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China: In who's interest does the state serve?

Striking workers at the Tianjin Mitsumi Electric Co Ltd factory in the city of Tianjin, June 29, 2010.

By Mark Vorpahl

July 2, 2010 -- Workers' Compass -- The recent wave of strikes in China, most visibly at Honda factories, are testament to a growing movement of labour unrest in the country. This development is of great importance for international working-class struggle.

For the capitalists, China holds a key position in the global system of generating profits. The demands of China's workers for better conditions and a higher standard of living are in direct conflict with the international capitalists' desire to use China as a source of cheap labour. For the world's big business elite, already shaken by an international economic crisis of their own making, the growing militancy of China's workers is a great threat.

For the world's workers, the unrest in China is to be welcomed. China has the largest working class of any country. The fact that this massive social force is on the move and that its power is growing creates opportunities for workers' struggles across the globe. Frequently, it is the same big business owners who exploit Chinese workers who are exploiting and laying off workers in, for instance, the United States. By organising united campaigns and actions in solidarity with one another, Chinese and US workers will be in a more powerful position to oppose the conditions capitalism is forcing on them.

Furthermore, the Chinese working class has long and deep revolutionary traditions. The latest wave of labour actions could prove to be a spark for these traditions to re-emerge on a much more massive scale. This would thrust the Chinese working class to the forefront of a global struggle that can lead to the victory of socialism where working people would democratically run the country.

Class and state

To understand and take advantage of this process, it is necessary to understand the situation China's workers are struggling within. China's state has gone through immense changes over the last decades. What class does this state serve?

The capitalist state can take many forms, from parliamentary democracies to military dictatorships. What they share is that they promote and defend property relations that favour capitalist control and above all profits at the expense of workers. While the wealth of such states is produced collectively by the vast majority, this wealth and the means of production are owned and run by a tiny few capitalists. A capitalist state's repressive apparatus exists to make sure that things stay this way through coercion and brute force if all else fails.

Karl Marx considered that a socialist state would be one where the means of production and the wealth labour produces would be collectively owned and run democratically by workers for the benefit of society as a whole. The state's repressive apparatus would be used to protect the interests of the vast majority against counterrevolution by the few who hoped to profit from capitalism once again. Because a socialist state, democratically run by majority rule of the entire working class, would be free from the brakes that capitalism places on society's productive ability, as we witness, for instance, in its cyclical downturns, the wealth such a state could produce for all would greatly exceed what can be achieved under capitalism. So far, no socialist state has been created. However, there have been advances that went beyond capitalism.

The Russian Revolution did nationalise its means of production and develop state planning over the economy. However, it succumbed to a bureaucratic degeneration, led by Stalin, that replaced workers' democratic control with control by the bureaucracy, which ran the socialised means of production according to their own narrow interests. Socialism needs workers' democracy like the body needs oxygen to survive. As a result of Stalin’s policies, the Soviet Union became a totalitarian repressive parody of socialism. Consequently, Russian revolutionary Leon Trotsky concluded that the Soviet Union would either have a political revolution where the workers would sweep aside the bureaucracy and take control over the nationalised economy and state planning to be run according to their own interests, or it would give in to capitalist counterrevolution. As can be seen today, Trotsky has been proven right. While the Soviet Union started out as a state controlled by democratically elected institutions created by workers themselves, albeit with some bureaucratic deformities, it degenerated under the leadership of Stalin. That is why Trotsky characterised it as a "degenerated workers' state".

The Chinese Revolution of 1949 did eventually manage to nationalise the economy and develop state planning. However, from the very beginning, there was no workers' control over its socialised means of production, but rather a bureaucratic caste that ran the state. Though the Chinese Revolution was a tremendous step forward, it did not have even a relatively healthy birth. As a result, many characterise it as a "deformed workers' state". The alternatives of working-class political revolution or capitalist counterrevolution were as true for China as they were for the former Soviet Union.

The debate over China

Today there is a debate among Marxists over whether China has gone the way of the Soviet Union and succumbed to capitalist counterrevolution to a qualitative degree, or whether it remains a deformed workers' state. What are some of the arguments for considering China the latter?

If China is now capitalist, wouldn't it be necessary for it to dismantle the last remnants of state-owned industry? Yet in an article published by Fortune entitled "China's Top 100 Companies" on August 28, 2007, it is observed that, "state-owned companies continued to dominate the list, taking the top ten spots. Furthermore, these dominating State Owned Enterprises (SOEs) are in key sectors such as banking, raw materials such as oil, gas, and metals, as well as telecommunications."

In an article in Time by Austin Ramzy, on April 29, 2009, entitled "Why China's State-owned Companies Are Making A Comeback" he reports:

China's long economic rise began in the 1980s when the Communist government began dismantling inefficient state-owned companies and expanding the private sector, allowing greater scope for unfettered capitalism. But in recent years, the pendulum has began to swing the other way. Many of China's state-owned enterprises have grown into giants, eclipsing the relatively young private companies that have contributed heavily to the country's progress. That trend is being reinforced as China implements economic stimulus measures that in practice boost state-owned giants while private companies are left largely to fend for themselves.

Not only are the largest SOEs not being dismantled, they are being provided the benefit of China's stimulus measures. On the surface, this would appear to contradict the actions of a state committed to pursuing private property relations in the interests of a capitalist class.

