Thu Jul 25, 2024
July 25, 2024

China: myths and reality

There is an interesting debate to the interior of Marxist tendencies on the current nature of the Chinese State. There are different points of view regarding this. However, the predominant idea is that in China, unlike in the former URSS, capitalism has not been restored, although deep pro-capitalist reforms have been made.

By Martín Hernández, member of IWL-FI Executive Committee.


Linked to this, there is another subject that deserves to be debate: China’s future. Different analysts, whether they are leftists or rightists (at least the vast majority of them) have no doubts about China’s blooming future. They say this country will turn into one of the world powers, and not few affirm China as “the main power of the XXI Century”.

It is difficult to agree with these two opinions, so unanimously. On one side, it is evident that in China, like in the former URSS, a market economy has been reestablished a long time ago, and on the other hand it is highly improbable that China becomes a major power following its current course, and even less to be “the great power” of the XXI Century.

State companies and the State Class nature

The CCP’s leadership, just like the leaders of the former Workers’ States[1], has restored capitalism raising the flags of socialism. Clearly, this is a contradiction the leadership of the CCP tries to overcome by saying in China there is neither a socialist economy nor a market economy. There would be something like “market socialism”. This means, in the middle of the imperialist epoch of capitalism, and even more, in its current phase of globalization, the most populated country in the world would be some kind of hybrid State.

Linked to the previous argument, and to justify China would have not restored capitalism, the Chinese leadership as much as their followers state even if there are many private companies, the major part is still under State control. It is true most companies are still under State control, but it means in this country two different forms of property and relations of production coexist. Nevertheless, this does not give the State a hybrid nature.

Pure formulas only exist in theory; in reality there is no State where two or more forms of property do not coexist. However, the amount of State and private companies of a State do not determine, and never did, the Class nature of a State.

In the Workers’ States (in their revolutionary phase as much as in the bureaucratic one), and also in the capitalist States, different forms of property do coexist. In the former URSS, by the time of the NEP (New Economic Policy), together with the State property of means of production, there were an important number of private companies. In Poland, despite the bourgeoisie expropriation, most part of the land never got to be State property. On the contrary, in Mussolini’s Italy, most companies were expropriated and were on State hands. Not going so far back, In Venezuela, a typical capitalist country, until not long ago more than 60% of the GDP came from State companies.

This reality (a high number of State companies in capitalist States, and private companies in Workers’ States) has generated a major confusion when it comes to analyze the social nature of those States. Like this, many important sectors of Social-democracy (Kautsky and Otto Bauer, among others) saluted the NEP in the former URSS (thought by Trotsky and led by Lenin), because they understood capitalism was being restored with it. On the other side, many revolutionary Marxists put an equal sign between fascist Italy and the Stalinist URSS, relying on the expropriations Mussolini took ahead.

It would be typical of a rude mechanic analysis to think the State in which capitalists companies prevail is a capitalist State, the State in which State companies prevail is a Worker’s State (or non-capitalist), and the State in which both coexist with certain parity is a hybrid State.

Trotsky, one of the Marxists who most studied the matter of the State’s Class nature, affirmed, lastly, this was determined “…by the forms of property and the relations of production the State protects and defends[2]. If we approach the debate with such criteria, it is easy to see Mussolini’s Italy had nothing to do with a Workers’ State, even though he could expropriate the bourgeoisie circumstantially, the same way Lenin’s URSS had nothing to do with a capitalist State although for a period of time he was forced to do some concessions to capitalism.

If we examinate current China with Trotsky’s criteria, we can get some light regarding the matter of the State’s Class nature. In this case, as in the others, it is not about determining the percentage of State and private companies there exist. It is about determining which are the forms of property and relations of production the Chinese State protects and defends.

A new NEP?

Some followers of the current Chinese leadership affirm the pro-capitalist reforms would be nothing more than “…a tactical resource, pursuing the construction of socialism to mid-long term[3]. In other words, the current Chinese leadership would be doing something similar to what Lenin did during the first years of the Russian Revolution, by implementing the NEP.

