China’s long march to capitalism – Part Three

[Note: The original draft of this document was written in April 2006 and was then discussed and voted at the July 2006 World Congress of the IMT]

China now fourth largest world power

The latest figures show that China now has become the 4^th economic power in the world after the USA, Japan and Germany and it is the third-largest producer of manufactured goods in the world after the United States and Japan. In 2004 China consumed half of the concrete used in the world. It is becoming a major force, not just militarily, which it already was, but also economically.

Initially the foreign capitalists thought they could force China to open up and then they would flood it with goods. However, China has developed differently from what was expected by the imperialists. China is now a big exporter. The US has a deficit in goods with China which has reached a record US$205bn. They are complaining that China is exporting too much, exporting to Europe, to the USA, to the whole world. They discuss regularly about tariffs, trying to limit imports from China. But in order to stop Chinese goods they would have to slap on extremely high tariffs, because China's level of productivity is so high and its goods are so cheap.

With the huge development of its productive forces, the enormous change in its economy, the consolidation of capitalist relations, it is logical that now China is behaving like an imperialist power. It is importing raw materials and exporting manufactured goods and capital. One of the factors determining the increase in the price of oil is the huge demand from China, which has now become the second largest consumer of oil in the world and a net importer. It also imports large quantities of iron ore, copper, bauxite, timber, zinc, manganese, tin and soybeans.

Its relationship with Latin America and the Caribbean highlights the imperialist character of China. In 1999, for example, China exported $5 billion dollars' worth of goods to Latin America and the Caribbean and imported $3 billion. By 2004, it was exporting $18 billion dollars' worth of goods and importing $22 billion from the same region. Latin America exports mainly food and raw materials to China, while China exports to Latin America textiles, apparel, shoes, machinery, TVs and plastics. In 2004 China invested $6.32 billion in Latin America. Nearly half of China's foreign investment is in Latin America and the Caribbean. In Venezuelan oil alone they are planning to invest a further $350million. China has also established a "strategic alliance" with Brazil where there are already Chinese owned factories. Fifteen percent of Brazil's exports go to China, and the figure is growing. China is also competing with India for oil resources in Asia. It has become a major competitor on a world scale. In 2004 world trade grew by 5%. China was responsible for 60% of this growth. Almost two thirds of world trade growth is because of China.

In line with this development, we see that China has even sent troops to serve in the UN force in Haiti. They are building up a big navy. The reason for that is that in the future they will need to control sea-lanes in the Pacific and elsewhere. This will bring them into open conflict with the USA. Already US Congressmen are becoming worried about the growing level of Chinese involvement in Latin America and are quoting the "Monroe doctrine" which established the principle that no power should have more influence than the USA in Latin America.

Strengthening the working class

This enormous development of the Chinese economy has another side to it. Together with the massive development of the productive forces comes an enormous strengthening of the working class. People are moving into the cities at the rate of 20 million a year. China has been rapidly transformed with a huge development in the urban areas as extremely poor peasants try to escape the poverty of the countryside. Up to 40 percent of the population now lives in cities. There are 166 cities in China with over one million inhabitants. Over the next 15 years, 300 million are expected to move to the cities. The building industry in China is booming. There are 38,000,000 construction workers alone. In over 80 cities they are building underground transportation systems. All this has an effect on the economy, with increased demand for steel, concrete, and so on. This is proletarianising Chinese society on a scale never seen before.

Within 15 years it is estimated that there will be 800 million urban dwellers. This is the greatest proletarian concentration in history. 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 in the world.

These peasants who are flowing into the cities were living in terrible conditions on the land. The collectives have been destroyed. These used to provide a whole series of benefits, healthcare, pensions, etc. Two thirds of the rural population of China in fact have no pension schemes. So they are looking for jobs in the cities.

We have seen this phenomenon before: in the USA and Europe with the immigrants from Latin America, Africa and Asia. They are prepared to do the worst jobs and live in terrible conditions, but at least they receive an income, money to send back to their families. For them it is a means of escaping poverty. Having said that, many of them are barely surviving. They reap very little benefit from the enormous wealth they are producing. This situation holds within it the potential for revolutionary movements in the future.

