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China today: socialist or capitalist?

By Chris Slee

November 13, 2009 -- Links International Journal of Socialist Renewal has published a number of articles on the Chinese Revolution and the subsequent restoration of capitalism in China.[1] This article aims to give more detail on the current situation, including the Chinese government's efforts to ameliorate some of the harmful effects of capitalism. But first I will briefly recount the process of capitalist restoration.

`Market reforms’

Mao Zedong died in 1976. By December 1978 Deng Xiaoping was in full control of the Communist Party (CCP). He launched a series of economic changes, often referred to as "market reforms".

When the market reforms began, it was not immediately clear how far they would go. As far as I am aware, there is no evidence that Deng was already committed to the restoration of capitalism in December 1978. But in any case, the outcome did not depend solely on the intentions of one person, but on the results of social and political struggles.

In the early stages, the reforms were similar to those carried out by the Russian Bolsheviks during the period of the New Economic Policy in the 1920s -- i.e. the use of market mechanisms to develop the economy, but with the state sector remaining predominant in large-scale industry.

The first step in the market reforms was to encourage peasants to sell produce from their private plots on the free market. The next step was the introduction of what was called the "responsibility system". Each peasant household was allocated a certain amount of collectively owned land to farm. Each family had to produce a certain amount of wheat, rice or other crops for the collective. Whatever they produced above this amount they could keep for themselves, sell to the state or sell on the free market.

In the cities the responsibility system meant that individual factories became responsible for their own profits and losses. If a factory could not make a profit it could be forced to close.

Foreign-owned companies were allowed to establish joint ventures with Chinese state and collective enterprises. As the ``reform’’ process went further, some wholly foreign-owned enterprises were established. Restrictions on the ability of Chinese citizens to establish privately owned enterprises were progressively eased.

"Special economic zones" were established, where foreign capitalists were offered cheap labour and land, low taxes and easy repatriation of profits. But soon foreign capital was no longer confined to these zones, and began spreading throughout China.

Corruption spread as bureaucrats increasingly strove to accumulate wealth for themselves and their relatives and cronies in the context of an increase in private ownership of the means of production. The bureaucrats began to start to turn themselves into owners of capital.

The Beijing massacre

But opposition to corruption -- and to the bureaucratic regime -- began to grow. In 1988-9 there was an upsurge of demands for freedom and democracy, and against corruption. In April 1989 students protested in Beijing's Tienanmen Square. They remained for more than a month and were joined by many non-students. The army was ordered to remove the protesters, but the latter talked to the soldiers and won many of them over. Hundreds of thousands of workers joined the protests.[2]

Eventually the regime brought in new army units that used extreme violence to crush the movement. A wave of repression followed.

Capitalist restoration

In my view the repression of the 1989 upsurge helped prepare the ground for capitalist restoration.

In principle, a different outcome was possible. The relaxation of repression during the 1980s, however limited and contradictory, created the potential for moving in the direction of socialist democracy. The mass upsurge of students and workers in 1989 was beginning to take China further in this direction. Unfortunately this potential was crushed.

In early 1992, Deng Xiaoping gave the go ahead for a policy of all-out privatisation. He cited the example of Guangdong province, where privatisation was most advanced, as an example for the whole of China to follow. The 14th Communist Party congress later that year confirmed this perspective, adopting a policy of creating what was termed a "socialist market economy". In reality, it was a policy of creating a capitalist economy.

At the 15th congress of the Communist Party in 1997 the policy was reaffirmed and deepened. Jiang Zemin (the president of China at that time) declared that the CCP's aim was the rapid privatisation of all small and most medium sized state-owned enterprises.