In an apparent further contradiction to the position that China is now a capitalist state, there is an interesting article from China's The People's Net, the online version of The People's Daily. The article's title is "Is China Taking the Path of Privatisation?", written on May 20, 2009. In the commentary section reporter Qin Hua states:

To understand the official CPC’s (Communist Party of China) viewpoint, it is necessary to understand how it differentiates between "capitalist" and "socialist". Unlike many Western commentators, the Chinese Communists have precise definitions of these terms. When differentiating between "capitalist" and "socialist" economies, they use the Marxist term "means of production", which refers to the sum total of all "means of labour" (i.e. natural resources, raw materials, etc.) in the economy. They consider any economy in which the majority of the "means of production" are owned by private citizens (i.e. "private ownership") to be "capitalist" and any economy in which the majority of the "means of production" are owned by the state (i.e. "public ownership" at the national, local, or collective level) to be "socialist". According to official statistics, all of China's natural resources, all the land, and about 50 percent of all company assets (even including the assets of foreign companies in China) still belong to the state, so the CPC leadership still considers China to be socialist. Using this same metric, the CPC views the USA as still being capitalist, despite the recent bailouts and nationalisations.

Qin Hua's comments would not have appeared on an official site of the CPC if it did not reflect, in part, its line. The CPC is still compelled to characterise China's economy as socialist using a criterion that will be examined later. Implicit in this position is the CPC's commitment to maintain the public ownership of the SOEs in, at least, the key sectors of China's infrastructure.

Could it be, perhaps, that the international economic crisis has changed what appeared to be China's march towards capitalism, forcing a ruling caste to again defend the property relations of a deformed workers’ state even if in a bureaucratic way?

Trotsky thought that if the Soviet Union were to fall to capitalist counterrevolution, it would result in the collapse of the Soviet Union's industrial and cultural levels. This has proved to be correct. However, China has been a motor force for economic growth over the last two decades with an average growth rate of 9.5 per cent, outpacing the US and Europe. If China really was a capitalist country now, how has this been possible?

No one is challenging that there has been a process of capitalist restoration taking place in China. What the above points do challenge is the question of how far this process has gone. Is the Chinese state, that is, with its multitude of political and economic institutions along with its own ideological propaganda machine along with the army, police, courts and jails, committed to defending the interests of the capitalists at the expense of the working class? Or, does China remain a deformed workers' state because the bureaucracy that runs it is compelled to protect its own power by falling back on socialised property relations, regardless of its intentions? Coming at it from another direction, is the task of the Chinese working class political revolution, that is, overthrowing a bureaucratic caste to democratically run the state's institutions according to workers' own interest? This would be the case if China remained a deformed workers' state. Or, must China's workers struggle for a social revolution which would require both a thorough transformation of China's political as well as its economic institutions?

Even if one holds the position that the state apparatus in China is now capitalist, as Workers Action does, the issues that are brought up need to be addressed to deepen our understanding of a complicated dialectical process so as to develop the correct class struggle perspectives. The state in China is not a classical capitalist state such as emanated from absolute feudal monarchies in Europe. Instead, the deformed workers' state in China gave way to counterrevolution under particular international circumstances with its own national history marking its transition. Consequently, it still retains some forms of its past though they are now filled with a new political content.

The problem with percentages

What are we to make of Qin Hua’s claim that, in the opinion of the CPC, "They consider any economy in which the majority of the `means of production’ are owned by private citizens (i.e. ‘private ownership’) to be ‘capitalist’ and any economy in which the majority of the ‘means of production’ are owned by the state (i.e. ‘public ownership’ at the national, local, or collective level) to be ‘socialist.’”

The dominance of state-owned means of production is an important factor for determining the class nature of a state, but not the only one. It is only through state-owned means of production that an economic plan can be put into effect according to the needs of society as a whole rather than the profit of a few big business owners.

However, the CPC's static approach towards statistical information is, at best, very partial. A snapshot of the percentage of public ownership cannot, on its own, provide any decisive insight into the class nature of a state. It tells us nothing of the historic movement of property relations within a nation, which is necessary to understand and to determine which class interests the state serves.

As a result it is an easy matter to demonstrate how such a static approach can lead to ridiculous conclusions when applied to dynamic processes. For instance, after the Russian October Revolution of 1917 it was six months before the Bolsheviks began to massively nationalise the means of production. With Hua’s method we could not consider the Soviet Union to be a workers' state until after the process of nationalisation had passed 50 per cent.

Coming from the opposite direction, there have been many countries where the percentage of public ownership of the means of production was over 50 per cent that never were considered workers' states. For instance, the economies of South Korea and Israel were for decades dominated by industries and banks that were state owned. This was necessary in order for the national capitalist class to accumulate enough capital to be able to compete with its more established international rivals. Just because such countries had to rely on the public ownership of major industries never put in doubt that their states were a mechanism to exploit and oppress workers for the benefit of capitalist class profits.

Therefore, the CPC's claim that China is still socialist because roughly 50 per cent of the means of production are in state hands obscures the question of which class the state serves and which direction the states’ political and economic institutions are moving. Just because a large percentage of the means of production are state owned, tells us nothing of how they operate and how in fact they may benefit the capitalist class’s interests and not workers.

The methodological error of the CPC's and other’s arguments is that they believe the state is defined by existing property relations in the means of production. In contrast, Leon Trotsky took a very different approach.

The class character of the state is determined by its relation to the forms of property in the means of production and by the character of the forms of property and productive [social] relations which the given state guards and defends. Leon Trotsky, Writings, 1937-38.

That is, the state is not simply a reflection of a country's apparently predominant economic base. Rather, the relationship is dialectical. The class character of a state does not depend merely on how far along it is in transforming property relations in the means of production, but, rather, in the type of property and productive social relations it seeks to promote and defend. What kind of property relations in China's economy is China's state promoting and defending?