The one progressive element in all this is the creation of millions of the "gravediggers" of capitalism, of millions of proletarians. In that sense we welcome the development of industry. Although at a terrible price, it is creating the class that will carry out the transformation of society. Huge working class districts are being created in the cities, with an accumulation of enormous contradictions.

Although Chinese capitalism is developing at breakneck speed, the dismantling of the planned economy was a reactionary step backwards. The current economic development could easily be matched and surpassed, and the imbalances, chaotic nature of the growth, the growing social polarisation could be avoided if there were a regime of genuine workers' democracy.

There is enormous polarisation between the classes, between the city and countryside, between the capitalist zones and the old state-owned industrial zones. There are huge social disparities. The top richest 10% in the cities own 45% of the wealth. The poorest 10% have only 1.4%. While a new wealthy bourgeois class is being created there are up to 200 million unemployed.

The uneven development also affects different regions of China, some of whom are not benefiting from the growth taking place in the east and the coastal regions. This unequal development risks igniting the national question in China. There are 100 million people who belong to a national minority (Tibetans, Turkmen, Mongolians, Uighers) and there are regular clashes with the police. In this situation of polarisation, the national question can be sharply posed again.

It is true that economic development has raised living standards for some, but there is another side to the equation. Economic growth, far from guaranteeing stability, is causing greater worker militancy and social ferment. Living and working conditions, and the way the wealth is distributed are the major cause. The masses despise the bureaucrats who are destroying all their gains.

The conditions of the working class in China are similar to the conditions in England described by Engels in the 19^th century. 80% of mining deaths in the world occur in China - yet it produces just 30% of the world's coal. In 1991, 80,000 workers were killed in work accidents. By 2003 that figure had shot up to 136,340 [China Daily, 2004-12-03]. There are incredible pressures on the working class. This is not a happy, stable society looking forward to a comfortable future. Among those aged 20-35 suicide is the number one cause of death. Every year there are 250,000 suicides - and another 2.5 to 3.5 million attempt it. Millions have lost their jobs. There are big protests, but the relentless process towards capitalism continues.

We have pointed out that what is happening in China today has some striking similarities with the early development of capitalism in Russia over one hundred years ago. The dissolution of the old agricultural communes, followed by the development of industry in the latter part of the 19^th century brought into being a fresh proletariat made up of peasants abandoning the land. The creation of such a proletariat and the terrible conditions created by this process were to lead to the 1905 revolution and later the October revolution. The conditions are being created now for class conflict in China, that will eventually lead to a similar outcome, a revolutionary upheaval.

Already we have some bitter strikes. The number of labour disputes of all kinds rose by 12.5% in 2000, and by 14.4% in 2001, to reach 155,000. In 1999 there were close to 7,000 "collective actions", as they call them, which usually were strikes or go-slows, with a minimum of three people taking part, involving over 250,000 people. This represents an increase of 900% since 1992. Since 1999 the number of collective disputes has been increasing by about 20% per year. Although the absolute figures are still quite low, these movements are an indication of what is to come. This is an indication that economic growth does not translate mechanically as social stability. In fact the opposite is the case.

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 it is not possible to sustain this for ever, and therefore at a certain stage China too will face a crisis. We cannot put a time on that and say exactly when this will happen. But it will come, and when it does it will be a deep crisis and it will have an impact on the whole world.

The Chinese working class is a 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 very favourable conditions. Now they are losing them. The relationship between the workers and the companies they work for is more like in the West. The consequences at a certain stage will be an explosion of the class struggle.

The position of the Communist Party

At the moment the Communist Party dominates and has control over the situation. But what is happening to the Communist Party? The Communist Party has between 60 and 70 million members. That is roughly five per cent of the population. In the past the party was an instrument of the state bureaucracy, but in the recent period the Chinese capitalists have been allowed to join. Now thirty per cent of Chinese capitalists are members of the Communist Party, which shows that they feel their interests can be best defended by being in the party. The capitalists are still a small minority in absolute terms, but it is very significant that such large numbers of the capitalist have been allowed in.