China's economy today

The privatisation of industry proceeded very rapidly during the 1990s, and continued more slowly thereafter. The state sector's share of industrial production fell from 100% in 1978 to 37.5% in 1999 and 31.6% in 2004. The private sector's share was 62.1% in 2004, while the share of collectively owned enterprises was 4.6%.[3]

Today millions of Chinese workers are ruthlessly exploited by local and foreign capital. Extremely long hours, physical punishment, fines and non-payment of wages are amongst the abuses suffered by many Chinese workers.[4]

By 2005 China had become the world's third-biggest recipient of foreign investment. In that year, the flow of foreign direct investment into China was US$72 billion, which was exceeded only by Britain and the United States, according to OECD figures. Transnational corporations increasingly used China as a base for producing goods for sale on the world market. The transnational corporations (and the South Korean, Taiwanese and Hong Kong contractors who do much of their dirty work) were attracted by the huge reserve army of labour created by the displacement of peasants from the land, and of workers from state-owned factories that have cut their workforce or closed down altogether. They were also attracted by the total absence of unions in many enterprises, and the tameness of the All-China Federation of Trade Unions where it existed.

Privatisation destroyed China's social welfare system. A range of services such as health, housing and others had been provided to workers via their workplace. The loss of state- and collective-sector jobs meant the loss of these services.

The result of all these changes was a vast increase in economic inequality. The GINI index, a statistical measure of inequality, rose dramatically -- from 0.16 in 1979 to 0.389 in 1995, 0.417 in 2000 and 0.45 in 2001[5]. This compared with a world average of 0.40. In other words, China was more unequal than most of the world's countries, including the United States (0.42) and Japan (0.28).

Since then the level of inequality is believed to have increased further. "The ranks of China's US dollar billionaires have swell from three to 130 in just five years", according to The Age's China correspondent John Garnaut .[6]

Strong state sector

China's economy is now essentially capitalist, as indicated by the privatisation of the bulk of the means of production, and the conversion of labour power into a commodity. Workers can only survive by selling their labour power to an employer.

But the most extreme ideologues of neoliberalism (both in China and elsewhere) are not satisfied with the degree of privatisation that has occurred so far. State-owned enterprises remain dominant in certain strategic industrial sectors, such as iron and steel, electricity and telecommunications, and in the banking sector. The neoliberals want more complete privatisation, and unfettered access to all areas of the economy for local and foreign capital.

The Chinese Communist Party has up to now resisted these pressures. A strong state sector helps China maintain a degree of independence from the imperialist powers. It has also helped China to recover from the effects of the global financial crisis which began in 2008.

The initial impact of the crisis was severe. Tens of millions of workers lost their jobs, particularly in the export-oriented manufacturing industries. But the Chinese government was able to stimulate the economy by ordering state-owned enterprises to spend money, and state-owned banks to lend money. This caused the resumption of rapid economic growth in 2009.

Much of the spending was wasteful and/or environmentally destructive. Many of the export-oriented industries remain in a depressed state. Nevertheless, China can claim to have survived the economic crisis relatively well, due to its comparatively strong state sector.

Socialist?

The continued existence of a strong state sector does not make China socialist. In the past, many capitalist countries have had a significant sector of state-owned enterprises. Most of these have been privatised since the rise of neoliberalism. (Australian examples include the Commonwealth Bank, Telstra, Qantas.)

The global financial crisis seems to have brought the privatisation drive to a halt in China for the time being. There have even been some instances of private companies being replaced by state enterprises.

John Garnaut says (rather melodramatically) that Wang Jun, the governor of China's Shanxi province, "is in the process of smashing the private mining industry and feeding the carcasses to big state-owned companies". [7] Wang Jun has nationalised private coal mines in the province as part of a safety campaign following massive mining accidents. Garnaut, while acknowledging that safety is a real issue, claims that the main goal is to improve the efficiency of coal mining, given China's growing demand for coal.

If this is the case, it is not unprecedented in the history of capitalism. State ownership of key industries can sometimes be beneficial for the functioning of the capitalist system as a whole. The British government nationalised the coal mines after the World War II. This did not mean that Britain had become socialist. Similarly, China's economy remains fundamentally capitalist, despite some cases of re-nationalisation in the wake of the global financial crisis.

Popular resistance

Workers have been fighting back against the attacks on their job security, living standards and working conditions. There have been thousands of strikes and protests by Chinese workers, as well as numerous protests by peasants against land seizures by local governments and property developers. There have also been protests against pollution and environmental destruction, as well as protests by ethnic minorities against discrimination.