China's SOEs

The process of privatisation of China's SOEs has been dramatic. The number of SOEs has fallen from 300,000 in 1995 to less than 150,000 in 2005. Their share of total employment fell from 62 per cent in 1998 to 38 per cent in 2003. In 2008 the great majority of value added in the all-important manufacturing sector was produced by private firms. This onslaught of privatisation has also been accompanied by the restructuring of China's remaining SOEs.

There is an enlightening 2008 article entitled "Reforming China's SOEs: An Overview", by Weiye Li and Louis Putterman. These authors are supporters of the process of capitalist restoration taking place in China. Therefore, they are compelled to investigate how the SOEs have changed and how these changes fit in with the development of capitalism in China. They look at how the SOEs actually function rather than proclaiming them as socialist entities as some analysts on the right and left do.

In regards to the types of restructuring China's SOEs have gone through and how far it has progressed, the article says the following:

According to a retrospective panel survey of 683 firms in 11 cities reported by Garnaut, et al., (2005, p. 5), 86% of all SOEs had been through the new restructuring process called gaizhi (change of system) by the end of 2001. It took various forms, including internal restructuring, corporatisation, and public listing of shares, sale, lease, joint ventures, and bankruptcy. Among the surveyed mid- and large-scale SOEs that were restructured, 13% had gone through bankruptcy or debt-equity swaps, 28% were sold or leased out to private owners, 27% introduced employee share holding, 20% went through internal restructuring, 8% went through ownership diversification including public offerings and private placement to outside investors, and the remaining 4% became joint ventures. In more than 70% of these cases, gaizhi involved the transfer of at least a portion of ownership from the state to private hands (Garnaut, et al., 2005, pp. 50-51).

Most, if not all, of the remaining SOEs are not publicly owned in the same way they were under Mao. This is also true of the top 10 China companies that Fortune listed as state owned. Clearly, the restructuring measures described above are to compel the SOEs to be more competitive according to the dictates of the free market. They are intended as transitional steps towards enabling them to prosper as private enterprises.

In a workers' state, state-owned industries would produce according to a state plan for the benefit of society as a whole, even if distorted by the narrow interests of a self-serving bureaucracy. What does "Reforming China's SOEs" say about how they are now operating?

During the more than quarter century of system change in China, the role and nature of state-owned industrial enterprises has been continuously evolving. In 1980, SOEs were at the heart of China's industrial sector, accounting for 76% of gross industrial output (Jefferson and Singh, 1998, p. 27) and 57% of industrial employment (China Statistical Yearbook 1999, Chapter 5.) The SOE share of total industrial output declined steadily from 77% in 1978 to only 49.6% in 1998. Industrial profits were 15% of GDP in 1978, but fell below 2% of GDP in 1996 and 1997. By 2004 few SOEs remained in their original form, yet some 38% of industrial output was being produced by firms classified as state-owned and by corporations the majority of whose shares were owned by government entities. More privatisation is in the offing yet a large role for state ownership seems assured at least into the next decade.

SOEs also have changed qualitatively, from being units in a command economy tasked with meeting quantitative targets and providing comprehensive services to their employees, to being (in the 1980s and early 1990s) enterprises responding to price signals of a market economy but retaining the basic SOE organisational form and enjoying easy access to bank credit, to their most recent incarnation as corporations, often with some private shareholders, facing at least a somewhat more disciplined banking system and, for many of the largest among them, an active stock market.

The planning principle of the SOEs has been transformed into a series of compromises between state power, the SOEs' shareholders and other players promoting capitalism in China. These compromises have aimed at, with some success, lining up the functioning of the SOEs with what is necessary to compete on the market economy. In other words, the SOEs are not so much producing according to what is necessary to fulfil a plan for the benefit of society, they are producing according to what makes the most profit. In a workers' state, profit could still be used as a gauge to measure efficiency. In China profit is not simply a gauge but a major, if not the only, criteria by which success is judged.

The article concludes with the following paragraph:

The last chapter remains to be written on China's reform and opening, and in particular on the role played in it by the country's state-owned enterprises. But it is clear from the large body of studies to date that the SOEs, while hardly the cutting edge of the reforms, have also not been static entities blocking the way to economic change and growth. Although underperforming relative to other sectors, they have played their part in China's massive growth surge, have been through an ongoing process of institutional transformation, have at least gradually improved their efficiency, and have weathered and (for their surviving remnant, at least) partly recovered from a severe crisis of plummeting profitability.

Though the SOEs' rate of profit may not be as high as private firms, it is clear they are attempting to achieve this regardless of the social costs. On the whole, they have contributed to China's capitalist growth and they have helped shelter China's economy from the international economic crisis because of state funding. For the pro-capitalist authors of "Reforming China's SOEs", they are, for now, a necessary tool for China's process of capitalist restoration.

If the SOEs were to be completely opened up to the free market now, the Chinese capitalist class would be overwhelmed by their international competitors. However, by maintaining some elements of state ownership, this emerging class is provided a buffer from more powerful corporate players and time to improve their competitiveness. Furthermore, given the international economic crisis, it is predictable that the Chinese state would make all the more efforts to protect its SOEs from the storm. The state is not doing this to preserve the conquest of China's workers' revolution, they are doing this to protect and build the strength of its own capitalist class.

China's capitalist class

How is it possible that the bureaucracy in China has taken this path without fracturing? Trotsky wrote in The Revolution Betrayed that if the Stalinist bureaucracy maintained power, this inevitably would lead to capitalist counterrevolution with the bureaucracy leading the process because:

Privileges have only half their worth, if they cannot be transmitted to one's children. But the right of testament is inseparable from the right of property. It is not enough to be the director of a trust; it is necessary to be a stockholder. The victory of the bureaucracy in this decisive sphere would mean its conversion into a new possessing class.

