Xi Jinping and the Future of China – Part One

Xi Jinping, relatively unknown in the West, will be China’s President for the next ten years, that is, if he can keep a lid on the simmering pot of anger that China has become. The new Prime Minister is Li Keqiang, apparently the outgoing President’s favoured successor.

Xi Jinping is the son of Xi Zhongxun, a leading veteran of the 1949 revolution, and is thus a ‘princeling’. He has been party chief of both Zhejiang Province and Shanghai, and under his tenure both areas continued their rapid capitalist development. When he led Fujian Province, his leadership was noted for actively encouraging private investment from Taiwanese capitalists. He is known as a ‘safe pair of hands’, not at all a boat-rocker. He is the opposite of the recently expelled leader of Chongqing, Bo Xilai.

Li Keqiang, the new Prime Minister, recently played a leading role in commissioning the World Bank/Chinese State Council produced report dedicated to explaining how China must privatise to continue growing. Both leaders have been chosen by the outgoing political leadership (and quite possibly by older leaders, such as Jiang Zemin). There is absolutely nothing to suggest that the new leadership has any commitment to democratic reform let alone socialism.

No one can doubt that the future of China is a key question for the future of the world capitalist system. The bourgeois media is forever searching for clues as to its political future, because its powerful state apparatus is not one that US imperialism can so easily bend to its own interests. They want liberal democratic reform and the breaking up of China’s formidable state owned enterprises, whose economic clout they fear more and more. They want a political process which capital can read more easily, and influence more directly – like capital does in America.

These articles in the Western media endlessly quote this or that member of the Chinese liberal intelligentsia, who use their expert knowledge to inform us that Xi might turn out to be an enlightened liberal reformer, since a couple of years ago he half expressed an opinion in favour of some kind of democracy, or because family members were persecuted in the cultural revolution.

For example, the Financial Times indulges in wishful thinking when it reports that “some analysts have suggested that Mr Xi could become a bolder leader than Mr Hu because he is the first not to have been awarded his job by a revolutionary figure.” But he has been awarded his job by the Chinese state bureaucracy to maintain the status quo, and nothing else.

The Guardian claims that “optimists say that a younger generation of leaders may be more willing to rethink policy. They have more experience of the outside world; they have studied subjects such as law rather than engineering; and Xi has the confidence that comes of being born into a powerful communist family.” Whereas according to the FT, being awarded a job by revolutionary leaders traps Chinese politicians and prevents reform, now, so the Guardian tells us, being closely associated with those at the centre of the revolution is seen as a sign of the very opposite, of commitment to liberal reform! The liberals are clutching at less than straws.

Regarding the Prime Minister Li Keqiang, the Financial Times once again thinks it might have divined the birth of an era of liberalism in China by looking deep into the mists of his past, “it was 1980 and he [Li] won the vote to head the student assembly at Peking University where liberal political ideas were then in vogue. Whether this early dalliance with democracy had any kind of lasting influence on Mr Li will soon become clearer.”

This sorry spectacle of isolated liberal intellectuals hoping, pleading, that the elite will ‘see the light’ and peacefully, calmly usher in China’s long awaited age of liberal capitalism is an indication of the historical weakness of the Chinese capitalist class. The Chinese capitalists have no serious independence from the state, no serious conflict with the status-quo, no serious commitment to democratic reform and play a counter-revolutionary role in Chinese society.

The best analogy for understanding why the emergence of Chinese capitalism has not replaced, but if anything has strengthened, the state apparatus of Stalinism, is to be found within China’s own history. Almost exactly 100 years ago, China experienced what is known as its first revolution. The revolution of 1911 ended millennia of dynastic imperial rule and appeared to usher in the coming bourgeois democratic phase of Chinese history. Or rather, it was supposed to. In reality, it changed nothing, and was a stage managed affair at the top. The six year old Emperor Puyi abdicated in favour of a new dictator, Yuan Shikai. Nothing fundamental changed. The poor remained poor, the rich remained rich, and no democratic reform took place.

China’s forceful integration into the world capitalist market and the ‘modern world’ begins with the Opium wars in the mid-19th Century. What was the effect of the introduction of capitalism into China? Did it lead to the enlightened modernisation of Chinese politics? It had the very opposite effect.

Through the imposition of Western imperialism, capitalism developed in China with extreme social contradictions. It did not create a strong China. It tore to pieces all the old social relations, undermined the authority of the old state apparatus, and shattered all the old conservative thought that justified it – Confucianism and filial piety.