According to Ching Kwan Lee and Mark Selden: "Nationwide, the Ministry of Public Security recorded 8,700 collective disturbances in 1993, rising to 11,000 and 32,000 in 1995 and 1999 respectively. In 2003, three million people were involved in 58,000 incidents, rising to 74,000 in 2004 and 87,000 in 2005".[8]

Intellectual trends

Repression, both under Mao and under Deng, caused many Chinese people to become disillusioned with socialism. In particular, many students who became Red Guards during the Cultural Revolution, and who later realised that they had been manipulated by Mao, turned not only against Maoism but against Marxism.

Some became admirers of the West, and saw capitalism as the only alternative to a tyrannical regime claiming to be communist. Neoliberalism gained ground amongst intellectuals.

But others were disturbed by the ruthless exploitation of the workers under "free market" policies, as well as by the chaotic nature of capitalism, as exemplified by the Asian economic crisis of the late 1990s, and by the 2008 global financial crisis. This led to the rise of the "new left", a group of intellectuals critical of neoliberal policies.

The government allows a certain degree of freedom for discussion of these issues, although being too critical of the government can still be risky.  Discussion of the oppression of national minorities such as the Tibetans and the Uighurs is particularly risky.[9]

In response to the rise in popular struggles, the CCP leadership has often used violent repression. But it has also made some concessions to mass discontent. After previously placing the main emphasis on "efficiency", the CCP began to talk more about "social justice" as a pillar of a "harmonious society". It has made efforts to build a new social welfare system to replace that which was destroyed. It has also introduced new labour laws, and has encouraged the All-China Federation of Trade Unions to unionise the private sector, including foreign companies.

Rebuilding the social safety net

Prior to the "market reforms", people had job security and a basic social welfare system provided through the workplace -- a system known as the "iron rice bowl". Shaoguang Wang, from the Chinese University of Hong Kong, notes that: "communes and brigades in rural areas and work-units in urban areas were not only economic entities but also social and political entities. They offered job opportunities to their members and paid them without much difference, and also provided them and their dependents with various social benefits such as nurseries, kindergartens, schools, healthcare, pensions and funeral services. This included financial assistance to the disabled and the families of members who had died."[10]

This situation lasted until the mid-1980s. As the market reforms deepened, workplaces shed their responsibility for social welfare. According to Wang, "When rural villages and urban enterprises were gradually extricated from their social responsibilities, evolving into pure economic entities, villagers and employees lost pensions, healthcare and welfare benefits, and had to spend money buying them". [11]

Around the turn of the century, the government began to rebuild the social safety net in areas such as health care, education and pensions.

Health care

Before the victory of the communists in 1949, China's health indicators were amongst the worst in the world, with a life expectancy of about 35 years. By the late 1970s this had been raised to 68 years.[12]

But after the onset of the market reforms, there was little further progress, despite rapid economic growth and scientific and technical advance. From 1980 to 1998 China's life expectancy rose by only two years, a lesser growth rate than the world average. According to Shaoguang Wang, "As reform deepened, market ideology steadily infiltrated the health sector, becoming the effective guiding principle of health reform... China's healthcare system became one of the most commercialised in the world."[13] Individuals were expected to pay for health care, which had previously been largely financed by a combination of funding from the government and the workplace (factories, offices in urban areas, communes in rural areas). In rural areas, the breakup of the communes and the decline in government support led to the collapse of the rural Cooperative Medical System. The number of villages covered by the CMS decreased from 90% in 1979 to 5% in 1985.[14]

In urban areas, the decline was not quite as dramatic, but by the end of 2003 only half of urban residents were covered by some health insurance scheme. Migrant workers were excluded from the schemes that existed.

Shaoguang Wang comments that: "The marketisation of health was particularly detrimental to the well-being of the poor. While the rich could now enjoy first-class medical care of international standards, the poor were often forced to endure minor health problems and put off dealing with major health conditions."[15]

Around 2000 there was the beginning of a change in policy. The government's share of health-care spending began to increase a little after a long period of decline.[16] The government also began a drive to increase the proportion of the population covered by various health insurance schemes. Schemes for employees require contributions from both employers and workers. There are also schemes for other urban residents, and a new rural cooperative medical system, funded by contributions from members and from central and local governments.