It is exactly this transformation from bureaucracy to new possessing class that we are seeing in the CPC. Peter Kwong observed in the 2006 article "The Chinese Face of Neoliberalism":

To be sure, the wealth that can afford such luxuries was not created by enterprising efforts of individuals with unique abilities or skills. According to a report by the China Rights Forum, only 5 percent of China's 20,000 richest people have made it on merit. More than 90 percent are related to senior government or Communist Party officials. The richest among them are the relatives of the very top officials who had used their position to pass the laws that have transformed state-owned industries into stock holding companies, and then appointed family members as managers. In this way the children of top party officials — China's new "princelings" — took over China's most strategic and profitable industries: banking, transportation, power generation, natural resources, media, and weapons. Once in management positions, they get loans from government-controlled banks, acquire foreign partners, and list their companies on Hong Kong or New York stock exchanges to raise more capital. Each step of the way the princelings enrich themselves not only as major shareholders of the companies, but also from the kickbacks they get by awarding contracts to foreign firms.

From this, it is clear that the privileges of the upper layers of the CPC bureaucracy are no longer linked to defending the remnants of a deformed workers' state. They have converted themselves into the most powerful sector of the new Chinese capitalist class. Consequently, the commanding sector of the state is incapable of reversing course. They are compelled to determine policy according to their own capitalist interests, rather than as bureaucratic administrators of a state owned planned economy.

The Chinese workers can no longer hope to liberate themselves by only purging the leading sectors of the state, the pro-capitalist, anti-democratic bureaucracy, thereby laying their hands on the mechanisms of the existing state apparatus to administer according to their own needs. They must replace this capitalist state apparatus from the ground up, including radically restructuring the SOEs under workers' control along with the rest of the private elements of the economy. The SOEs must be operated as part of a thorough nationalisation of the economy and operate according to a democratically arrived at state plan that places societal needs above free market dictates.

In short, the task of the Chinese working class is both social and political revolution. Their demands for higher wages, better conditions and independent unions will build their capacity to fight for demands that challenge the existence of the capitalist state. Along with demands to radically restructure the SOEs and nationalise privately owned large enterprises, there would also be demands aimed towards the expropriation of the new rich and the creation of workers' councils to coordinate the revolutionary struggle and, ultimately, take power.

Why no collapse?

China once again has a capitalist state. It has been thrown backward. However, this process has been dialectical rather than resembling a simple linear reversal of historical developments. Capitalist restoration in China is being built on the basis of its having been a deformed workers' state and the historical developments of international capitalism since Mao took power. In looking at this we can begin to understand why capitalist restoration hasn't resulted in an economic collapse but, rather, has transformed China into one of the main engines of the world capitalist system. Furthermore, this growth itself needs to be examined since it contains contradictions that expose capitalisms reactionary and unstable character.

When the Soviet Union and the Eastern bloc fell to capitalist restoration, the possibilities for imperialist business expansion appeared endless. Not only had opponents fallen that countered the imperialist powers' ability to exploit and dominate the semi-colonies in their own spheres of influence, now the workers' states themselves appeared ripe for the taking. However, when it came to profitably investing especially in the former Soviet Union, things did not work out so easily. Transforming the workers' states' industrial base into a collection of profitable and competitive enterprises at the drop of a hat proved to be an expensive long-term investment. This was not such an attractive investment prospect for capitalists in search of short-term profit.

This situation was made all the more difficult because the Soviet bureaucracy had crumbled apart. While many of these bureaucrats maintained their directing positions over the industries they had managed in hopes of converting themselves into capitalists, there were no established connections, no clear system of ownership or no clear chain of command to facilitate imperialist investment. As a result, international capital was slow in making it into Russia and the nation suffered the greatest rate of deindustrialisation of any country in history other than as a result of war.

In China, developments worked out differently. The bureaucracy had survived its greatest challenge, the 1989 uprising known as Tiananmen Square. The threat of political revolution that Tiananmen Square demonstrated convinced the leading sectors of the CPC that they could no longer balance their positions on top of a bureaucratically planned economy that they were incapable of controlling. On the other hand, the devastating consequences of "shock therapy" capitalist restoration in Russia and Eastern Europe demonstrated the need for the Chinese bureaucracy to maintain some organisational structure and control over the process of counterrevolution if they were to preserve their privileges.

The imperialist powers took a sceptical view of the CPC's path initially. No imperialist power likes checks on its ability to dominate a less powerful nation. Nevertheless, they saw in China a vast reserve of potentially exploited workers in the peasantry. The profits to be made from converting these peasants into workers made the difficulties of dealing with the CPC worth the risk as long as the CPC was willing to negotiate favourable conditions for the imperialists.

It is beyond the scope of this paper to speak in any detail of the measures the CPC took to encourage investment. However, the results were dramatic. While the amount of net foreign direct investment in China amounted to only US$4.4 billion in 1991, in 1992 this shot up to $11 billion and continued to grow until it had reached $60.6 billion in 2004.

It is these levels of imperialist investment that have led to China's rapid growth rates, making it a continuing success story in the eyes of pro-capitalist pundits. Yet, as with so much in regards to China, it is necessary to look beneath the surface of these figures to understand their real meaning.

The contradictions of China's growth

In reality, this growth, while benefiting a tiny minority, has come at the cost of the standard of living for Chinese workers and peasants. According to the South China Morning Post:

The growing disparity between the mainland's urban rich and rural poor has created one of the world's most pronounced national income gaps. It is on a par with the poverty stricken African nation of Zimbabwe... [W]hile some urban residents are buying luxury homes and cars, the vast majority of the 800 million peasants live on less than US$1 a day.

