Essay:Why China is not Capitalist

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by GojiraTheWumao
Published: 2023-03-14 (last update: 2024-03-31)
165-250 minutes

There have been many controversies around China's Socialist nature or not and the current economic system of China occured. China remains, to this day, a Marxist-Leninist nation. This article will primarily be tackling it's internal economic policy and attitude towards the markets, as well as how the nature of the state and market coincide with each other.

This essay demonstrates the historical context, ideological origins and justifiactions of China's economic model, known as the "Socialist Market Economy." I will also go into the specific mechanisms of the Socialist Market Economy itself, and how it contradicts "Capitalist logic", while simultaneously maintaining the dominant position of Public Ownership. And how the Socialist Market Economy/People's Republic of China continues to provide and improve the material quality of the life of the average Chinese person.

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There have been many controversies around China's Socialist nature or not and the current economic system of China occured. China remains, to this day, a Marxist-Leninist nation. This article will primarily be tackling it's internal economic policy and attitude towards the markets, as well as how the nature of the state and market coincide with each other.

This essay demonstrates the historical context, ideological origins and justifiactions of China's economic model, known as the "Socialist Market Economy." I will also go into the specific mechanisms of the Socialist Market Economy itself, and how it contradicts "Capitalist logic" as well as how China remains comitted to reducing the role of the market, while strenghtening the role of the State Owned Enterprises. And how the Socialist Market Economy/People's Republic of China continues to provide and improve the material quality of the life of the average Chinese person.

What does the term "Socialist Market Economy" mean?

Socialist market economy (Chinese: 社会主义市场经济; Pinyin: Shèhuìzhǔyì Shìchǎng Jīngjì) is the official term of the government of the People's Republic of China for the economic system implemented in the country. It was first proposed by Deng Xiaoping, then General Secretary of the Central Committee of the Communist Party of China , in the 1978 report, It is an important policy of Reform and opening up, being started by Deng Xiaoping, being a core part of Socialism with Chinese Characteristics.

The system is a market economy with the predominance of public ownership and state-owned enterprises. Originating in the Chinese economic reforms initiated in 1978 that integrated China into the global market economy, the socialist market economy represents a preliminary or "primary stage" of developing socialism.

Ideological justification

The ideological justification behind China's economic reforms is that China's primary contradiction was not the proletariat vs the bourgeoisie. Instead it was how to build socialism with underdeveloped productive forces. The existence of China's dictatorship of the proletariat meant that the capitalist class was already subordinate to the state as long as the state did not err into bourgeois liberalization, due to the fact that the bourgeoisie in and of itself as a class was heavily underdeveloped, and due to the fact that socialism could not be built with or without the bourgeoisie as long as the productive forces were underdeveloped. This is not a "betrayal" of Socialism or Mao. Far from it, in fact. The economic progress in China has been hailed as "miraculous" around the globe, as it is the fastest growing economy in the history of human civilization. This is not because of Capitalism.

As Deng Xiaoping said,

"Since socialism is superior to capitalism, socialist countries should be able to develop their economies more rapidly than capitalist countries, improving their people’s living standards gradually and becoming more powerful."

1. The nature of the country determines the nature of the relationship between the government and the market

Capitalism is a much larger and more complex entity than the market system we use as its equivalent, and a market system is larger and more complex than the innumerable individual encounters between buyers and sellers that constitute its atomic structure. The market system is the principal means of binding and coordinating the whole, but markets are not the source of capitalism's energies nor of its distinctive bifurcation of authority. Markets are the conduits through which the energies of the system flow and the mechanism by which the private realm can organize its tasks without the direct intervention of the public realm.

Marxist historical materialism believes that the state arises out of the development of class society. It is produced due to the existence of irreconcilable class contradictions. Therefore, the state is a tool of class rule; at the same time, the state is also an institution for maintaining social public order. A force that ostensibly overrides society. This force should ease conflicts and keep them within the scope of order.

Therefore, the state has dual attributes: one is a violent tool of class rule, and the other is an organ that safeguards public interests. But in essence, the state's attribute of safeguarding public interests must be subordinated to its class attribute. Because the state protects the public interest, it is only the ruling class that has to use the state machinery to regulate different stakeholders within the scope of society in order to protect its own interests, and fundamentally speaking, it must obey the ruling class's interests. The nature of the government as the country's governing and social management agency is clearly determined by the nature of the country. The government undertakes the country’s economic, political, and social management functions.

The nature of these functions is fundamentally a reflection of the nature of the country. Therefore, the dual attributes of the state determine that the government also has dual attributes. On the one hand, it has a class nature, and on the other hand, it has the attribute of safeguarding public interests, and the attribute of safeguarding public interests must be subordinate to its class attribute. When people understand the relationship between the government and the market, if the class nature of the government is abstracted, it is obviously one-sided to treat the government as only the representative and defender of the public interest. At this point, Western economists have made the mistake of thinking that the government is the representative of public interest. Correspondingly, the function of the government is to provide public products, protect private property rights, and make up for market failures. This understanding completely conceals the nature of the bourgeois government as a "general capitalist" and safeguarding the interests of the bourgeoisie.