Efforts are being made to include migrant workers in health insurance schemes. The number participating had reached 31.3 million by the end of 2007 (which meant that most migrant workers were still not covered at that time).[17]

Workers' rights and unionisation

In 2007 a new labour contract law was adopted by the National Peoples Congress. This requires employers to give workers a written contract, and puts some restrictions on the right to hire and fire. A conciliation and arbitration system was also established to hear complaints by workers against their employers.

The new laws were of some benefit to many workers. But a significant proportion of workers did not benefit, because their employers failed to comply with the laws. And for many workers the benefits of the new laws were soon swept away by the global economic crisis of 2008. Twenty million migrant workers were laid off, and employers took the opportunity to lower the pay and conditions of those who remained.

In 2006 the All-China Federation of Trade Unions launched a drive to unionise foreign companies, and succeeded with many, including Wal-Mart, which is very hostile to unions.[18]

Critics charge that the ACFTU is more concerned with controlling workers than organising them to fight for their rights. It is often described as a "yellow union". It does not encourage strikes. However it does challenge blatant violations of China's labour laws by employers through legal channels.[19]

Foreign policy

Mao used radical anti-imperialist rhetoric in the 1960s, but swung to an openly pro-imperialist foreign policy in the 1970s. US Secretary of State Henry Kissinger visited China in 1971. During the same year, China supported the reactionary side in conflicts in Sri Lanka, Bangladesh and Sudan. US president Richard Nixon consolidated the relationship by visiting China in 1972, and China continued to take reactionary positions on foreign policy questions, justifying it with the claim that the Soviet Union was the main enemy.

The pro-imperialist policy was continued by Deng Xiaoping. One of the worst examples was the Chinese invasion of Vietnam in 1979.

Since then China has moved away from its close political alliance with US imperialism. Today China has good relations with the revolutionary governments of Cuba and Venezuela, as well as with other Third World governments, such as Iran, that are in conflict with the US.

In my view China today can be described as a bourgeois nationalist regime. Its economy is capitalist, but the government is relatively independent of the imperialist powers.

It should be noted however that China still has close economic links with imperialism. China keeps its foreign exchange reserves in US dollars, propping up the US currency.

The need for socialism

Despite the partial reversal of some neoliberal policies, China remains a highly unequal society, where workers are ruthlessly exploited and lack job security. The air and water are extremely polluted. Despite significant investment in renewable energy, the use of fossil fuels continues to expand, and China is now the world's biggest producer of greenhouse gases. Minorities such as the Tibetans and Uighurs continue to be oppressed. Freedom of speech continues to be restricted.

A struggle for genuine socialism remains necessary.

[Chris Slee is a member of the Democratic Socialist Perspective, a Marxist organisation affiliated to the Socialist Alliance of Australia.]

Notes

1. See for example: China: Socialist revolution and Capitalist Restoration by Chris Slee; and articles by Pierre Rousset, Graham Milner, John Riddell and others.

2. See articles in Direct Action, various editions between April and June 1989, for detailed descriptions of these events. (Direct Action was the newspaper of the Democratic Socialist Party.) See also http://links.org.au/node/1083.

3. Figures from retired researcher Sun Xuewen, quoted by Eva Cheng in Green Left Weekly #695, January 24, 2007, http://www.greenleft.org.au/2007/695/36092.

4. Numerous examples are given in the book China's Workers Under Assault: the Exploitation of Labor in a Globalizing Economy by Anita Chan (East Gate: New York, 2001).

5. Sun Xuewen, op. cit.

6. John Garnaut, The Age, October 14, 2009.

7. John Garnaut, The Age, November 2, 2009.

8. Ching Kwan Lee and Mark Selden: "Inequality and Its Enemies in Revolutionary and Reform China", Economic and Political Weekly, December 27, 2008, p.35. Lee and Selden are US-based academics.

9. See for example Isobel Hilton's report of police raids on the Open Constitution Initiative in Beijing (Green Left discussion list #65808). The OCI is a group that had represented Tibetan prisoners, and had produced an analysis of the 2008 uprising in Tibet which blamed decades of bungled government policy.

