China Marches Back to Capitalism¶
Core Argument¶
Chapter Digest: China Marches Back to Capitalism
This chapter argues that China’s transition from a deformed workers’ state to a fully capitalist society was driven by a hardened Stalinist caste determined to protect its privileges. The watershed moment was the 1989 Tiananmen Square massacre, after which the Communist Party abandoned the three pillars of a workers’ state: national economic planning, the monopoly of foreign trade, and the nationalisation of key industries and banks. Contrary to Trotsky’s prediction that capitalist restoration would require armed counter-revolution, the transition occurred without such violence because revolutionary traditions had already been eradicated. The bureaucracy preferred capitalism to workers’ democracy, which would have ended its privileges.
Deng Xiaoping’s 1978 reforms initiated a New Economic Policy: peasants leased land, Town and Village Enterprises (TVEs) were encouraged, and Special Economic Zones (SEZs) were established. TVEs, initially communal, were rapidly privatised, often sold to local officials at undervalued prices. By 2000, all TVEs functioned as capitalist firms. The SEZs attracted foreign investment by ending lifetime jobs and fixed-term contracts, while the right to strike was dropped from the 1982 Constitution. By October 1984, the state monopoly of foreign trade was dismantled. At the 12th Congress in 1982, Deng announced a “planned commodity economy”, moving away from central planning. Small and medium state-owned enterprises (SOEs) were given greater autonomy, and management buy-outs privatised profitable sectors. Private companies rose from 1.83 million in 1981 to 11.71 million in 1985.
A “scissors crisis” in 1987 led to inflation hitting 18% in 1988-89, with unemployment rising above 5% (real rate over 10%). Workers struck and laid-off workers rioted. This economic crisis became a political crisis within the CCP, leading to the Tiananmen Square protest movement. Students and workers occupied the square for seven weeks, demanding democracy and an end to corruption. The Beijing Workers’ Autonomous Federation (BWAF) was founded, demanding independence from the CCP and genuine workers’ control. On 4 June 1989, the army killed several thousand protesters.
The 1997 Asian Financial Crisis forced China to boost foreign exchange reserves, leading to the flotation of China Telecom on the Hong Kong stock exchange. By the late-1990s, market forces determined commodity pricing and distribution. Only a quarter of GDP came from the state sector. The 1000 largest SOEs were reduced to 112 through mergers, not sell-offs, but most were partially floated with less than 50% private capital. Between 1994-2003, 60 million workers were made redundant. In March 2003, the State Commission for Planning and Development was dissolved, eradicating even the symbol of a planned economy. By 2013, profitable SOEs were to be privatised, with private shareholders becoming majority owners. China joined the WTO in 2001, formally committing to abandon state control over foreign trade by 2007. By 2010, China became the world’s second-largest economic power.
The CCP now includes one third of all private entrepreneurs. The ‘Prince Party’, offspring of older leaders, occupy top positions to defend vested interests; about half of China’s most senior leaders fall into this category. Corruption is rampant due to no significant divide between Party and state. An accidentally leaked PBOC report revealed 16-18,000 CCP officials fled China in the last 20 years, taking about US$160 billion. The super rich are supported by wealthy Party and state bureaucrats, corporate partners, and a “new middle class” of 100-200 million enthusiastic about the capitalist economy. The chapter concludes that capitalist relations are established, and the CCP bureaucracy overwhelmingly stands with capital, a process that will ultimately tear the Party apart.