As Marx and Engels pointed out when analyzing the bourgeois state in the "Communist Manifesto":

The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.

On the one hand, the bourgeois state does its best to safeguard the free development of capital from an institutional perspective. On the other hand, it must play a role in participating in social and economic activities as the subject of economic activities, creating conditions for private (monopoly) capital to obtain high (monopoly) profits. When the government as an economic subject participates in the process of social production and reproduction, once it conflicts with the interests of private capital, private capital owners will use the parliament and other bourgeois endorsement agencies to put pressure on the government, issue warnings, and ask the government to withdraw from the market.

This fully reflects that capitalist countries participate in economic activities as economic entities, and its fundamental purpose is to create economic conditions for private (monopoly) capital to maximize profits.

China implements the socialist system, and the country also has dual attributes, but it is fundamentally different from the nature of a capitalist country. The Chinese government has not only become the manager and participant of social public affairs and social economic activities, but also the representative of the fundamental interests of the broad masses of people and the defender of the socialist system.

China’s Constitution clearly stipulates:

The People's Republic of China is a socialist country under the people's democratic dictatorship led by the working class and based on the alliance of workers and peasants. The socialist system is the fundamental system of the People's Republic of China. The leadership of the Communist Party of China is the most essential feature of socialism with Chinese characteristics. Any organization or individual is prohibited from undermining the socialist system.

The People’s Congress is the fundamental political system of China. It not only reflects the class nature of China but also represents the fundamental interests of the broad masses of the people, and achieves the unity of the socialist country's class nature and public interest attributes to the greatest extent. China's constitution also stipulates:

"The basis of the socialist economic system of the People's Republic of China is the socialist public ownership of the means of production, that is, ownership by the whole people and collective ownership by the working masses. Socialist public ownership eliminates the system of exploitation of others, and implements the principle of each according to his ability and distribution according to his work.

"At the primary stage of socialism, the country adheres to the basic economic system in which public ownership is the mainstay and multiple forms of ownership develop together, and it adheres to the distribution system in which distribution according to work is the mainstay and multiple forms of distribution coexist."

"The state-owned economy, that is, the socialist economy owned by the whole people, is the leading force in the national economy. The state guarantees the consolidation and development of the state-owned economy."

In this way, the Chinese government must not only carry out macro-control and management of the economy, but also directly participate in the production and reproduction activities of the national economy as the owner of the ownership by the whole people. The understanding of the relationship between the Chinese government and the market must not only stop at the level of "big government and small market" or "small government and big market", but must also go deep into the essential level of the relationship between the country and the market. Only in this way can it be helpful to understand the Chinese nation. The necessity for the government to play a leading role in the market economy.

How China demonstrated it's socialist nature during the 2008 financial crisis

One good example of this would be how China dealt with the 2008 financial crisis, the test came when the Chinese leadership was forced to deal with the effects of the worst capitalist crisis since World War 2. When the crisis hit in 2008 to 2009, many tens of millions of workers in the U.S., Europe, Japan and across the capitalist world were plunged into unemployment. China, which exported to the capitalist West, was faced with the shut down of thousands of factories, primarily in the eastern coastal provinces and the special economic zones. More than 20 million Chinese workers lost their jobs in a very short time.

According to Nicholas Lardy, from the prestigious Peterson Institute for International Economics, actually goes onto elaborate consumption went up during the 2008 and 2009 crisis and the Chinese government created sufficient jobs to cover for the layoffs.

“In a year in which GDP expansion [in China] was the slowest in almost a decade, how could consumption growth in 2009 have been so strong in relative terms? How could this happen at a time when employment in export-oriented industries was collapsing, with a survey conducted by the Ministry of Agriculture reporting the loss of 20 million jobs in export manufacturing centers along the southeast coast, notably in Guangdong Province? The relatively strong growth of consumption in 2009 is explained by several factors. First, the boom in investment, particularly in construction activities, appears to have generated additional employment sufficient to offset a very large portion of the job losses in the export sector. For the year as a whole the Chinese economy created 11.02 million jobs in urban areas, very nearly matching the 11.13 million urban jobs created in 2008. “Second, while the growth of employment slowed slightly, wages continued to rise. In nominal terms wages in the formal sector rose 12 percent, a few percentage points below the average of the previous five years (National Bureau of Statistics of China 2010f, 131). In real terms the increase was almost 13 percent. Third, the government continued its programs of increasing payments to those drawing pensions and raising transfer payments to China’s lowest-income residents. Monthly pension payments for enterprise retirees increased by RMB120, or 10 percent, in January 2009, substantially more than the 5.9 percent increase in consumer prices in 2008. This raised the total payments to retirees by about RMB75 billion. The Ministry of Civil Affairs raised transfer payments to about 70 million of China’s lowest-income citizens by a third, for an increase of RMB20 billion in 2009 (Ministry of Civil Affairs 2010).”

Political Commentator Dilip Hiro states regarding China's respnse to the World Crisis:

While Western governments tried to overcome the investment slump at the core of the Great Recession indirectly through deficit spending, China raised its public expenditures through its state-controlled banks. They provided easy credit for the purchase of consumer durables like cars and new homes. In addition, the government invested funds in improving public services like health care, which had deteriorated in the wake of the economic liberalization of the previous three decades.