But it put nothing in its place. It liquidised the base of support underneath the millennia old imperial regime whilst, paradoxically, maintaining and strengthening that regime, magnifying its oppression of the Chinese people.

Why? Because this regime had become merely a client of western imperialism. Standing on a much lower economic footing, the old regime had no chance of standing up to British imperialism. And there were no indigenous Chinese capitalists ready to fight for China’s interests and to establish a modern, democratic China in opposition to Western imperialism. The old, despotic ruling class, far better at defending its own privileges than defending China, rapidly transformed itself into western capitalism’s agent in China, and imperialism in turn used its military might to prop up this tottering system. The old Chinese ruling class adapted to capitalism simply by turning China over to the interests of foreign capitalism.

The turmoil all this generated created an intellectual ferment. China’s would be liberal reformers, its university intellectuals, were in awe of advanced Western democracy. But since the Chinese capitalists were extremely limited in their degree of independence from trade with imperialism and the Chinese state, these liberal intellectuals had no social force to base themselves on. Their political strategy reduced itself to pleading with the Emperor and Empress as to the rational superiority of liberal democracy. They fantasized about calmly reforming Chinese politics, step by step, into a modern liberal democracy. This fantasy was a complete abstraction from the social contradictions and the balance of intertwined and conflicting material interests in society.

When push came to shove, and the real revolution began in the 1920s, with mass involvement, those ‘liberal’ capitalists chose to support dictatorship, because at least it guaranteed ‘order’ against the ‘excesses’ of the workers’ movement. That is the fundamental reason why liberal reform of China never took place, and why an antiquated state apparatus maintained its control of society long after the social system from which it arose had ceased to exist.

As is often said, history does not repeat itself, but it does rhyme. It is like a spiral returning to its old themes, but on a higher level.

Capitalism has once again developed in China, and for the very same general reasons as one hundred years previously – the overwhelming, crushing dominance of the world capitalist market. Just as an ancient, despotic/feudalistic economic system could not hope to maintain itself in the face of global capitalism, so ‘socialism in one country’, and certainly socialism in a backward, peasant country, cannot be built when surrounded by hostile and more advanced capitalist economies.

There are two ways that the inability to build ‘socialism in one country’ can resolve itself. Either this problem resolves itself through a world socialist revolution, which would have brought to China all the advantages of developed capitalist economies, but not in an imperialist and exploitative fashion, or it eventually resolves itself through the ‘socialist’ bureaucracy organising the integration of China into the world market on a capitalist basis and enriching themselves in the process.

That is exactly what they have done, and just as with the old emperors, they have done so in a manner so as to maintain all the old political structures, all their privileges and means of oppression intact.

But again, as with the emperors of old, the striving to maintain the rotten, corrupt and deeply oppressive political power of the old elite leads to ever intensifying social and political contradictions, a growing conflict between the old system and the new reality.

The faster China grows, the faster capitalism brings its inequality and social contradictions, the more the rug is pulled out from underneath the old regime, the more discredited its leadership becomes. But still it does not budge.

What is the solution to this riddle?

Will or can the regime, and Chinese capitalism in general, make the necessary ‘democratic’ reforms of its own volition?

In order to answer that, we have to understand what the relationship between Chinese capitalism and the Chinese state is. Chinese capitalism has grown from next to nothing into what it is today through the dual stimuli of the state apparatus and the world market. Rather than growing from small beginnings and in conflict with the state, as in England and France hundreds of years ago, Chinese capitalism has been nurtured by the state apparatus so that it might compete with the West. In the process the Chinese state has become corrupted by capitalism.

A recent study for China Left Review by Christopher McNally and Teresa Wright, titled Sources of Social Support for China’s Current Political Order: The ‘Thick Embeddedness’ of China’s Private Capital Holders, points out that thanks to this belated development of Chinese capitalism since 1978, “China’s capitalists appear to have little interest in pushing for systemic political reforms, but instead seem to seek to embed themselves in the party-state, thereby perpetuating Chinese Communist Party (CCP) rule”. It goes on,

“...across the board, scholars have found that one feature stands out: a general unwillingness to “rock” the boat politically and press for systemic political change. Indeed, most private capital holders display a notable interest in working with the party-state’s agents and institutions”.