Unable to survive under these conditions, millions of peasants have been moving to the cities in search of jobs. This mass influx of new workers in China has helped to keep wages and working conditions poor as they are forced to compete with one another for what jobs they can find. According to one study quoted in Business Week, workers in the manufacturing sector make an average US$1.06 an hour with manufacturing workers in the suburban and rural areas averaging only 45 cents per hour.

State workers used to expect what was called the "iron rice bowl”, that is, a guaranteed job for life with full medical and retirement benefits as well as housing paid for by the state. Those days are long gone. From 1998 to 2004 30 million SOE workers have been laid off. An All China Federation of Trade Unions survey of re-employed state workers found that:

18.6 percent were odd-job manual workers, 10 percent did various sorts of hourly work (which usually refers to activities such as picking up others children from school), 5.2 percent had seasonal jobs, 60 percent were retailers operating stalls, and a mere 6.8 percent had obtained formal, contracted employment.

Since capitalist restoration, while the absolute amount of China's economic growth is unquestionable, its relative ability to benefit the vast majority has proven impossible. Ultimately, it is the ability of an economic system to raise the material and cultural level of society as a whole that determines whether it is progressive or not. Capitalist restoration has resulted in a deterioration of conditions for China's vast majority. The only progressive result has been the creation of a larger working class with the ability to overthrow it.

China's growth has not been aimed at promoting its ability to sustain its own economic development. China is part of an Asian supply line for the production of export commodities. The initial manufacture of parts and components are assembled in countries such as Taiwan, Malaysia, the Philippines, and then sent to China where further assembly takes place for export to places such as the US. This division of labour leaves the workers in these countries subject to increasing exploitation. Furthermore, each country's place in this system makes it impossible for their capitalist governments to break out of it as things stand now. That is, production is locked into being guided by what US consumers are buying rather than what the people of these countries need to sustain themselves and their economies.

China is the lynchpin in Asia of this supply line that creates a spiral of increased exploitation and dependence on foreign capital. True, the ruling circles of the state have been able to demonstrate some independence from Western imperialism because of the unique situation China finds itself in. Nevertheless, the limitations of China's path to economic growth in regards to sustainability and national sovereignty are impossible to escape. The ruling class has made China enormously vulnerable to increased economic efforts by imperialism to completely dominate it while ignoring the needs of workers and peasants.

When China was a deformed workers' state, achieving for a time even greater rates of growth, this growth greatly benefited its workers and peasants. It also supported China's independence despite imperialist hostility. This potential was strangled by the bureaucracy. In spite of this bureaucracy’s reactionary nature, the growth China experienced under a planned economy was progressive. The growth its economy is experiencing as a capitalist state is at the expense of China's workers, peasants and its national sovereignty.

Conclusion

China is in transition. We should do our best to follow the developments there so as to better understand the unfolding social revolution against capitalism. The fates of the US and China are economically as well as politically linked. Therefore, it is all the more important to understand the process China is experiencing and its potential consequences for the struggles of workers in the US. The recent labour struggles in China portend greater events in the future, not only in China, but internationally as well.

[Mark Vorpahl is an anti-war activist and writer. He especially wishes to thank Martin Hart-Landsberg for his lectures and many writings on China. Hart-Landsberg teaches economics at Lewis and Clark College, Portland, Oregon, and is the author with Paul Burkett of China and Socialism (Monthly Review Press, 2005). This article first appeared at Workers' Compass, website of the US socialist organisation, Workers Action.]

Comments

China

The author has got himself into a terrible muddle, quoting sources both that the state-owned enterprises have grown massively AND that they have shrunk and been privatised.

There is not space here to go into the innumerable contradictions in the piece. There are many forms of collective ownership in China, not simply the central state but also the regions, administrative bodies and other, including the PLA. Many of these have private shareholders, who do not have a controlling stake and who are not, in general, paid dividends, or miimal dividends. Thus collective entities are have access the imperialists' capital without giving up control, or majority ownership, and for free, or virtually free.

It is quite right to say that the issue is not resolved by percentages, but by both content (of property relations) and direction. Since the late 1990s (and the author is poor at quoting current data) the predominance of the collectively-owned enterprises has grown, along with state control of the banks, a decisive sector virtually ignored in the piece.

Correctly, the author states that capitalism was reintroduced in Russia, and it was an economic disaster, as Trotsky had predicted. But we are invited to believe that the same thing has happened in China and yet...the economy has powered ahead. Who are these magical capitalists, who can in the epoch of imperialism produce such positive effects? And why have they not dismembered China in the way they did the Soviet Union, robbing of its capital and natural reources, leaving nothing in their wake?

Chinese econom policy has indeed created a large working class, from the rural peasantry. And, in so doing, raised 620mn people from the level of absolute poverty. Their material conditions are immeasurably improved, and the strike waves show they intend it will improve further.

By contrast, the former Soviet Union economies now have less than half the industrial workers of 1980.

China has not discovered some benign form of capitalism. It remains a workers' state, albeit with severe bureacratic deformations. It has, NEP-like, utilised the capital, technology and other resources of the imperialists to benefit the workers' state. Do the imperialisists make profits? Absolutely. But does the workers' state gain a net benefit? Absolutely.

ps Wall Street

ps

Wall Street Journal,

'China is still a largely socialist economy... The CP in China however hasn't found a way to retreat from central planning... Privatisation is the obvious solution, probably it would be tantamount to bankruptcy in most cases, though some firms would yield a hefty liquidation value because of their land holdings. Yet the government has decided, on the whole, that public ownership must not be tampered with. As long as that commitment stands, China 's reforms will remain blocked... the state sector still haunts the economy, and until a stake is driven through its heart, we fear an ugly reckoning lies ahead.'

