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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.


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.]


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

3. Figures from retired researcher Sun Xuewen, quoted by Eva Cheng in Green Left Weekly #695, January 24, 2007,

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.

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