Altogether, these measures boosted the GDP growth rate to 9 percent in 2009, just when the American economy was shrinking by 2.6 percent. Such a performance impressed the leaders of many developing countries, who concluded that China’s state-directed model of economic expansion was far more suitable for their citizens than the West’s private-enterprise-driven one.

On the ideological plane, the spectacular failure of the Western banking system on which the private sector rests revived socialist ardor, long on the wane, among China’s policymakers. In response, they decided to bolster state-controlled companies, proving wrong Western analysts who bet that public-sector undertakings would lose out to their private-sector counterparts.

The upsurge in government spending and generous bank lending policies led to increased investments by state-owned companies. Whether engaged in extracting coal and oil, producing steel, or ferrying passengers and cargo, such companies found themselves amply funded to upgrade their industrial and service bases, a process that created more jobs. In addition, they began to enter new fields like real estate.

Overall, the Great Recession in the West, triggered primarily by Wall Street’s excesses, provided an opportunity for Beijing to stress that, in socialist China, private capital had only a secondary role to play.

According to John Ross, Senior Economics Researcher from Renmin university, he outlines that because of the scale of China's state sector especially in comparison to the USA, caused it to be able to recover so well from this particular financial crisis. From 2007 to 2009, China's real GDP grew by 20.0%. It can be seen that China's fixed investment has not experienced the decline of the United States. Between 2007 and 2009, total US household consumption increased by $145 billion, and total government consumption increased by $235 billion, a total increase of $380 billion. But consumption growth was offset by a decline in gross fixed capital investment of $508 billion, meaning that the recession was overwhelmingly caused by a decline in investment rather than consumption .In summary, the post-2007 U.S. recession, and the deterioration in the U.S. incremental capital-output ratio, were caused by a decline in U.S. fixed investment during the post-2007 international financial crisis.

In contrast, China's total fixed capital investment grew by $890 billion at current dollar exchange rates, outpacing the other components of GDP. The reason why the United States (and Capitalist countries) cannot control the decline in investment is also obvious. The United States is a capitalist economy, which means that its development is subject to the decisions of private capitalists. If these capitalists decide not to invest, the economy goes into recession . But the United States does not have enough state-owned enterprises to offset this impact. Therefore, the privatization of all major means of production has become the weakness of the anti-risk mechanism of the US macro economy.

So income went up, consumption went up and unemployment was overcome in China. While the Capitalist world was still mired in mass unemployment, recession, stagnation, slow growth and increasing poverty. The reversal of the effects of the crisis in China is the direct result of the CPC's state planning, state-owned enterprises and state-owned banking. There was a crisis in China, and it was caused by the world capitalist crisis. The question was which principle would prevail in the face of such a crisis, the principle of Socialism? Or the principle of Capitalism? In China the principle of Socialism, the conscious element won, overcoming the Principle of Capitalism and the law of profit.

How China demonstrated it's socialist nature during the 2020 COVID crisis

In the same article mentioned above, China also demonstrated it's socialist nature during the handling of the 2020 COVID related economic crisis. China's economic performance far outperformed that of the United States. During the three years from 2019 to 2022, China's GDP will grow by 13.3%, while that of the US will grow by 5.2%. In other words, during the epidemic, China's GDP growth rate was more than 2.5 times that of the United States.

As in 2007-2009, total household consumption rose sharply, reaching $2,970; total government consumption also increased by $581; and total fixed capital investment also increased by $838 billion, but this was not enough to offset the $848 billion depreciation of fixed capital. That is, net US fixed capital investment fell by $10 billion - clearly the US capital stock did not grow significantly during 2019-20, and may not grow at all, or even decline slightly.

According to the available data of China's comprehensive national accounts for 2019-2021, as shown in Figure 12, the total fixed capital investment increased by 1.311 billion US dollars, which once again became the largest boost to China's GDP growth. Correspondingly, the total household consumption increased by 1.2 trillion U.S. dollars, government spending was $428 billion. This is in stark contrast to the pattern in the United States, where total household consumption grew by $1,510 billion and total fixed capital investment rose by $458 billion in 2019-2021. While depreciation data for China after 2020 is not yet available, given that fixed capital depreciation was $333 billion in 2020 and there is no reason to believe it will reach nearly $1 trillion in 2021, it is clear that China's net fixed capital investment in 2019-2021 The amount is a positive value.

During the epidemic, why did fixed investment play a relatively high role in driving China's GDP growth? The reason is obvious during the crisis, Chinese government investment can be used to offset the decline in private investment. However, the reason why China's overall investment can remain high is that China has a large state-owned enterprise. To be precise, compared with China, in 2022, only 16%, less than one-sixth of US fixed investment originates from state institutions. And these government investments accounted for only 3.4% of GDP. Given the tiny size of the US state-run economy, even a high share of US government investment cannot prevent an overall decline in US fixed investment—to offset a 10% decline in private investment, US government investment would have to rise by 50%.