China

Frank says: "Correctly, the author states that capitalism was reintroduced in Russia, and it was an economic disaster, as Trotsky had predicted. But we are invited to believe that the same thing has happened in China and yet...the economy has powered ahead. Who are these magical capitalists, who can in the epoch of imperialism produce such positive effects? And why have they not dismembered China in the way they did the Soviet Union, robbing of its capital and natural resources, leaving nothing in their wake?

"Chinese economic policy has indeed created a large working class, from the rural peasantry. And, in so doing, raised 620mn people from the level of absolute poverty. Their material conditions are immeasurably improved, and the strike waves show they intend it will improve further.

"By contrast, the former Soviet Union economies now have less than half the industrial workers of 1980."

Uneven development is a feature of capitalism. Unevenness exists, not just between imperialist countries and third world countries, but also between different third world states. For example, in the past Taiwan and South Korea had long periods of rapid growth, while many other third world countries stagnated.

In recent decades China has been growing rapidly. Why is this? I see two main reasons:

1. Many transnational corporations chose China as their main base for production for the world market, because of its low wages, large reserve army of labor, and absence of militant unions. These factors enabled a very high rate of exploitation.

(For many years, there were no unions whatsoever in the majority of export-oriented factories in China. This is now changing. There has been a rise in spontaneous worker militancy. The All China Federation of Trade Unions is now moving rapidly to unionise these industries. It is a very tame union, but it does use legal means to force bosses to abide by China's labor laws. This combination of spontaneous militancy and ACFTU legalism may reduce the rate of exploitation).

2. Although China has privatised a lot of state-owned enterprises, it still retains a fairly strong state sector of the economy. This helped in providing infrastructure used by the private sector. It also made the economy less unstable than many other countries, since the state sector is less directly affected by fluctuations in the world capitalist economy (though it is not totally immune).

A strong state sector may attract the disapproval of neoliberal ideologues such as those of the Wall Street Journal, but it is not unknown in the history of capitalism. Russia under Putin has partially re-nationalised the oil and gas sector.

State-Owned Bidders Fuel China’s Land Boom

(This illustrates the futility of looking at the state sector in China as evidence of "socialism".)

NY Times August 1, 2010 State-Owned Bidders Fuel China’s Land Boom

By DAVID BARBOZA

WUHU, China — The Anhui Salt Industry Corporation is a state-owned company that has 11,000 employees, access to government salt mines and a Communist Party boss.

Now it has swaggered into a new line of business: real estate.

The company is developing a complex of luxury high-rises here called Platinum Bay on a parcel it acquired last year by outbidding two other developers to win a local government land auction.

Anhui Salt is hardly alone among big state-owned companies. The China Railway Group is developing residential complexes in Beijing after winning the auction for a huge piece of land there.

Likewise, the China Ordnance Group, a state-led military manufacturer best known for amphibious assault weapons, paid $260 million for Beijing property where it plans to build luxury residences and retail outlets.

And in one of China’s biggest land deals yet, the state-run shipbuilder Sino Ocean paid $1.3 billion last December and March to buy two giant tracts from Beijing’s municipal government to develop residential communities.

All around the nation, giant state-owned oil, chemical, military, telecom and highway groups are bidding up prices on sprawling plots of land for big real estate projects unrelated to their core businesses.

“These are the ones that have the money to buy the land,” says Prof. Deng Yongheng at the National University in Singapore. “Because in China, it’s the government that controls the money supply and the spending.”

By driving up property prices, the state-owned companies, which are ultimately controlled by the national government, are working at cross-purposes with the central government’s effort to keep China’s real estate boom from becoming a debt-driven speculative bubble — like the one that devastated Western financial markets when it burst two years ago.

Land records show that 82 percent of land auctions in Beijing this year have been won by big state-owned companies outbidding private developers — up from 59 percent in 2008.

A recent study published by the National Bureau of Economic Research in Cambridge, Mass., found that land prices in Beijing had jumped by about 750 percent since 2003, and that half of that gain came in the last two years. Housing prices have also skyrocketed, doubling in many cities over the last few years.

The report pegged a big part of the increase to state-owned enterprises that have “paid 27 percent more than other bidders for an otherwise equivalent piece of land.”

Critics say the central government in Beijing unwittingly propelled the land frenzy by pushing a huge $586 billion economic stimulus package last year and encouraging state-owned banks to lend more aggressively.

And as the prices of new apartments soar — in Shanghai, for instance, they often exceed $200,000, while the average disposable income is about $4,000 a year — the trend also threatens to undermine the central government’s goal of affordable housing for the rising middle class.

In some cases, local governments — which earned over $230 billion from land auctions in 2009 — are also being accused of demolishing old neighborhoods and unfairly compensating residents. In a recent poll conducted by China Youth Daily, a state-run newspaper, more than 80 percent of the respondents said local governments were a “major driving force” behind the skyrocketing property prices.

All of this is happening to the chagrin of private developers that dominated China’s property market for more than a decade but are now feeling squeezed out of a game that favors developers with state-backed financing.

“It’s a little like a son who borrows money from his mother,” says Yang Shaofeng, head of the Conworld Real Estate Agency in Beijing.

Last year, state banks made a record $1.4 trillion in loans, nearly twice as much as the year before. Analysts say they believe much of that money was diverted into the property market through off-balance-sheet maneuvers, leading to the record land bids and soaring property prices. That belief is adding to concerns that some of China’s biggest state-owned banks may be sitting on enormous unreported debt.