A few years ago almost half the Central Committee was changed, obviously some of the older bureaucrats who were regarded as an impediment and an obstacle to the movement towards capitalism were pushed out. Thus, the Communist Party is being used by the capitalists as an instrument to defend their class interests. Within the lower ranks of the Party there must be many who believe in "Communism", or at least what they perceive as Communism and some of them will be acquainted with the ideas of Marx. But those at the top who have the levers of power in their hands, are guiding the process towards capitalism.

What is the future of the Chinese Communist Party? 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. But faced with a serious major upheaval, a major economic crisis, major class conflicts, national conflicts, social conflicts of all kinds, there could be a tendency for the different factions to break apart. We have bear in mind that because the Chinese Communist Party is not a party as such and therefore it cannot be compared to the CPs in the West. The Chinese Communist Party is part of the state apparatus ever since 1949 when it came to power.

However, on the basis of events its grip on the state could be broken. In the case of the Russian bureaucracy this happened in a convulsive way. The old monolithic Stalinist party broke up into many parties representing different interest groups. Out of this came also several Communist Parties, which became genuine workers' parties. But this process in China is something for the future. At the moment the Chinese bureaucracy is in control of the situation. And the Party is being used to develop capitalism.

The one thing that is certain is that this will not be a smooth process. As the new capitalist economy produces new contradictions this will provoke divisions within the Party hierarchy. In fact there are already such divisions as the present conflict over further changes in laws governing property rights indicates. How do we interpret these divisions within the CP? We have to start from the overall process and see where it is going. It has reached the point where capitalist relations have been established. There is the differentiation between wage labour and capital, competition in the market, the profit motive and so on. There are still strong remnants of the old system, but these are either being prepared for privatisation or are functioning as state capitalist companies. We have to take this state sector into account, but we have to understand that now the private sector is the most dynamic part of the economy and the move towards capitalism has been consolidated.

Within the bureaucracy of such a large country, there are inevitably going to be counter-currents, different factions with different views and interests. There is a wing that is looking at the overall process and it is concerned at the instability that it is provoking. The Premier and the President share these concerns as they see the dangers of continued imbalances and polarisation. This wing wants to introduce social reforms to soften the blow for the masses. They fear revolution from below so they are demanding some investment in the less developed areas and increased social spending.

They do not challenge the essence of capitalism and will not actively intervene to stop the development and consolidation of capitalism, but they are concerned that the inequalities, the growing social tension, will at some point lead to a revolutionary movement of the proletariat. Of course, they are right. The problem is that maintaining the old Stalinist structure would also have led to a movement of the masses at some stage and to the eventual collapse of the system. Therefore this wing of the bureaucracy will not push the process back, but will try to introduce some social reforms to try and soften the blow for the masses.

The bureaucracy of the East of China, which is much more closely tied to the new capitalist class sees this as diverting essential resources away from the development of industry. Rather than slowing down the process, this wing is in favour of accelerating the process and putting an end once and for all to the remnants of the old system. The present conflict is therefore not between those who want to "go back" and those who want capitalism. It is about the stability of the system as a whole. The irony is that in the long run this process could tear the CP apart leading to an even greater instability.

The contradictions within the bureaucracy thus reflect a conflict over the next stage in legal reform governing property relations. Under pressure from certain quarters this process has been slowed down. This underlines the fact that the process is not a linear one. On more than one occasion, as we have already seen, there have been periods where the bureaucracy has had to slow down the process, but without ever undoing any of the market "reforms".

This temporary and unstable balance can be maintained so long as GDP grows at the current annual rate of around 9 percent. Millions of jobs are lost every year in state industry, but millions more are created in the capitalist sectors. Likewise the flow of rural workers into cities can be largely absorbed. Although the jobs that are being created provide very low wages, these are still far higher than what is available in the rural areas. Thus the migrant workers, although working in terrible conditions, can earn an income, send money home, and so on.

As we have seen, the bulk of the Chinese economy is now functioning on a capitalist basis. Only about one third of GDP is now produced by the state sector. There is still some way to go to privatise what is left but the state sector no longer dominates. As they proceed to restructure and privatise even more of what is left of the state sectors further tens of millions of jobs will be lost. In such a situation sustained growth is an absolute necessity.