In contrast, China has a large state-owned economy, which means that it is possible to stabilize the level of investment in China by significantly reducing or increasing the growth of government investment. In short, China's large state-owned economy means that China has an extremely powerful anti-crisis mechanism, something that capitalist nations don't have or want since it impedes on the Bourgeoisie monopolies/oligopolies from turning a sizeable profit. This form of state-led economy in turn helps sustain economic growth, preventing the severe deterioration in the incremental capital-output ratio seen in capitalist economies such as the United States.

2. The nature of ownership determines the substantive content of the plan and market in the allocation of resources.

The relationship between the plan and the market is an important aspect of the relationship between the government and the market. In the early days of China's Reform and Opening up, discussions on the relationship between the government and the market were conducted under the discourse system of the relationship between planning and the market. To understand the relationship between the government and the market at a deeper level, one cannot avoid the relationship between the plan and the market. In actual economic activities, neither planning nor market can exist abstractly, but embedded in certain production relations. Therefore, the government’s use of planning or market means to regulate the economy implies that people under a certain socio-economic system. Adjustment of the relationship between interests.

The capitalist market economy is established on the basis of capitalist private ownership. Capital dominates the relations of production, distribution, exchange, and consumption. The market mechanism and the law of value (to be precise, the law of production prices or the law of monopoly prices) have become the regulators of the material interests of various classes. basis. Individual capitals within microenterprises try their best to use careful planning and follow the law of proportional labor distribution to optimize resource allocation; while in the social context, capitals use market mechanisms and value laws to achieve the survival of the fittest through competition.

The market is a part of capitalism, but not the whole. There is a discrepancy between the two. The market is fundamentally a means of organizing production and distribution, while capitalism is the larger social order in which the market plays a crucial role. In other words, the market is "the organizing principle of capitalism.", where private ownership is dominant. In this sense, capitalism can be defined as an economic system in which capital can accumulate and expand itself endlessly through the market. The planned production of individual capitalist enterprises has continuously increased productivity; at the same time, the anarchy of production has continuously formed periodic economic crises, resulting in a huge waste of social resources. The capitalist mode of production forces every enterprise to practice economy, but its anarchic competition system has caused the greatest waste of social production materials and labor, and it has also produced countless indispensable, But it is a superfluous function in itself.

Under Capitalism, the use of capital takes place as money is converted into commodities such as raw materials, the raw materials are converted into finished goods and services, and the finished goods are sold on the market, not to make a profit for retirement, but to buy more raw materials to start the process over again. Because of this endless turnover, the physical characteristics of commodities have nothing to do with their function to generate wealth. Marx thus defined capitalism as a process in which capital realizes the self-expansion in the market.

The Nature of Planning under Capitalism

Some people would say, don’t modern capitalist countries also have macro-control? Don’t they also have industrial policies and development plans? This is indeed true. However, it should be pointed out that the macro-control of capitalist countries is basically an afterthought. The government acts as a “firefighter” to “extinguish” the economic cycle or crisis created by private capital; capitalist countries will also control infrastructure, High-tech industries carry out planning and investment, but the nature of capitalist countries determines that the government must put the protection of the interests of private capital first.

Take the United States as an example. Many infrastructures in the United States, such as railroads and subways, are already outdated, but the government has been unable to build them, because most of these infrastructures are used by civilians, not capitalists. The Democratic Party has gone from the Clinton administration to the Obama administration. It took all twists and turns to pass the universal health insurance bill, but Trump overturned the bill as soon as he took office because it was not good for big capitalists. It can be seen from such incidents that capitalist private ownership determines that the bourgeoisie is essentially opposed to the state planning adjustment centered on the interests of the people.

The intervention of the capitalist countries in the economy is based on private ownership and is always confronted with an insoluble contradiction: If the state’s intervention is insufficient, there will be difficulty in dealing with unemployment, economic crisis and income gap in the capitalist market economy. If the intervention is excessive, the sacred doctrine of private ownership will be undermined, and the vitality of the capitalist economy will be impaired.

The intertwining of market and government failures is an unavoidable consequence in the development of fundamental capitalist contradictions. Facts have repeatedly proven that genuinely effective planning and adjustment are impossible for a private ownership-based capitalist market economy. Since it's nature and economic planning is one based around private ownership, they will always inevitably give way to the demands of private capital, or in some cases, plan for private capital itself. The merger of private capital and the state is the end goal of capitalism, otherwise known as Corporatism or Monopoly Capitalism. Private capital will always hold the dominant role in a society where private ownership is an instutitionalized element of aformentioned society. The state either backs down and concedes to private capital, or the state is an instrument of private capital itself.

A planned economy is not equal to socialism. However, planning is one of the essential attributes of a publicly owned economy. This is because, in the public ownership system, all members of society are co-owners of means of production. The social production is to satisfy their common interests. However, if there is no unified social plan, economic entities that pursue their own interests will blindly compete in the market. This will not only lead to the failure in achieving the common interests of the society but may also degrade the socialist public ownership system to a group ownership, ending up being overwhelmed by the ocean of private ownership. The development of the publicly owned economy, therefore, cannot completely be built on the spontaneous market but must must rely on the collective rationality or a social plan.

