backward country, the plan could work and there could be a certain stability and the bureaucracy could play a relatively progressive role. But once the bureaucracy had built up the economy to a higher level it would reveal all its limitations and become an absolute fetter on the development of the productive forces. This is clearly what happened in the Soviet Union and Eastern Europe.

Effects of post-war boom on Chinese bureaucracy

China could not escape the same contradictions, and although the economy was still growing, by the 1970s there were some indications that there too economic problems were emerging. Because of the bureaucratic control there was lack of coordination between the different sectors and inefficiencies were creeping into the system.

Today the pro-capitalist wing has clearly emerged as the dominant force within the Chinese Communist Party, but this did not suddenly appear the day Mao died. There was clearly a pro-capitalist wing of the bureaucracy even at the height of the Maoist era. There was such a phenomenon in the Soviet Union in the 1920s and 1930s. And Stalin had to take measures to curb that wing of the bureaucracy. In China if you look at the Cultural Revolution there is an element of the same process. The Maoist bureaucracy was leaning on the masses to strike blows against the pro-capitalist wing and some of the most corrupt elements.

However, although we can make historical analogies between China in the 1960s and 1970s and Russia in the 1930s there are also some important differences between the Soviet Union in the 1930s and China in both the post-war period and in the recent period. What did capitalism have to offer the Russian bureaucracy in 1930? The Soviet Union was growing very fast, but the capitalist world was in the middle of its biggest depression ever. Even from a purely empirical, immediate material point of view, what interest could the dominant wing of the Russian bureaucracy have in moving towards capitalism at that stage? None of course. This is what determined Stalin’s turn against this layer.

However, if we look at the Chinese bureaucracy we see important differences. First of all the Chinese revolution never experienced a period of genuine workers’ democracy, of genuine Soviets (i.e. workers’ councils) with the workers leading the struggle for power as was the case in Russia in the early period under Lenin. Secondly, the Chinese Communist Party came to power as capitalism on a world scale was entering the period of the post-war boom. The period of the Mao regime, was the period in which we saw the biggest boom in the history of capitalism, indeed it was the period of the biggest growth of the productive forces in the whole history of humanity. Imagine the effect this would have had on the Chinese bureaucrats looking beyond their borders. They saw Japan, Germany, the USA… They saw a massive development of the productive forces under capitalism. This must have determined the thinking of at least a layer of the Chinese bureaucracy.

So when they used to talk about the “capitalist roaders” it wasn’t just an insult used by one faction against another, it was a real tendency that existed. At that time, however, the Chinese economy was going forward. Even the Soviet Union was still growing at a faster rate than the capitalist world, (although it was already slowing down and was no longer able to achieve the rates of growth of the 1930s). Thus the dominant wing of the Chinese bureaucracy was that wing which defended the planned economy. Their own material privileges were tightly linked to the state owned, planned economy and that same system also guaranteed social stability. In spite of all this, there was always that wing that looked to capitalism, or at least capitalist incentives, to develop the economy.

The Communist Party in that period was not one homogeneous block. It had different tendencies within it. In the last years of Mao’s life it was clear these tendencies were pushing in different directions. Mao, however, as the supreme arbiter at the top was able to hold back the pro-capitalist tendencies – but he could not completely eliminate them. It is clear that once Mao died, the situation changed. Here we have a clear example of an individual at the top of the regime determining how things go, but once he is dead things can change radically and quite rapidly, as the pent up pressures come to the surface. It is not that the individual determines the whole process, independently of the objective situation. But he can hold a situation for a period. Once he is gone all the contradictions that had been developing over a period suddenly come to the surface and can erupt in quite a violent and speedy manner.

In a certain sense it is similar to the position Castro holds in Cuba. At this stage Castro is a determining element in holding back the pressures of the pro-capitalist wing in Cuba. However, once Castro dies things can suddenly accelerate. There is already a pro-capitalist wing in Cuba. The Cubans have in fact been studying China very carefully. Castro visited China in the early 1990s and he came back with the idea that that was not the road he wanted to go down. But there are a lot of university professors and economists in Cuba who write articles about the “Chinese model” (we have their counterparts in Venezuela too).

Actually the Chinese model is used by the reformists in the labour movement internationally to say, “look, socialist market economy works”. What they are doing is not looking for a way of making socialism work; they are using China to justify their own support for capitalism in the west. What is worth noting is that the Chinese “model” is not one of a market economy providing reforms like the Swedish “model” in the 1960s and 1970s, for example. It is a model that has destroyed all the social gains of the revolution. All the structures that provided for free healthcare, education, care for the elderly, etc., have been destroyed. You now have to pay for these things. So when we see these intellectuals saying that China is the model, we know what they are talking about: raw, crude capitalism without any social reforms!