If they could have another 10-20 years of 7-10% annual growth, they might be able to achieve this level of urbanisation and industrialisation relatively smoothly. But this depends on the world market. China exports more than 50% of its GDP. It has very cheap labour costs and very modern means of production - i.e. very high levels of productivity. But China is coming under pressure. There are signs of a slowdown in some sectors of the world economy, the Euro Zone economies are stagnating or growing slowly. There are the beginnings of overproduction on a world scale - in part due to Chinese growth. Any significant decline in world markets would therefore drastically affect the growth of the Chinese economy, as happened to South Korea in the past. China is already facing the prospect of overproduction in steel, iron ore and coal, and also in consumer goods. The signs are there of a future crisis of overproduction.

This is causing alarm to the IMF, which in spite of all the rhetoric about the efficiency of the market, realises that the key problem facing the world economy is overproduction. According to IMF economists, over 75% of Chinese industries have problems of productive overcapacity, which is putting pressure on the rate of profit. This is inevitable, given the frenzy of investment in the country, where an incredible 45% of GDP is made up of investments, a level of investment which is historically unprecedented; not even Japan reached these levels during the post-war boom. So long as exports continue to grow and the west continues to get deeper into debt, they can live with this, but with this rate of growth in investment levels China is doubling its productive capacity every 4-5 years, a rate of growth that will inevitably lead to a massive crisis of overproduction. In July 2005, the IMF published a general report on the situation in China (IMF, Staff report for 2005, 8.7.2005) which centres wholly on the problem of the investment boom, which has enormously increased what Marx defined as the organic composition of capital (the capital-labour ratio has increased by 450% since 1984), thus reducing returns on investments from 16% to 12%.

The bell of overproduction will toll first of all for the banks, which will start to accumulate insolvent loans. From here the problem will shift to levels of employment and thus to social conflict.

China is also under pressure from the USA to revalue its currency or face heavy tariffs on its exports. At present a bill is being discussed in the US Congress that would impose a 27.5% tariff on Chinese imports! In 2008, China plans to let its currency float. However China is not Haiti or Nigeria where the IMF can come in and tell them what to do. China is a major power and therefore there will be big conflicts over this question.

In 2005 there was a massive increase in Chinese exports to the US. The Multi-Fibre Agreement put an end to the textile quotas agreement in January of last year; there are no more quotas on exports. As a result, in the first four months of last year, China's textile exports rose by 70%. China produces more textiles more cheaply and this means the end of that industry in Europe. Today, China is tops for direct foreign investment. In 2004 China received $54 billion in foreign investment, a clear indication of the confidence of the international capitalist class in the new capitalist relations that prevail.

China and the US

What is the perspective for the coming years? Some say a 1997-style crash is being prepared, that the economy is a runaway train. A crisis of overproduction is looming, which expresses a fundamental change in the system. Overproduction is a characteristic of a capitalist, not a planned economy. If China slows down, it will have a big impact on the US and Asian countries. Malaysia has increased exports to China from $1 billion to $7 billion in 5 years. Japan also has huge interests in China - 16,000 Japanese companies operate there.

Because of China's highly competitive industry it is now 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 because it is one of its biggest export markets. They don't want to see a crisis in the United States. They would prefer a nice cosy relationship, but that is out of the question. They are in conflict over world markets; there is a huge US balance of trade deficit and a large part of it is with China. This is provoking contradictions within the United States. Those US companies that have invested in China are reaping in big profits. They are producing cheaply in China and selling their goods in the USA at prices determined by the world market. Practically every major multinational has a presence in China. How then can the US curb Chinese power when their economy and their major companies depend on the Chinese economy? There are therefore contradictory pressures at play, and the conflict will continue to grow in the future.

Revolution being prepared

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 in the world. We have already mentioned the inequalities in the cities. The overall picture is that the top 20% of the population consumes 50% of overall national income, while the bottom 20% have only a mere 4.7%.