Sometimes the "openmindedness" the capitalists show to national plans or plans is just passive concessions that they have to make temporarily in the face of the effects of objective economic laws and social pressure. The socialist system is based on the public ownership of the means of production, and the fundamental purpose of production is to meet the needs of the people. Socialism with Chinese characteristics has entered a new era, and the purpose of production has been transformed into meeting the people's ever increasing needs for a better life.

This determines that plans or plans and major development strategies will inevitably play a leading role in the development of the national economy. There is a fundamental difference between bourgeois political economy and Marxist political economy, and this difference has also generated unavoidable disputes.

The essence of the dispute, as Engels pointed out, is

"Supply and demand are the formulas according to which the logic of the ... bourgeois judges all human life."

The Nature of Planning in Socialist China

The controversy between social production guided by social foresight, which constitutes the essence of the political economy of the working class. Of course, this is from the nature of the socialist plan. China's national conditions determine that we implement a socialist market economy, and the market plays a decisive role in the allocation of resources.

However, the characteristics of China's socialist market economy are obviously not “special” in terms of “market economy”, because market economy is almost the economic system generally practiced in the world today, but the vast Latin American and African regions are still poor. China's characteristic is reflected in the organic combination of the basic socialist system and the market economy.

As Xi Jinping pointed out:

"Developing a market economy under conditions of socialism is a great initiative of our Party. A key factor for the great success of our country's economic development is that we have given full play to both the strengths of the market economy and the advantages of the socialist system. We are developing a market economy under the premise of the leadership of the Communist Party of China and the socialist system, and the attributive "socialism" must never be forgotten. The reason why we call it a socialist market economy is to uphold the superiority of our system and effectively prevent the disadvantages of a capitalist market economy. We must adhere to the dialectics and the two-point theory, continue to work hard on the combination of the basic socialist system and the market economy, and give full play to the advantages of both aspects. Solve this worldwide problem in economics.”

This is also an important reason why the Fourth Plenary Session of the 19th Central Committee of the Party incorporated the socialist market economic system into the basic economic system. The organic combination of the socialist system and the market economy is also a combination of planning and the market in a certain sense. Compared with the capitalist market economy, the socialist market economy has obvious institutional advantages in how plans and public ownership intersect. This is due to the following two points.

First, public ownership provides an institutional basis for planning adjustment.

China adheres to a market economy system with public ownership as the mainstay and state-owned economy as the leading factor. The state-owned economy is essentially a process in which the state participates in the production and reproduction of the national economy as a market subject. Although in the form of realization, state-owned enterprises appear as independent market entities, and the separation between government and enterprises is achieved through the reform of the state-owned asset management system. It does not deny that state-owned enterprises and state-owned economy belong to the nature of production relations under the ownership of the whole people. The country can use the power of the state-owned economy to consciously plan the development direction of the national economy, establish a reasonable economic structure, limit or even eliminate economic fluctuations caused by the spontaneity and blindness of the market, so that the government can play a guiding role in the allocation of resources.

The primary basis for macro-control implemented by socialist countries is not in the so-called market failure, but public ownership of means of production as well as the planned and proportionate development law generated from this. Whether there exist so-called market failures or not, the state as the general representative of public ownership of production materials and public social interests must be able to regulate social reproduction process in accordance with the needs of the society and allocate social resources as long as the public ownership dominates.

The primary target of the macro-control in socialist countries is not to maintain short-term equilibrium of the total and create macro conditions for operation of the market mechanism, but to formulate and implement correct economic development strategies in light of the overall situation and long-term interests of economic and social development. Take into account the significant proportions in all aspects, promote sustainable social, economic development and satisfy the growing material and cultural needs of the people.

The means by which the socialist countries plan to regulate are not limited to the indirect demand management, namely fiscal and monetary policies, but also include many regulatory measures that are directly controlled and implemented by the state. These include formulating development plans, coordinating regional relations, creating strategic industry, supervising state-owned capital, investing in infrastructure, promoting technological innovation, as well as adjusting industrial structure and income distribution.

Second, the nature of a socialist country determines that planning adjustment is the fundamental goal of meeting the needs of the people.

Capitalist countries also have plans or planning but because capitalist countries represent the interests of the bourgeoisie, the fundamental purpose of capitalist production is to maximize profits. Therefore, only those plans or plans that conform to the interests of capitalists can be implemented, and they are important to the people's livelihood. Plans or plans that are good but are not good for capitalists often become gimmicks for political parties to get votes during elections. After a party that has received popular support comes to power, it will be greatly reduced when it is actually implemented. The fundamental purpose of socialist production is to meet the needs of the people and promote the all-round development of people. National plans and plans are based on the people-centered approach, safeguarding social fairness and justice, ensuring the people's right to equal participation and equal development, and achieving development results. More and fairer benefits all people. The "Five Development Concepts", the "Five in One" overall layout, the "Four Comprehensive" strategic layouts, the "13th Five-Year Plan", and the "Two Centenary" goals put forward by the Communist Party of China fully reflect the country Top-level design and macro planning play a leading role in realizing the fundamental interests of the broad masses of people.