10. Shaoguang Wang, "Double movement in China", Economic and Political Weekly, December 27, 2008, p.51-52.

11. Wang, op cit, p. 52.

12. Wang, op cit, p. 55.

13. Wang, op cit, p. 56.

14. Wang, op cit, p. 56.

15. Wang, op cit, p. 57.

16. See graph, Wang, op. cit., p. 56.

17. Wang, op. cit., p. 57.

18. See Wall Street Journal, October 13, 2006: ``China to press more firms to unionize’’, by Mei Fong.

19. Anita Chan, op cit, gives many examples of this.

Comments

SHANGHAI DAILY: China’s super rich getting super richer

October 13, 2009 -- China’s super rich seem to have put the credit crunch behind them as the average wealth of the nation’s richest 1,000 people grow 30 percent to US$571 million in the past 12 months, surpassing the boom of 2007, according to a report today.

Most of China’s wealth came from real estate, driven by the country’s massive urbanization, with seven out of the top 10 wealthiest individuals in the property sector, according to the annual Hurun Rich List.

Electric car producer Wang Chuanfu tops the list of the mainland’s richest people with US$5.1 billion, shooting up 102 places.

Another six new faces have turned up in this year’s top 10, representing the biggest shake-up since Hurun Report started the rankings in 1999.

Meanwhile, Huang Guangyu, last year’s richest man, has been arrested over alleged market manipulation and Du Shuanghua became another loser after government-backed Shandong Steel took over his Rizhao Steel.

“Despite the greatest wealth destruction in the West in the past 70 years, China’s rich are getting richer and putting the credit crunch firmly behind them,” said Rupert Hoogewerf, founder and compiler of the Hurun Rich List.

“Most of China’s wealth creation has been driven by its massive urbanization program, led by property and related industries,” said Hoogewerf.

Read more here.

Well, let's make China socialist!

Very good article. Thank you.

My position was and remains: instead buying into Western propaganda and trashing China left and right, we should help China to become more socialist.

Despite everything, China is successfull Communist (or Socialist or Marxist) nation. It is still poor and faces tremendous challenges. It introduced what Soviets did during NEP, basically liberizing trade and services, while keeping most of the production and infrastructure in the state hands. That movce created inequality, but the situation can be easily reversed.

If China succeeds, mainstream media claims it is because 'it is not Communist, anymore'. when it commits errors, it is 'because it is Communist, after all'.

I believe that we - writers, analysts, filmmakers - from the Left should not only criticize PRC: we should also highlight its achievements. Something that the author of this article definitely did.

Just compare it to feudal and extremely brutal Indonesia, for instance, which is hailed by the West as democracy.

I am prently based in Nairobi, Jakarta and Nagoya (Japan). I worked all over Oceania for many years. It is incredible how different is what you hear from common African people (they love China and appreciate its help) and what you read in our press about China's involvement in Africa. I know many left wing intellectauls in Africa and almost all of them are very grateful to China... As is Cuba which was basically saved by Beijing (one can read what Fidel thinks about China).

China is also helping Venezuela, Bolivia, Brazil. Indirectly. There is plenty going on under the surface.

Andre Vltchek

Socialist or deformed workers state?

A useful article. Many thanks.

I was however a little disturbed by the title of the article "China today: socialist or capitalist?" and the following sentence: "The continued existence of a strong state sector does not make China socialist. In the past, many capitalist countries have had a significant sector of state-owned enterprises." Confusing socialism with the Stalinist degenerated/deformed workers states is not helpful.

China (and indeed Russia) has never been socialist. Even Lenin accepted that Russia was "closer to capitalism than to socialism" in the immediate post-1917 period. I have always believed that Trotsky was correct in characterising Stalinist Russia as a "degenerated workers' state". And I also believe that the new post-WW2 Stalinist states (including China, Yugoslavia and Cuba) were properly characterised as "deformed workers states."

So a better title would have been: "China capitalist or deformed workers state?"

The article's comparison with the Russian NEP state capitalist experiment is relevant. Comparing the nationalised sector in the UK post-WW2 with the situation now in China is less helpful in my view. Lenin said that NEP state capitalism could not be compared to state capitalism in the West because of the different (i.e, opposite) types of regimes in control.