These figures were taken from a UN report and published in an article of the Xinhua News Agency. (http://news.xinhuanet.com/english/2005-09/27/content_3549257.htm). The same article goes on to say that, "a report by the Institute of Labour and Wage Studies of the Ministry of Labour and Social Security points out that since 2003, China's income inequality has worsened rapidly and has now reached the ‘orange' level, the second most serious by the institute's standards. If no effective measures are taken, it could worsen to reach the most serious ‘red' level."

The UN report is based on the Gini coefficient, a statistical measure of inequality in any given country. Zero expresses "complete equality" and one represents "complete inequality". In China this coefficient has reached 0.45. According to internationally accepted standards when the Gini coefficient for any country goes beyond 0.40 the situation could become unstable. In China not only has the 0.40 coefficient been surpassed, it is continuing to grow.

As the Xinhua agency says, "If the trend goes unchecked, the country's goal of common prosperity for all of its people will not be achieved and the widening gap may trigger social unrest." We see new giant skyscrapers sprouting up everywhere in China's 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 this situation? Obviously, the first task is to explain what is happening. If we want to enter into a dialogue with workers, students, 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 Chinese economy, society and politics.

It would be a serious error to try to deal with a complex, contradictory and historically unprecedented process on the basis of a ready-made formula which does not correspond to what the workers and youth are living through. With such an approach we would not get anywhere.

We need to take into account the traditions of China. The Russians had the tradition of the Bolsheviks, of Lenin and Trotsky. In China that tradition is missing. The main Chinese tradition is a Maoist one. However, it is not the only tradition. There is also the important tradition of Chen Tu Hsiu (1879-1942), one of the founders of the Chinese Communist Party, who at a certain stage moved towards Trotskyism.

Chen was strongly influenced by the October revolution in 1917 from which he understood that social progress was only possible by overthrowing landlordism and capitalism. He was the leader of the anti-imperialist May Fourth Movement in 1919. The following year he joined forces with other revolutionaries to found the Chinese Communist Party which was to hold its first national conference in Shanghai in July 1921.

His fate was to be a tragic one. Having followed the advice of Stalin in 1926, the Chinese revolution was defeated. The Comintern however took no responsibility for the failure and blamed everything on Chen and in 1927 he was removed from the leadership of the party. He demanded a serious reappraisal of the Comintern's policy which led to his expulsion in 1929, accused of being an Oppositionist. He subsequently joined the Trotskyist Left Opposition.

It is a positive thing that in modern day China there are Chen Tu Hsiu societies specifically set up to study his works. In the recent period, especially among the students, Marxist discussion circles have also been set up. There is a thirst among some layers to discover the real ideas of Marxism. This reflects the desire to move towards a genuinely egalitarian society, which can only be a socialist one based on workers' democracy.

To these more advanced layers and to the working class and youth in general, we must state clearly what we think has happened in China, explaining the superiority of a planned economy, but also analysing the crisis of the Chinese bureaucracy and why this has come about, why the Maoist regime did not survive.

Although there are still remnants of the old system, both in terms of the state-owned sector and the state apparatus, the fundamental task that now faces China is social revolution. The bulk of the economy is in private hands. The move towards capitalism is an inescapable fact. All talk of "socialism with Chinese characteristics" is a fig leaf that no one believes in anymore, not even the Chinese bureaucracy. Although there are countervailing tendencies we consider that the process has reached the point of no return.

The state apparatus was and is that of the old monstrous totalitarian bureaucratic regime and this has been fused with the most repulsive features of capitalism and Stalinism. The outer shell, the form, is that of the Stalinist state apparatus, but the content is bourgeois. This situation is producing contradictions which must produce a revolutionary movement at some stage.

China has now emerged as a world power in its own right. Its destiny is linked to developments on a world scale, particularly to the world economy. In the same way, events in China can impact on a world scale both economically and politically.

In particular, the Chinese working class is destined to play a key role in the coming period. Napoleon is reported as having said that, "China is like a sleeping giant. And when she awakes, she shall astonish the world." Paraphrasing Napoleon we can say that today that sleeping giant is the Chinese proletariat. When it rises no force on the planet will be able to stop it and it will transform the whole world situation.

<< Part 2

• Where is China going? – Part One Part Two and Part Three by Fred Weston (May 2006)