3. The Four Modernizations and the Liberation of the Productive Forces

The only criterion of the results of political education is the improvement achieved in industry and agriculture

In every socialist revolution, after the proletariat has solved the problem of capturing power, and to the extent that the task of expropriating the expropriators and suppressing their resistance has been carried out in the main, there necessarily comes to the forefront the fundamental task of creating a social system superior to capitalism, namely, raising the productivity of labour, and in this connection (and for this purpose) securing better organisation of labour.

- Vladimir Lenin

In early 1963 at a meeting in Shanghai, Zhou Enlai proposed:

'If we want to build a powerful socialist country, we must modernise agriculture, industry, national defence, science and technology’

This became known as the Four Modernizations. Yet, this was by no means the first occasion at which ‘modernisation’ or indeed their numbering were mentioned, for both Zhou Enlai and Mao Zedong had been developing the idea since the 1950s. We can clearly see this in the Great Leap Forward and the Chinese Space Programmes were in line with this developments. According to Zhou Enlai, the goal of socialism was to

'...Improving the people's material welfare and cultural life... China's economy is very backwards, unless we establish powerful, modern industry, modern agriculture, modern communications and transport and a national modern defence, we will neither shake off backwardness and poverty nor attain our revolutionary goals... the sole aim of a socialist economy is to satisfy the people's material and cultural needs"

This belief was in line with Marx, who stated in the German Ideology

"We shall, of course, not take the trouble to enlighten our wise philosophers by explaining to them that the “liberation” of man is not advanced a single step by reducing philosophy, theology, substance and all the trash to “self-consciousness” and by liberating man from the domination of these phrases, which have never held him in thrall. Nor will we explain to them that it is only possible to achieve real liberation in the real world and by employing real means, that slavery cannot be abolished without the steam-engine and the mule and spinning-jenny, serfdom cannot be abolished without improved agriculture, and that, in general, people cannot be liberated as long as they are unable to obtain food and drink, housing and clothing in adequate quality and quantity. “Liberation” is an historical and not a mental act, and it is brought about by historical conditions, the development of industry, commerce, agriculture, the conditions of intercourse..."

He also goes onto state in the same book that

"Thus things have now come to such a pass that the individuals must appropriate the existing totality of productive forces, not only to achieve self-activity, but, also, merely to safeguard their very existence. This appropriation is first determined by the object to be appropriated, the productive forces, which have been developed to a totality and which only exist within a universal intercourse. From this aspect alone, therefore, this appropriation must have a universal character corresponding to the productive forces and the intercourse... ...This appropriation is further determined by the persons appropriating. Only the proletarians of the present day, who are completely shut off from all self-activity, are in a position to achieve a complete and no longer restricted self-activity, which consists in the appropriation of a totality of productive forces and in the thus postulated development of a totality of capacities. All earlier revolutionary appropriations were restricted; individuals, whose self-activity was restricted by a crude instrument of production and a limited intercourse, appropriated this crude instrument of production, and hence merely achieved a new state of limitation. Their instrument of production became their property, but they themselves remained subordinate to the division of labour and their own instrument of production. In all expropriations up to now, a mass of individuals remained subservient to a single instrument of production; in the appropriation by the proletarians, a mass of instruments of production must be made subject to each individual, and property to all. Modern universal intercourse can be controlled by individuals, therefore, only when controlled by all.

And once more, in the same text

And, on the other hand, this development of productive forces [...] is an absolutely necessary practical premise because without it want is merely made general, and with destitution the struggle for necessities and all the old filthy business would necessarily be reproduced; and furthermore, because only with this universal development of productive forces is a universal intercourse between men established, which produces in all nations simultaneously the phenomenon of the “propertyless” mass (universal competition), makes each nation dependent on the revolutions of the others, and finally has put world-historical, empirically universal individuals in place of local ones. Without this,

1. communism could only exist as a local event;
2. the forces of intercourse themselves could not have developed as universal, hence intolerable powers: they would have remained home-bred conditions surrounded by superstition; and
3. each extension of intercourse would abolish local communism.

In this context, he is referring to how the restriction and lack of development of the productive forces merely achieves limited socialism. That their revolutionary appropriation would be limited and merely a new state of limitation or a crude state of production. If the productive forces are not fully developed or fully emancipated, or given full play to development to strengthen socialism, socialism will become limited and stagnate. This will also inevitably limit workers emancipation (we can see this in a modern example with how under socialism, we would use mechanization to decrease working hours and increase workers safety). Developing and advancing the productive forces, socialism will be unable to reach it's goal of communism, which is to say, socialism will fail in it's ultimate goal, achieving Communism. We can clearly see that Marx believed that the role of the productive forces, the material enrichment of society was a defacto requirement to achieve Socialism proper. Another interesting quote here is from Lenin:

Get down to business, all of you! You will have capitalists beside you, including foreign capitalists, concessionaires and leaseholders. They will squeeze profits out of you amounting to hundreds per cent; they will enrich themselves, operating alongside of you. Let them. Meanwhile you will learn from them the business of running the economy, and only when you do that will you be able to build up a Communist republic. Since we must necessarily learn quickly, any slackness in this respect is a serious crime. And we must undergo this training, this severe, stern and sometimes even cruel training, because we have no other way out. You must remember that our land is impoverished after many years of trial and suffering, and has no socialist France or socialist England as neighbours which could help us with their highly developed technology and their highly developed industry. Bear that in mind! We must remember that at present all their highly developed technology and their highly developed industry belong to the capitalists, who are fighting us.