“In a 2002–2004 study of rural private entrepreneurs, more than 70% were members in at least one government-sponsored association (Alpermann, 2006, p.46). Moreover, research suggests that medium and large private enterprise owners do not see any incompatibility between the associations’ dual functions of state control and member representation. Intriguingly, the more privatized and prosperous a locality is, the higher the likelihood that a private entrepreneur will view him or herself as a partner, not adversary, of the party-state.

“In largely “capitalist” Wenzhou, for example, virtually all candidates for village elections are wealthy private entrepreneurs

“In fact, a nationwide study conducted in 2000 found that 20% of all private entrepreneurs were CCP members (Li,2001, p.26), while by 2003 Party membership had climbed to nearly 34% (Tsai,2005, p.1140). Party membership appears to be particularly prevalent among medium and large private enterprise owners: in surveys from the late 1990s, 40% were already Party members, and more than 25% of the remainder had been targeted by the CCP and wanted to join (Dickson, 2003, p.111). By way of comparison, as of 2007, only 5.5% of the entire population was a CCP member (Xinhua, 2007).

“Private entrepreneurs thus are widely believed to comprise the highest percentage of CCP members per capita of any social sector.

“According to a research report by the Chinese Academy of Social Sciences and the State Council Research Office, as of 2003, China had five million individuals with assets of 10 million yuan or more (about $1.6m). Of these more than 90% were from elite families constituting the apex of the CCP’s power structure. Only 4.5% of these wealthy individuals were rich by virtue of their own efforts[!] (Liu, 2003, p.75). Similarly, a survey conducted by the State Council’s Research Office, the Central Party School, and the Chinese Academy of Social Sciences finds that, of the 3220 individuals with assets above 100 million yuan in China, 2932 have close blood relations with prominent CCP elders or leaders. In addition, between 85% and 90% of the top corporate leaders in Chinese financial, foreign trade, real estate, and construction firms are part of the elite families at the tip of the CCP’s power hierarchy.”

The report quotes one Chinese capitalist as saying “we do not fear the government at all. They are our partners, especially the industrial high-tech park’s management (the park is government-owned and managed).”

It is true that some capitalists within China are unhappy at what they term the lack of the ‘rule of law’. They, as well as the leaders of the CCP, are very concerned about corruption, partly because it represents a barrier to those capitalists not rich enough or well positioned enough to do the corrupting, but mainly because they know it is a focal point for working class anger.

That is why in all the speeches by CCP leaders there is so much hand-wringing about corruption. The Western media also enjoys a good sneer at the level of corruption in China, which they imagine compares unfavourably with the much “cleaner” West. Hence the recent expose by the New York Times of Wen Jiabao’s (outgoing Prime Minister and noted ‘man of the people’) staggering wealth.

According to this report, the total assets of Wen Jiabao and his immediate family amount to roughly $2.7bn. This staggering figure is the tip of the iceberg. It has also recently been revealed that the 70 richest delegates to the Chinese People’s Congress “added more to their wealth last year than the combined net worth of all 535 members of the U.S. Congress, the president and his Cabinet, and the nine Supreme Court justices.” These 70 “comrades” have a net worth of $89.8bn! No wonder that a businessman is quoted in the New York Times report as welcoming the corruption of the Chinese state, pointing out that the CCP leaders’ profiting from China’s boom has helped to ensure political support for market economics!

But as Marxists we cannot simply complain about the injustices of capitalism, we must understand them too. The corruption of the CCP and Chinese state by capitalism is part of the necessary process of adapting this state apparatus, built for a planned economy, into the instrument of bourgeois oppression.

China’s state is a bonapartist one – that is, a state which has gained an enormous degree of power over and independence from all classes in society. How could the capitalist class control a state apparatus which precedes it and gave birth to it? In countries such as Britain and the US, the bourgeoisie has built up the state apparatus in its own interests, founding different parties representing the different wings of the bourgeoisie. Here we have legalised corruption, where the capitalists can legally buy politicians and political parties. These parties jostle to win approval from the media barons and financiers, and implement their policies.

In China, the bourgeoisie has inherited a state not designed for this purpose. So they have had to bribe it and marry into it. In the process, characters within the state such as Wen Jiabao have exploited their position and converted themselves into leading capitalists. Wen’s relatives have set up companies which have then been given big contracts by the state. They have profited immensely from privatisation and from controlling the regulation of important industries. Corruption is merely the way in which capitalism has converted a Stalinist state apparatus into one which defends their interests.