In Russia, after the civil war that devastated the country, the Bolshevik leadership implemented the NEP. This policy aimed to encourage capitalist mechanisms to increase production, and so create better conditions to move in direction of socialism in mid-term. As part of this policy, during that period 38% of the production means were in private hands, number that rose to 96% in the agricultural production[4]. As we can see, the percentage of private property during the NEP was higher than the current one in several of the former Workers’ States, and regarding the countryside, it was qualitatively superior to the current percentage in Russia.

Nevertheless, it is enough to compare the NEP process with the current processes of restoration to see the qualitative differences between them. During the NEP’s period, the private property development was fomented, but the increase of production served the development of the State property. This is so true that, back then, when the private property was fomented, the participation of the State companies in the total production actually increased.

“The State and Socialist industry has produced, in 1923-24, the 76% of the gross production; in 1925-26, the 79.3%, and in one more year, according anticipated calculation, it will easily reach 79.7%. Regarding the private industry, its participation in production was of 23.7% in 1923-24; in 1924-25, of 20.7%, and we expect 20.3% in 1925-26”[5].

This is the opposite of what currently happens in the former Workers’ States. On the other hand, what is being made today are not “concessions” to capitalism: capitalism is being restored. This is why, in all former Workers’ States, the “concessions” to capitalism are not limited to foment the private property of the production means, but the State monopoly of foreign trade and the centralized and planned economy have been eliminated. Like this, in all these States (including China), the results are the opposite of Lenin’s NEP: the participation of private industry in the gross production continues to grow, while the State companies go in the opposite direction.

The same way, in the current economies of the former Workers’ States, the State companies play a qualitatively different role to the one they did in the past. First, because even under State’s control they are subjected to the rules of a market economy, and second because these companies have, directly or indirectly, a decisive participation in the development of private companies.

The “Chinese particularities” accelerated the restoration

We often hear about the “Chinese particularities”. But what is the main Chinese particularity that differentiates it from the former URSS and the European East? This particularity is that China does not have a great industrial development. This is why the agro and not the industry is the main economic activity. As a product of the economic reforms, this activity is currently 100% in private hands. But the reforms were not limited to the countryside. On the contrary, they started among the countryside and expanded to other regions and the economy as a whole.

When Gorbachev was still far way from taking the URSS leadership, the Chinese government was moving forward with its “presetroika”. To see this, nothing better than watching how the process is evaluated by imperialism itself:

“The gradual way (summed up in Deng Xiaoping’s expression, “check the stones to cross the river’) is essentially the way followed by China. After the death of Mao Tse-tung [Zedong], and the denounce of the cultural revolution, the reforms initiated in 1978 opened the door to joint ventures and freed the prices, first marginally, then more widely. Most initial reforms were concentrated in the rural area. The family responsibility system, implemented locally to ‘de-collectivizing’ the agriculture, extended to other regions… right away, the restrictions to ‘non-State’ (local governments and collective) industrial companies were loosened, allowing the apparition of new companies in a wide new field of activities. Besides, it encouraged the new municipal rural companies (MRC) to function according the market principles. The part of production corresponding the private and ‘non-State’ companies grew strongly. In 1984, the reforms had already expanded to the urban economy. Local governments started to have more tax autonomy. State companies’ administration was reformed, as it financing source was no longer the wage from the government but the Bank system. Progressively, the restrictions to foreign trade and foreigner investments were abolished, and several institutional reforms started, including the re-creation of a Central Bank. Meanwhile, the space of planning was being progressively reduced. The reforms accelerated during 1994 and 1995, specifically when it comes to taxes, business legislation and foreign trade”[6].

 What forms of property and relations of production does the Chinese State protects and defend?

In a pamphlet launched by the Chinese government itself, it says: “The Chinese State companies, main sector of the public Socialist economy, are the base and the vital strength of the national economy…”[7]. However, in the same pamphlet it clarifies what it means to be a “base” of the national economy:

“… State companies made important contributions: they provided the non-State companies of commodities, electrical sources, public facilities and technical equipment; they largely assumed responsibilities regarding the accomplishment of financial incomes, guideline plans and social tasks; they supported the State when implementing policies favouring the collective, individual, private and foreign investment companies; they created the conditions for a quick asset accumulation and an accelerated development of non-State companies… Specifically, a considerable amount of qualified administrators and technicians of State companies went to other companies, becoming its basic strength for development. During the first semester of 1994, regarding the industrial added value of the whole country, the State and non-State companies provided 50% each, while the taxes paid by those who got to 68% of the total amount, and the non-State companies, only contributed with 32%”[8].