He also said this,

They should direct the work and learn from those who have the knowledge (the specialists) and the experience in organising large-scale production (the capitalists). The intelligent Communist will not be afraid to learn from the military expert, although nine-tenths of the military experts are capable of treachery at every opportunity. The wise Communist will not be afraid to learn from a capitalist (whether a big capitalist concessionaire, a commission agent, or a petty capitalist co-operator, etc.), although the capitalist is no better than the military expert. Did we not learn to catch treacherous military experts in the Red Army, to bring out the honest and conscientious, and, on the whole, to utilise thousands and tens of thousands of military experts? We are learning to do the same thing (in an unconventional way) with engineers and teachers, although we are not doing it as well as we did it in the Red Army (there Denikin and Kolchak spurred us on, compelled us to learn more quickly, diligently and intelligently). We shall also learn to do it (again in an unconventional way) with the commission agents, with the buyers working for the state, the petty capitalist co-operators, the entrepreneur concessionaires, etc.

And regarding the New Economic Policy Lenin said,

The great bulk of the means of production in industry and the transport system remains in the hands of the proletarian state. This, together with the nationalization of the land, shows that the New Economic Policy does not change the nature of the workers’ state, although it does substantially alter the methods and forms of socialist development for it permits of economic rivalry between socialism, which is now being built, and capitalism, which is trying to revive by supplying the needs of the vast masses of the peasantry through the medium of the market.

Lenin understood that they lacked the advanced technology of the Capitalist west and needed to find a way to build up a communist republic, alongside creating highly developed technology and industry. As long as the commanding heights of the economy remained in the hand of the Proletarian state (which it is in China), it is acceptable and a does not change the nature of the workers' state. This logic was the same logic Deng used when voicing his support for the Four Modernizations. However, the Gang of 4 that opposed Zhou Enlai and Deng Xiaoping rejected this concept, leading Deng to criticize them and say that they upheld 'poor socialism', to quote Deng:

"We have criticized, on both a theoretical and a practical level, the phoney, ultra-Left socialism pushed by the Gang of Four, which boils down to universal poverty."

Turning to Deng Xiaoping, it is striking how his renewed emphasis on the four modernizations is in marked continuity with Zhou Enlai (and Mao Zedong) from the 1950s. By now this continuity should not be a surprise: we have already seen how Deng and his comrades strove to pick up and enhance the line of Marxism Leninism and Mao Zedong Thought from the late 1950s. By contrast, the ‘Maoism’ of the ‘Cultural Revolution’ was a deviation. A comparable point applies to the four modernizations, which the Gang of Four in particular disparaged. They saw the modernizations as a path to capitalism, opposed developments in science and technology, and advocated ‘poor socialism’ in their place.

Socialism's superiority to Capitalism is determined by how it can improve the quality of life for the people. Already discussed in other articles (see: Reform and Opening Up#The Achievements'/Successes of Reform and Opening Up), we can clearly see that China's economic model is far better at providing and rapidly achieving a higher living standard than the capitalist nations. As elaborated previously and will be elaborated further on in the article, it is not merely the material life of the Chinese people that has been enriched, but also the cultural one.

As outlined in other articles (see:People's Republic of China#Democracy and popular opinion), the people live an enriched cultural life. Poverty is not socialism, socialism is not poverty. There is nothing inherent about Socialism that requires people to live in substandard living conditions. Socialism is not inferior to Capitalism and is a superior mode of production. To give people a good life, requires them to be able to live with improved material conditions with the development and expansion of the productive forces. To defend the Socialist motherland, there needs to be a development and expansion of the productive forces.

The Socialist Market Economy put out by Deng is merely continuing Mao and Zhou's legacy of deepening the liberation of the productive forces and improving the living standards of the people of the people, this is China's "Socialist essence."

According to Huang Nansen, how the SME serves the people and fulfills the requirements of China's “Socialist essence is as follows":

(1) the system contains a multiplicity of components, but public ownership remains the core economic driver;

(2) while both state owned and private enterprises must be viable, their main purpose is not profit at all costs, but social benefit and meeting the needs of all people—in short ‘people-centred’ (Li W. 1992, 55);

(3) it deploys the old socialist principle of from each according to ability and to each according to work, limiting exploitation and wealth polarisation, and seeking common prosperity;

(4) the guide for action (to parse Engels) always remains Marxism;

(5) The primary value should always be socialist collectivism rather than individualism

This is how the liberation of productive forces and the 4 modernizations should serve the people. And this is how the SME is held to the standard of the 4 modernizations and the liberation of the productive forces.