It seems to me that the fact that China is reversing privatisation in reaction to the 2008 crisis is very important and something socialists should support 100%. We should be supporting workers' struggles for the (re)socialisation of health care, public services and industry and expulsion of the foreign imperialist multinationals.

China-In the Imperialist World Order

No state is an island, not even the Cuban state. Lenin and the revolutionary soviet leaders hinged the success of the workers' move to power through the soviets to the spread of anti-imperialist revolution through the rest of the imperialist economic system. All that was hamstrung and sabotaged in the early days by the social democrats who supported the imperialist system. It seems fairly established that the soviet bureaucracy led by Stalin literally killed off the revolutionary vanguard in the area controlled by the soviet power after the Left Opposition was maneuvered out of power. The soviet revolutionary vanguard was world-focused during Lenin's time. Stalin and the bureaucracy was "nation" focused. One can compare the revolutionary propaganda against WWI to the "defense of the fatherland" anti-German propaganda rolled out by "soviet" bureaucrats for WWII. Trotsky was insightful in showing that the bureaucracy was the main conduit for bourgeois ideas into the working class. Of course now we have seen that the bureaucrats in the soviet union sold the worker's state for a pittance and a dacha. The Chinese bureaucrats are in the same business.

Bottom line is that no state can exist as a "workers state" for long on a planet dominated by the imperialist system of exploitation of labor. The analysis should be of the economic form, not the political or bureaucratic model. If we want to compare relative bureaucracy sizes, probably the USA tops the list, but that has little bearing on the nature of the beast. So to speak in terms of "deformed" workers' states now is probably misleading. One does need to actually read Marx' Capital. His analysis read in conjunction with Lenin's extrapolation to the teaming of finance capital with manufacturing capital are the most useful for seeing what is what.

It is clear that finance capital has penetrated every aspect of the planet's economic life. Those who own the banks, the money, the capital, also own the shares, and these owners are who control the planet regardless of national boundaries. National boundaries are merely administrative tools for assisting the owners of finance capital in their exploitation of labor power and skimming surplus labor value. Since these owners have penetrated all aspects of the planet, to speak of "workers' states" is a bit misleading. There are some areas of the planet where state bureaucracies are more independent of direction than others, but every state bureaucracy does its dance in the court of international finance capital without exception. There are no revolutionary workers' states. The term contains its own contradiction at the instant the state identifies itself within a national border and assumes a "national identity".

In the past, Trotskyists had posed the touch stone of "workers' state or not", to decide whether a particular war should be opposed or not. Really an artificial distinction. Lenin's position was to oppose all war since worker's do not have a dog in the imperialist dog fight. So "defending the soviets" really means "oppose war", and that is as far as we need to go down that road. If workers are to power, sure we defend that power, but not by supporting an imperialist war. The people of the soviets beat Nazi Germany's finance capital, not the "Lend-Lease". The Cinese, Vietnamese, and Cuban people beat the imperialist financial capitalists, but now they are at their mercy simply because the system is pervasive and no revolutionary alternative coherently exists.

What happened in the Soviet Union during the time of Stalin was that the vast majority of people just got tired of revolution and the deprivations of the civil war. These deprivations gave rise to bureaucratic power which was facilitated by the lack of checks-and-balances in the the Leninist governmental model. Lenin's party organization was key for achieving power, but ultimately led to the loss of power as the population was shut off from political society once the revolution had run its course within the national boundaries and imperialism kept the pressure on to reverse the state monopolies of social reproduction. This has been the problem in China and other "workers states" also. The dictatorship of the proletariat becomes subverted to the dictatorship of the bureaucrats. The economic content of the bureaucratic state can make a qualitative change from being anti-capitalist to pro-imperialist, but it is all within the imperialist world finance capitalist system. It is very important to remember that the bureaucracy of any state is a mediator of class relationships. Internal and external class relationships. The stronger the bureaucracy, the more intense the class antagonisms. Class antagonisms are primarily not within national boundaries today. They are international antagonisms, hence the perpetual "war on the world" codified by international finance capital as "the war on terror".