With so many incentives to non-State companies, starting the back up provided by the State companies, the result could not be different:

“The non-State economy has reached a impressing development rate. According to statistics of 1992, the industries of the non-State sector made 50% of the global industrial value… in 1990, the percentage of non-State industries rose to 65.7% in Jiangsu province, 68.7% in Zhejiang, and 58.6% in Shandong province.

Until the year 1993, we could observe an even more accelerated development of the non-State sector. Let’s take the industries as example: from 1978 to 1985, its industrial value grew from one quarter of the global value to a third of it, and from 1985 to 1992, from a third to half of it… 

The growth of State industry is clearly slow compared to industries of other forms of property.

From 1978 to 1992, the State industry grew 110%; the collective industry 314%; and the industry of other economic sectors emerged out of nowhere and reached 3,350%”.[9]

This unevenness in the development of private and State industry necessarily leads to crisis, and the elimination of the latest. The causes are clearly explained by the authors of this pamphlet:

“… [State companies], being the base of tax authorities, had to sacrifice to pay the costs of the reform and opening, creating financial, material and human conditions for the development of the non-State economy…”, but despite that “…in the process of establishing the market economy, different economic sectors enter a balanced competition according the law of value and the market rules work independently from any form of property… the government avoids to interfere directly over the production and administration of the companies. The best companies will survive, and those not efficient enough will be eliminated through market competition”.[10]

This uneven competition already had its first result: “During the first trimester of the current year, the numbers of 108.000 State companies showed, for the first time, the losses were higher than the profits”.[11]

China: a new world Power?

Regarding Russia, the spokesmen of imperialism have no way to hide the calamity the restoration of capitalism means. But they do not say the same about China. The highlight China is the most growing economy in the world. Actually, between 1989 and 1995, the Chinese economy grew an annual average of 9.4%, number that grew to 11% during 1994/95. In the current phase of capitalism, this is definitely a great rate. This way, China would be denying Marxism’s anticipations, and specifically Trotsky’s. The restoration of capitalism would not be synonym of setback but progress. At such point that, as we said before, the opinion of China being on its way to become, in a short-time lapse, a new, great economic power is generalized.

Our vision of this process is different. Or better: opposite. It is true Chinese economy has been having a sustained growth. Nevertheless, the way this growth is given makes China not to be a threat to the current imperialist powers. Actually, it is not even an economic threat for the most important countries in the area, the so called ‘Asian tigers’. Even more, not only China does not move towards being a great economic power as, on the contrary, it walks fast to become a semi-colony of imperialism, if it is not already.

China is having a sustained growth of its economy relying on the increase of its agricultural production and the spectacular growth of exportations, essentially. By the end of the 70’s, during the beginning of economic reforms, Chinese exportations were of 7.4 thousand million dollars. Currently, they reach 121 thousand millions, what took to a major increase of currency reserves, which in 1978 were in zero, and today reach 85 thousand million dollars.

Every international analyst highlights these numbers. However, we think it is necessary to also highlight some other economic questions. First, as we said before, China is an extremely backward agricultural country. Second, there a major grow of importations (7.4 thousand millions in 1978 against 116 thousand millions in 1996). Third, there is an impressive growth of the external debt (4.5 thousand millions in 1978 against 70 thousand millions in 1996).

And fourth, the most spectacular growth rate of all are the multinational investments: in 1991, it was of 430 million dollars, and it went to 16,372 million dollars in the first semester of 1995.[12]

China’s backwardness

The exuberance of the imperialism’s spokesmen (and not few Marxists) about the development of China’s economy is not unanimous. For example, the known Chinese economist Fan Gang, during a visit to Brazil, insisted we needed to be precautious about the prognostics for China, as the economy in the country “grows a lot, but starting from a very low point”.

This alert is correct. The growth of economy is an important element, but also relative. It is necessary to look were it begins from and the way the growth is given. To understand this, it is good to precise the most growing economy in the world is not China but Botswana, a small country in Africa that has a major growth out of diamonds production. However, it would be incorrect to think for such reason this country has possibilities of becoming an imperialist power, and not only because of its small population (one millions, three hundred thousand inhabitants). It will not become a new Switzerland, either.