After Mao’s death

The late 1970s produced a major change in China with the death of Mao and the later coming to power of Deng. What had previously happened in the Cultural Revolution is significant in understanding the later development under Deng. The Maoist bureaucracy had leaned on the masses to strike blows against a section of the bureaucracy. In doing so they had unleashed forces from below, but there was a risk involved in this. To have allowed the masses to go any further implied the possible loss of control on the part of the bureaucracy. Mao and his followers at a certain stage – once they had curbed the excesses of a wing of the bureaucracy - clamped down on the very movement they had unleashed, and reined it back in. Chinese slogans can be quite revealing. They can change radically according to the needs of the bureaucracy. At one stage the main slogan was, “The masses are right, what the people say is right” and then it became, “What is right is what is in the mind of Chairman Mao”.

However this process had a logic of its own. By clamping down on the masses, which they had previously leaned on, the balance of forces inevitably swung back towards the pro-capitalist wing in those conditions. We have mentioned Castro’s recent speech in which he raises the danger of capitalist restoration on the island. He is obviously directing this against a wing of the bureaucracy. The problem is you cannot curb these bureaucratic tendencies with bureaucratic methods. The bureaucracy that wants to return to capitalism can only be stopped by leaning on the masses, by mobilising the masses. Once Mao had curbed the masses, then the balance of forces was determined within the bureaucracy. Mao had good reason to worry about the masses, because there had been different waves of strike action, movements from below in the preceding period, the last of these being in 1966-67 and again in 1976. There was a growth in these periods of workers’ organisations to redress their grievances on wages and conditions.

What we saw here was the tendency of the working class to move beyond the limits imposed by the bureaucracy. The point we have to understand is that the Maoist bureaucracy in defending the state plan could not go so far as to give power to the workers. This would have meant the loss of their privileges. In spite of this, they were faced with the problem of developing the economy. From a genuine Marxist point of view the only solution would have been to introduce workers’ democracy, which of course was the last thing the bureaucracy would do. We must not forget that that wing of the bureaucracy that did defend the plan did it to defend their own interests, their own privileges and not those of the workers.

Trotsky explains the situation very well in his writings published as “In Defence of Marxism”. He says, “The bureaucracy is first and foremost concerned with its power, its prestige, its revenues. It defends itself much better than it defends the USSR. It defends itself at the expense of the USSR and at the expense of the world proletariat.” That is in essence the nature of the bureaucracy.

Deng, representing the right wing of the bureaucracy, had been sidelined in the process that unfolded during and immediately after the Cultural Revolution under Mao. But what is significant about Deng is that he wasn’t expelled like a lot of other bureaucrats in the past would have been. That is because he represented wing of the bureaucracy, which was not at all a small isolated minority. Mao could not turn against that wing and remove Deng as he would have liked to.

Already by then you can see how the pro-capitalist wing was far stronger than it would have been in the Soviet Union in the 1930s. Probably a significant layer of the bureaucracy must have thought that the Great Leap Forward and the Cultural Revolution were just crazy. They saw them as only disrupting the economy, causing chaos, and so on.

But then Mao died. There was a short interim period of Hua Guo Feng and then there was the Gang of Four. The Gang of Four actually had the crazy idea of relaunching a second Cultural Revolution. However, without Mao they were far weaker. Thus they were very quickly removed, arrested and never re-emerged.

It is in that period, without Mao, that what was by now obviously the dominant wing of the bureaucracy began discussing which way forward for China. They could see the inefficiencies of the bureaucratic system and they were looking for a way of having some kind of control over quality, levels of production, productivity, etc.

It is clear that a Marxist answer would have been to introduce workers’ democracy and workers’ control over production. But in the mind of the bureaucrat that is excluded. Instead they decided to introduce certain elements of market economy, market control, a kind of Chinese NEP.

Let us say this: from a Marxist point of view, in the conditions in which they found themselves a kind of NEP would not be excluded even by a revolutionary Marxist party, as the Bolsheviks did. As long as the main levers of the economy remain under state control, under the guidance of the plan, these methods can be used to stimulate and develop the economy. Remember that Lenin considered this when he wrote about Siberia. There were lots of raw materials, but the economy was underdeveloped. The weak, young workers’ state did not have the means to develop Siberia. So Lenin’s position was that the workers’ state could make a deal with the foreign capitalists, they could be allowed to invest with some guarantees on profits, etc., and at the end of the day they would have developed Siberia, obtaining the new means of production, the technique and so on, and this would be to the benefit of the revolution.