This is why it is foolish to expect the leaders of the state or the leaders of industry to push for the dismantling of the current state apparatus and its replacement with a liberal, democratic regime. Just as one hundred years ago, the pygmy Chinese capitalist class did good business by adapting themselves to the reality of imperialism and the ancien regime, and therefore had no desire to see the regime’s destruction, so today the capitalists and the state apparatus have a shared interest in maintaining the lucrative status quo.

Nevertheless, this represents only one side of the equation for China. The maintenance of the status quo is how things would proceed in the best of all possible worlds for the rich and powerful in China, but is that possible?

One can hardly turn at the moment without bumping into some article bemoaning the problems building up for the Chinese economy. As China has become capitalist, it has of course had to follow the laws of capitalism, and it certainly cannot escape the worldwide crisis since the Chinese economy is the world’s largest exporter. That means an economic slump is brewing and all fear it like death.

As with all capitalist economies, growth takes place in an unplanned and anarchic fashion. This is especially true for countries that take on a particularly accelerated pace of growth, such as China has enjoyed. Capital investment floods in feverishly, with little account taken of how much the global market can absorb in the long run. Credit balloons out of all sensible proportion to facilitate this drive.

Since a key aspect of China’s growth has been capital investment in export oriented manufacturing, it comes as no surprise that the global slump represents a serious problem for China. Indeed the EU is China’s biggest market. This world slump is beginning to expose massive overcapacity at the heart of the Chinese economy.

The problem of a shrinking export market engulfing China is well illustrated in the Financial Times’ report, where we read the following:

“The number of buyers at China’s largest industrial bazaar, where the world’s retailers meet suppliers of everything from electronics to Christmas decorations was down 10 per cent in October, underlining weak Chinese exports and global demand.

“This autumn, business was so bad it was a hardly a contest. When orders from European buyers materialised at all, said a saleswoman at Wenzhou Yangyang Garments, they “are now for 300 to 500 items. Three years ago, it was 3000 to 5000.” The company, which makes jackets in artificial leather, exports half of its $60m in annual sales to Europe and about $20m to Latin America.”

According to a recent KPMG report on the Chinese car industry, there is capacity of around 6m units un-utilised at present. This means China could produce 6m more cars, motorbikes, trucks etc. this year with its current productive forces, but doesn’t because they would have to be sold at a loss. It is estimated that by 2016 this figure will increase to 9m, representing a productive capacity of 35% more than the market can profitably absorb. The inventory index, which is the stock of unsold vehicles divided by annual sales, stands at 1.98. 1.5 is considered dangerously high.

China produces about six times as much steel as the world’s next biggest producer. And on top of that it buys around 60% of the world’s iron ore which is traded. So any adverse economic conditions affecting the steel industry will express themselves particularly sharply in China. Indeed there is currently a worldwide crisis of steel overproduction due to the economic crisis. About one third of China’s iron ore mines lie idle, and China’s steel industry, which expanded so feverishly in the economic boom, has loaded up on around $400bn of debt!

The stimulus plan of 2008, which Goldman Sachs estimates to be the largest fiscal stimulus in world history, has encouraged an explosion of financial speculation and a housing bubble. This is because the global economic crisis has put a limit on the size of China’s export market, which in turn limits the incentive to invest in production. So Chinese State Owned Enterprises (SOEs) (the recipients of the stimulus’ cheap loans) have used this money to invest in things like the housing bubble. This has led to, by one estimate, 30% of homes in China lying empty.

There is a vast chain of hidden debts resulting from all this. That explains why China’s leaders are so desperate to get growth rates of above 8% - any serious slowdown will turn many of these loans into bad or ‘non-performing’ loans, and a chain of defaults will threaten to engulf the local authorities, who were responsible for dishing out the money from the stimulus.

There are signs that this unravelling of debt may be beginning. New renminbi loans in July grew at the lowest rate for 10 months, and the Bank of China’s overdue loans increased 17% in the first half of 2012 (Financial Times). “Virtually all of the leading institutions reported a small increase in bad loans – and a much larger increase in overdue loans. At the country’s midsized banks, which are most exposed to struggling private entrepreneurs in coastal regions, the picture was worse. Ping An Bank reported a 51 per cent spike in non-performing loans.”

[To be continued...]