We have witnessed this bureaucratic continuum from the time of the revolutionary soviets to the time of the Beijing Olympics. Chinese banks did not become the leading holder of US debt because Chinese farmers were saving more. There was a strategic movement of international finance capital into the Chinese banking system that also happens to correspond to the movement of international manufacturing capital to the area controlled by the Chinese government. They are related realities. In this, the Chinese bureaucracy plays the role of an assistant to imperialist finance capital as the finance capital process was described by Lenin. But at bottom, it is capital exploiting labor, the cheaper labor, the better. The Cuban bureaucrats can perform the same service for international finance capital, but it is a small player. Cuba is more important for imperialism as a cat's paw for its propaganda machine than as a source of cheap labor or good cigars. It's be great if the Cuban society was opened to public control, but that might be risking utopian socialism in the world of imperialist finance capital.

Wen Jiabao Sees Billionaires When Communists Convene

As Chinese Premier Wen Jiabao this week opens the annual gathering of the National People’s Congress with a pledge to shrink China’s wealth gap, his challenge will be reflected in the makeup of the assembly itself.

The richest 70 of the 2,987 members have a combined wealth of 493.1 billion yuan ($75.1 billion), and include China’s richest man, Hangzhou Wahaha Group Chairman Zong Qinghou, according to the research group Hurun Report. By comparison, the wealthiest 70 people in the 535-member U.S. House and Senate, who represent a country with about 10 times China’s per-capita income, had a maximum combined wealth of $4.8 billion, data from the Washington-based Center for Responsive Politics show.

The presence of billionaires in the Congress, which is the highest state legislative body and meets to approve government economic and fiscal plans, is one consequence of the Communist Party’s opening to capitalists to join it a decade ago. The step now risks hampering efforts to tackle inequality, such as higher taxes on upper-income earners, financial disclosures and real- estate levies, said Huang Jing of Singapore National University.

“The biggest problem to passage of the property tax is the People’s Congress,” said Huang, a professor at the Lee Kuan Yew Center for Public Policy. “How can you expect those rich people to represent the interests of people who need help?”

Outstripping U.S.

Data compiled by Hurun, a Shanghai-based group that tracks China’s wealthy, indicate there are at least 38 NPC delegates with more in assets than the wealthiest U.S. Congress member, Representative Darrell Issa of California. Issa had maximum wealth of $451.1 million in 2009, according to congressional disclosures compiled by the Center for Responsive Politics. Issa’s office didn’t respond to an e-mailed request for comment.

The ranks of wealthy in China are swelling as the nation experiences the fastest expansion of any major economy, with gross domestic product increasing on average about 10 percent annually in the past two decades. The benchmark Shanghai Composite Index of stocks climbed 124 percent in local-currency terms in the five years through February, compared with a 3.6 percent advance for the U.S. Standard & Poor’s 500 Index.

Zong, 65, a Communist Party member whose wealth Hurun puts at $12 billion, told reporters in Beijing March 1 he believes higher taxes and extensive welfare-benefit programs, such as those in Europe, sap energy from entrepreneurs. Nations with those policies will “have problems when all their money is spent,” he said.

‘No Jobs’

“Rich people are investing their money, creating more jobs,” Zong said. “If rich people all get killed, nobody is going to invest or build factories, there will be no jobs.”

Wen, 68, said Feb. 27 that the government would push to narrow a growing wealth gap which Credit Suisse Group AG said in an August report was at levels not seen outside of Africa. Wen pledged to tackle surging property prices that have put home ownership out of the reach of many, control inflation and crack down on official corruption.

“We should not only make the cake of social wealth as big as possible, but also distribute the cake in a fair way and let everyone enjoy the fruits of reform and opening up,” Wen said Feb. 27, according to state-owned Xinhua News Agency. Wen’s opening address to the Congress tomorrow, scheduled for 9 a.m. in Beijing, is set to detail the government’s latest Five Year Plan for China, focused on bolstering domestic demand and household spending.

Rural Incomes

China’s leaders have embraced higher wages as part of their campaign, with all 31 of China’s provinces and regions likely to increase their minimum wages in 2011 for the second consecutive year, according to Credit Suisse. Rural incomes rose 10.9 percent in 2010 to an average 5,919 yuan, government data show.