The problem is that China in 1978 was not a healthy workers’ state. There was no genuine workers’ power. It was a deformed workers’ state, with a bureaucracy, a caste at the top of society with privileges, living completely differently from the masses. Thus any opening up to capitalist methods in such circumstances meant the danger of capitalist restoration could become a real one.

Trotsky on the bureaucracy

Trotsky in The Revolution Betrayed referred to the tendencies within the bureaucracy. He says at one point: “One may argue that the big bureaucrat cares little what are the prevailing forms of property, provided only they guarantee him the necessary income” but then he added, “This argument ignores not only the instability of the bureaucrat’s own rights, but also the question of his descendants. The new cult of the family has not fallen out of the clouds. Privileges have only half their worth if they cannot be transmitted to one’s children. The right of testament is inseparable from the right of property. It is not enough to be the director of a trust, it is necessary to be a stockholder. The victory of the bureaucracy in this decisive sphere would mean its conversion into a new possessing class.” At a certain point he emphasises, “In reality a backslide to capitalism is wholly possible.” This is all in Chapter 9 of Revolution Betrayed.

By the way, it is also interesting how Trotsky defines the Soviet Union. He doesn’t give a simple answer. He gives a, b, c, d, e… He gives a whole list of characteristics explaining that it was a complex process and he added that the dogmatic sectarian wants a yes, yes, no, no answer to the question of what is the nature of the regime, but that it is not possible to give that answer. He says the definition he gave was a bit clumsy but it was the nearest one had that approached reality.

Trotsky said that it would be wrong as a method to exclude from the list of characterisations any element that might contradict your preconceived view of what it is, simply because that element might end up contradicting your analysis later on. If you read Trotsky it is really refreshing, brilliant in fact. You see how Trotsky was open to the real processes taking place, without any prejudice, without any preconception, using a method. We must make sure that our comrades understand the method of Trotsky and not simply quote saying Trotsky said this therefore it must be… as if it were a Bible. Trotsky’s writings are not a Bible, there is a method, and we must learn the method. It is the dialectical method.

Early market “reforms”

If we look at what happened in China we see how the bureaucracy understood the need to develop the economy, the need to have some form of control. And without workers’ control, the only other kind of control is the market. The bureaucracy is incapable of having control over every level, every layer, every moment in the productive process. So they drew the conclusion that it was necessary to introduce some capitalist criteria, to force the management of the state-run companies to be more efficient.

They had the idea that they needed to learn from the capitalists. So initially they launched four special zones. In the very early period these zones did not give the results they were expecting. You see, capitalists will invest but they want a guarantee that their profits are safe, that their property is safe, and that they have control over their investments. The initial conditions were such that the bureaucracy were trying to keep firm control. But then to get results they had to make further concessions, such as allowing wholly owned foreign companies, i.e. allowing capitalists to have companies they owned in China.

In agriculture at the same time they proceeded towards de-collectivisation of the land. This they announced in 1980, and by 1983 98% of peasant holdings were no longer collective. The method they used was to lease out the land. So in theory the land remained the property of the state. In practice the families that controlled that land behaved almost as if they were the owners. They could transfer it to their children.

Once they had made further concessions to the capitalists, the investments started coming in. I have here an interesting article from The Guardian (a December issue). It quotes some capitalists in the west, people like Murdoch. It says, “Many a right-wing fat cat will tell you that the Chinese capitalist transformation could only have happened under the stern rule of the Communist Party of China…” It then adds, “Who would not like to do business with a country with no trade unions?” Paradoxically their investments are safer in China than in Russia where the whole system collapsed.

Once they saw that it worked … this is how the bureaucracy thinks obviously… they see that it works, that it develops the economy in these areas… they increased the special zones, ending up with a situation where practically the whole coast of China and the area around Beijing is made up of special capitalist zones.

Thus we see how from 1978, starting off with tentative steps to introduce some market stimuli to the economy, they have been moving, step by step, closer to capitalism. But if you read the declarations, and even the writings of Deng in the 1980s, they state clearly that the state sector must be dominant. That was their thinking then. It would be wrong to think that the bureaucracy consciously planned all this back in 1978. The bureaucracy has been gradually creating conditions that have then pushed them even further down the road of capitalism.

It is interesting to follow the statements of the key political meetings in China, the Politbureau, the Plenum, or the Congress. We see that up till 1992 in all their declarations they maintained the position that the state-owned sector should remain dominant.