Beijing is now struggling to rein in credit without slowing the nation’s roaring economy. And regulators are trying to stop state banks from using clever maneuvers to secretly lend money to overly aggressive state-owned developers.

Beijing also wants to restrain state companies that have little or no expertise in real estate. Last March, the State Assets Supervision and Administration Commission — one of the national government’s most powerful bodies — ordered 78 state-owned companies to shed their real estate divisions.

But analysts say the government will have difficulty stopping hundreds of state-owned companies and their various subsidiaries from participating in what has become one of the country’s hottest industries. Experts say that more than 90 of the 125 state-owned companies directly under Beijing’s control still have property divisions. And local and provincial governments control many additional developers.

The national government is grappling with a complex set of incentives that drive state-run companies to speculate in the property market with the aid of local governments.

Rosealea Yao, an analyst at Dragonomics, a research consultant in Beijing, says a growing number of municipalities have formed local investment vehicles that borrow heavily from state-owned banks to pay to relocate residents and build infrastructure around big plots of land they intend to sell at auction. (In China, local governments cannot directly borrow from banks or issue bonds for real estate development.)

Those off-balance-sheet debts are essentially bets on rising land prices, she says, which could become big liabilities if land prices were to decline sharply or the auction market were to dry up.

“This is why local governments are so enthusiastic about infrastructure,” Ms. Yao says. “They borrow to build something that raises the value of the land they want to sell at auction.”

Here in Wuhu, a sleepy industrial town about 70 miles west of Nanjing, Anhui Salt is breaking ground on its high-rise project in the center of town — next to a hotel operated by Anhui Conch Holdings.

The land was put up for auction in May 2009, and there were just three bidders — another of which was also a state-owned company. Anhui Salt, which also boasts of operating a steel trading arm, a financing vehicle and even two Honda dealerships, says it is eager to expand beyond industrial products and table salt.

“Platinum Bay is Anhui Salt Industry’s first luxury project and targets the very rich, the very elite class of Wuhu,” said Su Chuanbo, marketing manager.

Asked why Anhui Salt wants to be a developer, Mr. Su said the central government had encouraged state companies to be more profitable, and that real estate was incredibly lucrative.

And so the government, he added, is actually behind its push into real estate.

“Even though many central government-controlled state companies are banned from the real estate sector,” Mr. Su said, “local state-owned companies like Anhui Salt can still develop its projects within reasonable bounds. The situation is the same all over China.”

Bao Beibei and Chen Xiaoduan contributed research.

The "state sector" in China

----- Original Message -----
>From: "Louis Proyect"
>(This illustrates the futility of looking at the state sector in China as >evidence of "socialism".)

>NY Times August 1, 2010 State-Owned Bidders Fuel China’s Land Boom By DAVID >BARBOZA

************

But it also illustrates the futility of calling the "state sector" in China "the state sector."

It is very unlikely that if one examined the gigantic "state enterprises" listed in the article buying up massive real estate, you would find many, or any, that have not been turned into joint-stock companies with a slight majority of shares still owned by the state. Experts on China call these "state-held" firms rather than "state-owned" when they are speaking strictly, but most of the time the term "state-owned" is used when speaking loosely.

And this is very important for whenever the "what is China" discussion resurfaces and someone gives some ridiculously high sounding figure for the proportion of the GDP accounted for by state enterprises, with crazy figures like 35% or even more being tossed around. The actual figure may be right (though most estimates now are more in the range of 25%), but the figure refers to both state-owned and "state-held" firms.

That is not to say that outright state firms may not also be heavily involved in the market economy (many, perhaps most are), including plenty of highly unpricipled involvement, probably including this land fever etc. They have had market autonomy for much longer than since the state began "equitising" them (turning them inot share companies). But with outright state companies, the degree to which it has become a purely "state-capitalist" firm (to use that term lightly) has to be shown; though China is much more advanced along the capitalist path than Vietnam, if there is any comparison, there is a vast range among (fully) state-owned firms in Vietnam, with many certainly just profit-making institutions and many others performing valubale social and other non-commercial roles as directed either by the state or by the traditions and connections with local communities, and lots in between. The state certainly still has the option, if government policy changes, to use the state enterprises in socially useful ways not dictated by the market, even if that does not always or often happen.

But when state companies are "equitised" (in either country, but the process is stupendously more advanced in China and at the highest levels and biggest ex-SOEs) there is no longer a question. The myth that they use investors to buy and and thus bring capital to the state is idealist nonsense. If private investors are to buy in to add to the capital of the new company, they buy in in order to make, and to maximise, profit. By definiton, therefore, an share company, even with a state majority of shares, is no longer a company that can perform any role other than operating to maximise profit. If the state majority did try to use the company in a different way, the investors would pull out, defeating the alleged purpose.

Thus when these gigantic "state-held" conglomerates are buying up massive amounts of land and driving up real estate prices, and of course building hotels, resorts, other rubbish, and investing their state and private money in the stock exchange, they are not operating as state companies because they are not.

And that is the largest sector in China if these figures are to be believed, though other figures, as I noted, suggest that the total non-state (and non state-held) share of the economy is some 75%
(foreign, local capitalist, petty household business and peasant agriculture).

Interestingly, it is possible that the growth of equitisation of state companies is actually again increasing the role of the "state sector", loosely speaking, in the economy. It is interesting where the article says:

" All of this is happening to the chagrin of private developers that dominated China’s property market for more than a decade but are now feeling squeezed out of a game that favors developers with state-backed financing."

