Vol. 74/No. 29      August 2, 2010

China’s economic growth, often referred to as a “miracle,” has inspired a number of myths. One common view is that this economic miracle might provide some road out of the world capitalist depression.

Far from acting as a counterweight or being immune to the worldwide capitalist economic crisis, however, China’s “market socialist” economy is quite vulnerable to the unfolding depression in Europe and the United States. The size of the Chinese economy and the depth of its integration into world capitalist trade and finance also mean that what happens in China will in turn impact the rest of the world. The working class in China will be a significant actor in these developments.

In looking at where the economy and class struggle in China is headed today, it is useful to review the origins of the government’s current course.

The Chinese government began a shift from centralized state planning toward an expanding use of capitalist methods in the late 1970s. While these new economic policies were quite different from those of the past, they represented a continuation of an anti-working-class trajectory pursued by the Chinese Communist Party (CCP) since it was brought to power by the mass revolutionary upsurge of the toilers that overthrew the imperialist-backed government of Chiang Kai-shek in 1949.

In power, the Communist Party’s domestic and foreign policy has served the interests of a privileged layer rooted in the government bureaucracy and administrative apparatus. These narrow interests have sharply conflicted with those of the workers and peasants.

The reactionary outlook of the CCP leadership predates the revolution. In the 1920s a counterrevolutionary faction in the Soviet Union, headed by Joseph Stalin, consolidated its grip on the Soviet party and carried out a murderous purge of its revolutionary leadership. The degeneration of the Communist Party in the Soviet Union, along with most of the international communist movement that looked to it, deeply impacted the young CCP.

The Stalinist leadership in Moscow played a key role in the defeat of the Chinese revolution of 1925-27 and aided the consolidation of power by those in the Chinese Communist party who shared similar political perspectives. Mao Zedong, the principal leader of this tendency, would come to head the party and, after the revolution, the Chinese government.

After coming to power in 1949, the Mao leadership had no intention of uprooting capitalism. But over the next few years, under threat of imperialist invasion, mass mobilizations of the toilers spread from the countryside to the cities. This resulted in the expropriation of land, industry, transport, banking, and trade from foreign and domestic capitalists and landlords and the establishment of a unified nation. The economy came under the direction of the state and the capitalist market was replaced with centralized planning of production and distribution.

The unleashing of productive capacities of workers and peasants during the first decade resulted in rapid industrial development. This laid the basis for a dramatic rise in the cultural level and living conditions of the population. Social gains included the expansion of education and medical care.  
 
Stifling toilers initiative
But the Communist Party government moved to stifle the toilers’ initiative, confidence, and solidarity as it sought to administer workers, whom it treated as mere economic inputs, rather then lead the working class to take control of state property. Recognizing the toilers’ aspirations as a threat to their growing privilege, the bureaucrats blocked workers’ involvement in politics and management.

Along these lines, bureaucratic and adventurous economic policies, such as forced collectivization of farms, were initiated in the mid-1950s. Aimed at boosting output on the backs of working people, while undermining involvement of workers and peasants in the organization of production, they were economic and political disasters. This course, and its accompanying repressive methods, ran counter to the building of socialism. Among the consequences, it undermined the political basis on which an economy based on proletarian state property could advance.

The economic and political consequences of these policies and the death of Mao in 1976 opened the door for a new faction, which sought to employ some capitalist economic methods, to consolidate control over the party.

The move toward capitalist methods was pushed under the rubric of spurring economic growth. “Whether a cat is black or white makes no difference. As long as it catches mice, it’s a good cat,” coined in 1961 by Deng Xiaoping, a leader of this party faction, became a well-known catchphrase to justify this course.

The first significant steps toward unleashing the chaotic forces that drive the capitalist market began with decisions of the CCP Central Committee in December 1978. That plenum enacted a policy to encourage the growth of small private businesses.

At the time of the 1978 plenum, a total of about 150,000 self-employed household businesses existed in urban areas throughout the country. In the 1980s private companies with more than the legal limit of seven employees began to appear. These were recognized and designated as “private enterprises” by the government in 1988. That year some 6.5 million people were privately employed in urban businesses. By the late 1990s, this figure reached more than 30 million.

The government moved in the early 1980s to break up the communes and lease land rights to farmers for 15-year periods. Later the maximum lease period was extended to 30 years, then to 70 years in 2008.

Prices controls were relaxed and agricultural markets were opened for farmers to sell a growing portion of their produce at market prices for profit. Unpredictable fluctuations in the weather or market prices meant that some farmers could become wealthy, while others were devastated. Class differentiation accelerated in the countryside.

The lifting of price controls was extended to manufactured goods. By 1988 more than half the value of retail goods were sold at market prices.

Manufacturing firms in the rural areas controlled by small village and township governments began to expand. Unlike state-owned enterprises, they operated on market principles separate from the planned economy, retaining after-tax profits, or absorbing losses. Most of the profits were to be either reinvested or used for public expenditures, providing the main source of social spending in rural areas neglected by the central government. Along with the breakup of the communes, in 1984 the government began to encourage the growth of these entities, designating them as “township and village enterprises” (TVE).

The number of people employed in TVEs rose from 30 million in 1980 to 95 million people in 1988. In the 1990s the TVEs were increasingly leased, mortgaged, or sometimes sold to private parties.

Officially recognized private enterprises began to spread in the rural areas in the 1990s. By 1999 there were 48 million people employed in private businesses, nearly 10 million of whom worked in “private enterprises” with more than seven workers.

In 1984 the practice, common in TVEs, of paying bonuses tied to productivity or allowing companies to retain “excess profits” began to be extended in various forms to state-owned enterprises. Government functionaries in positions of management were increasingly enticed by new possibilities for personal gain to wring as much value as possible from workers’ labor.  
 
‘Special economic zones’
In 1980 Beijing established four cities along the southeast coast as “special economic zones.” The areas were opened to foreign investment and authority was handed over to local governments, who offered tax incentives for foreign investment in industry, as well as real estate and other sectors.

Capitalist enterprises have been attracted above all by the competitive advantages of relatively low wages, as well as tax breaks and government control over trade unions. Some of these operations have been set up as joint ventures between foreign companies and state-owned enterprises, others are completely foreign-owned.

Between 1984 and 1992, the government established these measures in more than four dozen other cities, as well as the entire island province of Hainan.

The influx of foreign capital investment spurred rapid development and urbanization in areas of the country, particularly along the coast. During the first decade, many workers there, particularly those working in the new private ventures, gained higher wages and a higher standard of living.

The next article will follow the continuing evolution of the Chinese economy toward increasing use of capitalist methods in production, trade, and finance; its interconnections with world capitalism; the class polarization resulting from this course; and the development of the Chinese proletariat.  
 
 
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