The process began to unfold throughout the 1980s. To give one example: in 1978, 78% of urban workers were employed by state owned enterprises. By the mid-1980s this figure had gone down to 70%. Not a huge difference, but the direction is the important question. You can already see the changes taking place. But, as I said, until 1992 the official position remained that the state must dominate.

Acceleration of the process

However, in 1992 the XIV Party Congress met, and that is where they officially abandoned the idea that the state sector must dominate. In the same year Deng launched a new stage in the “reform programme”, as they called it. He went on a tour of the special zone of Shenzen and made a famous declaration, “As long as it makes money it is good for China.” And the Party Congress announced that it was going to establish what it called “a socialist market economy with Chinese characteristics”. This was an attempt to justify what they were doing. For while paying lip service to social guarantees, they were actually laying the basis for one of the most brutal forms of capitalism.

Of course, the process did not start in 1992. Market mechanisms had already been operating for some time. What was significant about 1992 was that the party officially decided to abandon its commitment to maintaining the state owned enterprises as the dominant sector. They decided to shrink the state sector. Up until then what we had was the development of the private sector outside the state sector. Now they decided to proceed towards the privatisation of state owned enterprises. They selected 2500 locally run state owned enterprises and 100 centrally run companies for this conversion. And by 1998 this was complete.

In 1994 they extended the programme and they stated that they would maintain control over the 1000 largest state owned enterprises while all remaining state firms would be available for leasing or sale into private hands. By the end of the 1990s state owned enterprises employed 83 million people, but this represented only 12% of total employment and even in the urban areas only one third of employment. We see an enormous change from 1978 when 78% of urban employment was in the state sector to this figure of one third.

At the end of the 1990s the contribution of these companies to GDP had fallen to 38%. In September 1999 at the 4th Plenum of the 15th Party Congress they took another step. They called it the “Let go of policy” position, i.e. the state loosening up and renouncing its control. They proceeded to loosen up in medium and small state owned enterprises. In July 2000 the Beijing City government that covers a large area announced that state and collective ownership would be phased out in all small and medium sized state owned enterprises within three years. And by 2001 state enterprises accounted for only 15% of total manufacturing employment, and less than 10% of employment in domestic trade.

Here we see the process that has been unfolding. But there are some other interesting figures. This is a document called “China’s Ownership Transformation”. It stresses the same point, that privatisation started in earnest in 1992. Referring to 1995 it says, “the state decided to keep between 500 and 1000 large state firms and to allow smaller firms to be leased or sold”. It explains that there was a good reason for this because in 1997 the 500 largest state firms, most of them controlled by the central government, held 37% of the state’s industrial assets, they provided large revenues for the state and so on. Thus they proceeded along the road of privatisation. It says at one point, when they were speeding up the process, “the trend reflected the belief that for an enterprise to be truly transformed it is necessary for the management to own the majority of shares”. And in the Chinese tradition the slogan now became “the state retreats and the private sector moves forward”. They invent a slogan to get the message clearly across to the masses.

There are a lot of figures here which show the process and how fast it has become. They actually say at one point, “If this performance typifies that of the rest of the country then privatisation in China has already gone further than in many East European and former Soviet countries.”

However, we should also stress that it is not a simple process of just selling everything off. That is why it is not just a question of looking at the percentages of state and private ownership. It is not merely how much is in the hands of the state, but how that sector that remains in the hands of the state is functioning, and with what aim. It is quite clear that in the process of capitalist transformation they haven’t yet developed a bourgeoisie that is capable of running major corporations on the scale of some of the American and Japanese multinationals, without the help of the state.

What we have seen is the selling off of most of the small and medium sized companies and at the same time the development of private companies that were never in the hands of the state. As we said, 450 of the top 500 multinationals operate in China. So it also a question of the private sector, which has been developing faster than the state sector. And if we look at what remains of the state sector, we see that part of it is being prepared for further privatisation. We see this phenomenon of taking large state conglomerates and breaking them up into different companies, closing the inefficient sectors and selling off the more profitable sectors.

You have this phenomenon where the management of state owned companies is busily involved in asset stripping. They have their friends in the private sector, and they let these have the best machines, the best parts and so on, and they let the company go into disrepair and decline. The feeling among these managers is “this factory is going to be privatised sooner or later and I am going to be offered the factory”. So the idea is to reduce the company to a state where it is worth the least possible so it can be bought off cheaply. In many towns you have the local councils deciding that the best way to get a company working is to sell it off cheaply to the managers to stop the asset stripping, the idea being that once the mangers become owners they will use the assets to develop the companies as they will reap the profits.

(To be continued)

January 2006

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