Leaving aside the bourgeois prejudices here, suggesting capitalists are better or should have more rights, it is notable that the private developers were dominant for a long time (I think the combined local and foreign capitalist sector largely became dominant after the demolition of the state enterprises in 1997-99, the sacking of 50 million state workers and the full incorporation of Hong Kong capital), yet it is precisely the process of further economic liberalisation - the drive to turn state firms in to state-led share companies - that may have led to the "state sector" regrowing its size within the economy, a counterintuitive effect of such "liberalisation," but this can only be understood if they are not considered as having anything to do with social property any more, even at a theoretical level.

"Vladimiro Giacche'" wrote:

In China the State is actually trying to act against the land-profiteers. With tightening of the monetary policy and with "moral suasion". I was there a couple of weeks ago and I can say that this is one of the main issues at the moment: in the (official) press, for instance, the term "land-profiteers" is openly used. Also the State-owned enteprises have been warned on the matter.
.............................

The article in fact the state is now trying to rein in some of the ballooning economic chaos these policies are causing, they are worried about driving up an inflationary spiral, but this should not be taken too seriously. Sure, get them to pull back a little, but their power is far too great to heed the views of some more sensible people in the leadership or articles in the official press which no doubt partially reflect popul;ar concerns. Unless oyu have something more concrete on that.

Investors and China

More from Marxmail.org

----- Original Message -----
From: "Shane Mage"
> On Aug 2, 2010, at 1:15 PM, Michael Karadjis wrote:
>>
>> ...By definiton, therefore, a share company, even with a state
>> majority of
>> shares, is no longer a company that can perform any role other than
>> operating to maximise profit. If the state majority did try to use
>> the
>> company in a different way, the investors would pull out, defeating
>> the
>> alleged purpose...
>
> (2) How can investors *as a group* (not as individuals) "pull out?"
> They can't just sell their equity shares because that would merely
> replace them with other investors.

I'm not sure what you mean "as a group" rather than as individuals, I
guess each investor or investing firm makes its own decision
"individually." But I take the point that I may have been a bit dramatic
in saying they can just "pull out" at the drop of a hat. It is true that
they would have to sell their shares, and if the reason for wanting out
was that the state-owned majority share-holder decided (in a most
unilkely scenario) to suddenly start re-engaging in some non-profit,
socially-beneficial activity, then you're right that other capitalists
would have to want to buy in.

But the broader point remains for exactly that reason. Of course, I said
the above rhetorically, because I don't think the Chinese state has any
intention of using its majority shares in the ex-state companies it has
turned into share companies for non-profit purposes. I don't think they
have a secret plan up their sleeve to suddenly impose this on unwitting
capitalist investors who have bought in under the impression that they
were going to make bucket-loads of profit. On the contrary, turning an
SOE into a share company means the drive for profit becomes supreme, and
the "state-capitalist" element of the share company is as driven by
profit as its private partners. The article about the grotesque rush
into "real estate" and other rubbish makes that clear enough. It would
have to be both an extremely edicated and extremely powerful socialist
party at the centre that can pull these free-lancing "state" managers
back once they get their hands on cash of that size, and I don't that's
the CCP.

But hypothetically again, let's say the secret plan existed. So the
state majority share-holder (ie, in those equitised ex-SOEs where the
stat remains the majority - by no means all or most) suddenly decides to
turn on its private partners once they've sucked them in and impose on
them, let's say, price controls on basic products, subsidies to poor
regions, massive social policies etc, so that profit rates for
shareholders crash. So maybe those investors have difficulty pulling
out. But then which other investors will buy in to another
state-majority share company if they see that happen - thus again,
defeating the purpose.

Just to clarify, we're talking here about a state company being turned
into a "joint-stock" company, ie a share company with private
shareholders, not about a "joint venture" between (what remains) an
entirely state-owned comapny and a private company for a specific
project, eg, oil exploration.

Nor can they starve the company of
> new capital were it to be needed, unless long-term investors (pension
> funds above all) were subverted by finance-capital (as in the US) to
> calculate short-term instead of providing for the pensions when they
> become due (twenty years on average, given a forty-year working life
> for their beneficiaries).
>

Same as above, but just on pension funds etc, I'm not assuming they are
necessarily the main kinds of investors into equitised ex-state firms.
Lots of straight out capitalists are involved too, and foreign
capitalists, and very often the ex-state managers.

who's interest does the state serve?

Read the article and all the commentary. I'd like to be simple among intellectuals and intellectual"izations." I see things in terms of seller and buyer vs. politics. I was raised as a capitalist with a former 10 year adult career in the barter industry. The Chinese middle class is rising because of more hires and more circulating currency that comes from outside China. It remains low enough to keep wages competitive because China has a huge population much larger than the world reserves of buying plus the big buying countries due to recession are now creating competition for the Chinese by outsourcing in India and South America. America is in recession because all the spenders have been laid off. It's pretty sad really. As an entrepreneur the mixing of worlds is coming to America just as it came and landed in China...I'm buying components in China and creating manufacturing jobs here. It's tricky though, my main competition is not local, in fact it's completed Chinese products. I have to be very careful and specific, and it's an art form creating products that can be made within the budget of minimum wage that can be sold competitively to import product prices. What we've done as a nation is reduce our velocity of dollar by circulating it around the world...yet our dollar is now backed by everyone elses desire for it and it's local scarcity. It's not the Chinese government and it's middle class that controls our dollar, it's us. Listen up Wall Street...you can sit the pie up high on a shelf....but eventually like our economy it's gonna grow stale if no one can reach high enough to eat it. The best way to sell pies is to make sure everyone is able to get a lil taste!

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