China is a highly backward country, with small industrial development. This affirmation is not based only in a comparison of China’s economy with the great imperialist powers. We see this also if we compare China’s economy to Russia’s. For example, comparing the GDP per capita of Russia and China when the reforms began in both countries, we can see Russia’ was 9 times higher than the Chinese, and this had not qualitatively changed now, despite the brutal fall of Russian economy: Russia’s GDP per capita is still 5 times higher than China’s.

As the backwardness of the Chinese State shows, it is worth to remark 73% of its population lives in the countryside. This rate is similar to countries like India (73%), Pakistan (66%) or Nigeria (62%). And it is far away from major imperialist powers with an important agricultural production, like the US (24%), France (27%) or Germany (14%). It is also far from the most advanced countries of the so-called “Thirld World”, like Brasil (23%). It is in this frame of backwardness the growth of China’s economy is given.

Foreign Investments

The growth of Chinese economy should be a threat to imperialist powers and specifically the Asian Tigers. However, it is not. Because what is happening is that, on one side, the great multinationals are the ones occupying the Chinese fabulous internal market, and on the other because in most cases foreign capitals are the ones behind the “made in China” products invading the world market.

Together with the privatization process of Chinese economy (in 1978 there were 300.000 private companies; today, there are 22 million), there is a true invasion, or to be more precise, colonization, of this country. And multinationals are leading this process. In this regard, the pamphlet we quoted before highlights “the investments come from more than 150 countries and regions”.

Among over 200 multinationals with investments in China, the main ones come from developed countries in Europe, America and also Japan. These investments spread along several industrial sectors: automotives fabrication, programmed control systems, optical febers and cables, petroleum extraction, elevators, electronic products, chemicals, etc.

Hewlett Packard [HP], the second major computer companies of the US, has established 5 mixed companies in China. DHL, of immediate delivery, which already had 10 branches in Chinese territory, had as a goal to reach 26 branches in 1996. The Japanese company Sanyo opened 17 branches in China, all of them of just Japanese capitals. PepsiCo, located in China for several years now, is aiming to build ten new plants over the next ten years.

In Tianjin, region of economic and technological development, one of the most dynamic points of economic growth, in North China, 55 famous multinationals have established companies or branches, like: Motorola, AST Computer and Karf General Electric, from the US); Bayer and Volkswagen, from Germany; Nestlé, from Switzerland; Novo Nordisk Biotechnology, from Denmark; BOC, from Great Britain; Itochu and Yamaha, from Japan; Samsung and Hyundai, from South Korea; Universal, from Singapore, and Chia Tai, from Thailand. Of the first 100 multinationals of the world, 53 have established offices in Beijing [Pekín]. Of the first 50 US multinationals, 28 have offices in this city.

Regarding this process, the special relation of China with the main countries of the area, the Asian Tigers, deserves a special mention. According to the World Bank report:

“… China’s opening altered the comparative advantage of the Tigers over the world trade, and they, instead of resisting, took the opportunity by moving resources from the simple manufacture industry to more sophisticated production lines, making use of their qualification to expand their production in China… the Chinese exportations simply replaced the ones of the four tigers, what caused a fall of the combined participation of the tigers around exportation of clothes, toys and sports articles to the world market… It happened with the help of direct investments of the tigers, whose companies, many times, just moved their production lines to China. For example, in the delta of the Pearl River, in Guandong, around 25.000 factories employing, directly or indirectly, three to four million workers, outsource to Hong Kong companies. Meanwhile, the tigers moved forward regarding their development by building products with more capital and more qualification”[13].

Regarding investments, there is another fact we need to analyze. There is a powerful Chinese bourgeoisie located outside the country. The importance of this bourgeoisie is enormous. It is estimated it controls around 2.5 billion dollars (equivalent to almost half of the GDP of the United States). In Indonesia, for example, it owns 17 of the 24 major business groups of the country; in Philippines, the estimate is it controls 75% of the business world. This powerful bourgeoisie is the one that made most of the investments in China, mainly based in Hong Kong (67.3 thousand million dollars) and Taiwan (9.8 thousand millions).