Even so, accelerating inflation and rising property prices have undermined households’ spending power. Consumer prices have exceeded the government’s 4 percent target for 2011 in each of the past four months. Slums have emerged in the suburbs of cities from Beijing to Guangzhou as migrant workers and cash- strapped urban youth seek an affordable place to live.

China’s Gini coefficient, an income-distribution gauge used by economists, has climbed to near 0.5 from less than 0.3 a quarter century ago, according to Li Shi, professor of economics, School of Economics and Business at Beijing Normal University. The measure ranges from 0 to 1, and the 0.4 mark is used as a predictor by analysts for social unrest.

Risk of Unrest

Chinese activists inspired by the pro-democracy movements in Tunisia and Egypt have called for nationwide protests, which led to an increased police presence in Beijing, Shanghai, Guangzhou and other cities last month. The activists say the Communist Party should give up power if it doesn’t address the wealth gap, promote an independent judiciary, curb inflation and property prices, and crack down on corruption.

Zong, who founded the third-largest soft-drinks maker in China in 1987 with a 140,000 yuan loan, typifies the billionaires on the NPC, who like him are self-made. Others include Lu Guanqiu, 66, the Chairman of Wanxiang Group, China’s No. 1 auto parts maker, who also employs more than 5,000 people in 14 U.S. states. He met President Barack Obama at the White House in January. Hurun puts his wealth at $4.4 billion.

“Our biggest competitor is ourselves,” Lu said in a Jan. 21 interview in Chicago.

Tax Opponents

Zong and Lu said last year they were against the property tax, as did Wang Jianlin, a real-estate developer and China’s seventh-richest person. Wang is on the legislature’s advisory body and was a member of the 2007 Communist Party Congress that selected Hu Jintao as their leader.

In January, China instituted a trial property tax in Shanghai and Chongqing that Goldman Sachs Group Inc. analysts led by Yi Wang said was of “limited scope and moderate” and would have “limited” affect on the real-estate market.

While U.S. lawmakers may be on average poorer than Chinese counterparts, they tap wealthy fundraisers and companies for donations to finance election campaigns. Interests of the rich aren’t unrepresented: In December, President Barack Obama agreed to extend tax cuts for the highest-income Americans enacted by predecessor George W. Bush, after Republican Senators opposed Obama’s earlier plan to let them expire.

Unlike the U.S., China doesn’t require members of its legislature or government officials to make public disclosures of their assets. A rule to have government officials and Communist Party members reveal their wealth is still being debated in the Congress.

Financial Disclosure

Zhao Qizheng, who heads the foreign affairs office of the Chinese People’s Political Consultative Conference, an advisory group to the NPC, which convened yesterday in Beijing and also includes many of China’s richest people, told reporters March 2 that implementing a rule on asset disclosure is complicated.

“We must do this thing step by step,” Zhao said in Beijing. “There are close to 10 million public servants in China.”

Rupert Hoogewerf, the director of research for the Hurun Report, said there are likely more dollar-billionaires in the NPC that his staff missed. For every one among the 189 the company identified in all of China, mainly through company filings, he estimates there’s another whose wealth remains hidden from the public. For every yuan billionaire, he estimates they’ve missed two.

“There will be individuals on the NPC that just haven’t come to the surface,” Hoogewerf said. “There’s a lot of hidden wealth in China.”

Li Zhaoxing, a former foreign minister who is now the NPC’s spokesman, said he had no idea that so many delegates were richer than the wealthiest U.S. lawmaker.

“We hope that there will be more rich people in China, but these people must get rich by legal means,” Li, 70, told reporters today in Beijing’s Great Hall of the People. “I have found around me many good citizens who have gotten rich through their own hard labor and intelligence.”

--Michael Forsythe. With assistance from Eva Woo, Michael Wei, Henry Sanderson and Dexter Roberts in Beijing. Editors: Chris Anstey, Chris Collins

Chris, China is still a

Chris, China is still a communist country no matter what. Just because it's accepting international trade issues doesnt mean that it's capitalist. There was a report on the Turkish Chamber of Commerce in China; though they removed the report where it said that there are many government bodies that inspect companies and also many of them have their own state-companies.

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