Among this data, we need to give special importance to a political-economic transcendental fact such as the re-incorporation of Hong Kong to the Chinese State. From the geographic point of view this really is an incorporation, although we cannot say the same from the economic point of view.

Some conclusions on restoration and the growth of Chinese economy

In an agricultural country like China, the growth of economy, sustained in great part by the base of industrialized products exportation is a major contradiction. And it was only possible due to the combination of two factors: on one side, massive, unqualified and cheap labour force, and on the other, strong foreign investments. But this way of growth is pretty fragile, and highly artificial. It looks pretty similar to other known “miracles” the imperialism has sustained several times. The way Chinese economy grows, far from leading the country to become a new power, is taking it to have an economy each time more dependent of imperialism.

China does not dispute markets with an economy that is dependent of imperialism. In the world division of labour, China occupies the spot saved for the underdeveloped countries. The good economic relations China is having with the Asian tigers is a proof of this: they dispute the more sophisticated products’ market, while China acts over the market that demands cheap and massive labour force, in many cases thanks to capitals of the tigers themselves, established in China’s territory.

Like every artificial growth, it is completely unstable. In this case, it is because it relies on five favourable circumstantial conditions. These are: the opening in most world markets to affordable Chinese products; the existence of a dictatorship that allows a brutal over-exploitation; incentives to private companies based on the “sacrifice” of State companies; the extremely low salaries, even compared to the most backward countries of the “third worlds”; and the major investments coming from the foreign.

The growth of the economy is so fragile it would be enough for one of these factors to change for all the others to change too and the growth to become an impasse or recession. This is the situation ahead. The process of restoration, combined with the colonization, is pushing the contradictions to the economy. And this will almost inevitably lead to an explosion.

“Miracles” so not last long. The huge advantages private companies have to develop will not remain intact for an eternity time, and without these advantages the flux of investments will tend to decrease, while “made in China” products will not be competitive in the world market.

Like this, for example, the “cheap labour force” can be explained by the existence of a dictatorship on one side, and on the other by a social salary guaranteed by the State and the State companies.

The same thing happens to the set of advantages private companies are getting, which are not product of “divine grace”. They are product of the sacrifice of State companies and the State as a whole. All State companies, unlike the private ones, have high taxes, have to carry with the salaries of the retired (which, in many cases, are more than the active workers), with a great amount of social services and, after all os these, they have to compete with private companies and multinationals based on market laws. The result can only be the defeat of State companies and the weakening of the State in front of private companies. This reality leads to an infernal dynamic. The Chinese “miracle” actually is parasitic of the State, and the weakening of the State leads to question the economic growth, and even the dictatorship that sustains it.

The Chinese economic growth was be possible by parasitizing the State, because of what it accumulated along 4 decades of expropriation of the bourgeoisie and a planned economy. What we are living today in China is a brutal destruction of productive forces, covered by imperialist investments.

Against most analysts, we affirm China, with the restoration of capitalism, is not moving towards long years of prosperity and/or stability. On the contrary, in a not far horizon we can only see crisis, instability, popular explosions, that will be fed by the contradictions accumulated along these years. Among them, two deserve to be mentioned. First, there is a new Chinese proletariat: only in the new plants of foreign capitals, there are already 10 million workers. Second, the privatization of the economy is not self-sustained, but they are being, at least for now, sustained by the State.

Tiananmen was just a rehearsal.



[1] It is interesting to remember the arguments Gorbachov used to restore capitalism in the former URSS: “Our goal is to strengthen socialism… what the West offers us, economically speaking, is unacceptable for us…”. – Perestroika, new ideas for my country and the world.

[2] Leon Trotsky – In defence of Marxism.

[3] Wladimir Pomar – China: a peculiar transition

[4] Leon Trotsky data, from Whither Russia?

[5] Idem.

[6] World Bank: “World Development Report 1996: From Plan to Market”.

[7] State companies’ reforms. Pekin, China.

[8] Idem.

[9] Idem.

[10] Idem.


[12] Data from QUID, FMI BIRD and The Economist.

[13] World Bank: “World Development Report 1996: From Plan to Market”.


Published in Marxism Alive n° 2, October 2000 / January 2001.-

Translations: Sofía Ballack.

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