4. China does not behave as a Capitalist economy

Many detractors have argued China operates in the same way to the logic of capitalist nations, whether Western or not, whether Keynesian, Corporatist or Neoliberal. This section will be designed to dissect and refute the claims that China operates as such. For the following, we will discuss the economic models of various states used to describe China. Corporatism adopted by the Fascists and the Asian Tiger model will be one of them, the Keynesian model,

China does not follow Keynesianism

A few economists have argued China behaves in a Keynesian manner, Keynes believed in the state regulating the free market and believing that the market sector could be allowed to develop as long as the government stepped in occasionally to ensure it would serve a rehabilitatory role.

Except, as mentioned before and as I will further elaborate in the mechanisms of how the CPC maintains public ownership, Keyenes was a strong opponent of national economic planning. Keynesianism involves the state stepping in to help regulate the market but not have the state direct economic planning itself. Keynesian economics is essentially a method of extremely laissez-faire attitude by the government during economic booms with high employment, while during economic busts, the state would increase defecit spending, print money and distribute it amongst the economy through benefits and labor schemes in an attempt to revitalize consumption and raise employment.

Keynes 'socialisation of investment’ never involved massive public ownership of the commanding heights of an economy, he makes no mention of it. He only states that there should be state investment and has no mention of public ownership of the means of production. Keynes merely supported a ‘macro management’ of credit and fiscal measures, and had an opposition to national economic planning (and by extension, a large public sector).

The advantage to efficiency of the decentralization of decisions and of individual responsibility is even greater, perhaps, than the nineteenth century supposed; and the reaction against the appeal to self-interest may have gone too far

China’s economic success is based primarily on state-owned and state-led investment, not on Keynesian ‘macro management’ of credit and fiscal measures as in capitalist economies (as mentioned previously regarding how China demonstrated it's socialist nature during the 2008 financial crisis)

In Keynesianism, the state expands the role in the economy but does not replace the private sector. In this sense, Keynesian economics supplements the private sector with the state one. On the contrary, China's economic model demands the market must be subservient to the state sector and operate within boundaries set by the state. Governemnt investment in China is not undertaken not only to promote growth or cope with economic crises, but more importantly, enhance the government's capability to regulate and constrain the market.

It is therefore, that Capitalist countries are reluctant to undergo this ownership of the commanding heights because it counteracts and undermines the profits of the Bourgeoisie. And even if it did, the large advanced economies of today all have tiny state sectors, even if they wanted, the scale and scope of the state sector in dispensing investments is far too low. China is able to undertake direct state stimulation of investment, while the advanced capitalist economies of the world areforced to rely on indirect methods, budget deficits and quantitative easing.

China does not follow the "Regulatory state model" as promoted by the IMF

In this model's ideal form, the regulator is independent from business; that is, the regulator must be separate from and impartial toward the firms it regulates. The regulator also should have political independence; that is, it must maintain substantial autonomy from political organs such as the executive or legislature. In addition to the institutional configuration of the independent regulator, this model also embraces normative preferences. The regulator's primary job is to create a level playing field for market actors and to apply rules evenly without regard to who those particular actors are, thereby fostering competition and eliminating market failure. Any commercially viable new entrant should have the same opportunity to establish his market position as an incumbent.

We can quickly see how this model deviates from China's style of economics, namely

• There is a great deal of political centralization within State Owned Enterprises, there is no substantial autonomy from political organs, such as for Economic Planning, CPC worker comittee's within organizations, CPC party members running state owned firms.
• There is a great deal of bias towards State Owned Enterprises, where they are guaranteed to be at the spearhead of economic development, cementing their role as the dominant force in the Chinese economy. And where they also recieve lower interest loans.
• There are barriers to market entry in the "Commanding Heights" sectors of the economy, meaing that SOEs are obligated by law to have a dominating control over certain means of production (such as steel production and coal production), as well as state-dominated shareholding companies absorbing up foreign enterprises and domestic enterprises

Further detail will be given about the specifics of each point in the article.

China's fundemental difference with Corporatist nations

Corporatist nations such as Japan, South Korea, Nazi Germany and Fascist Italy did not necessarily maintain state control of the commanding heights of the economy. The PRC even states in it's constitution (as I mentioned previously) that it is committed to having the public sector always lead the economy, this is not true for these Corporatist nations.

The corporatist model of Fascist nations fail to maintain state ownership of the commanding heights

In Nazi germany, industries were privatized en masse. Several large banks, shipyards, railway lines, large steelmills, shipping lines, welfare organizations, and more were privatized. The Nazi government took the stance that enterprises should be in private hands wherever possible, state ownership was avoided like the plauge unless it was necessary for the war effort. Despite this supposed cooperation, companies were still very much able to reject the state and the state failed to keep any meaningful control on them. Private firms ignored governemnt directions and refused government contracts on many occasions, In 1937, de Wendel, a coal mining enterprise, refused to build a hydrogenation plant. In 1939, IG Farben denied a government request to increase its production of rayon and refused to invest in a synthetic rubber factory despite this being an important project for the regime. Froriep GmbH, a company producing machines for the armaments industry, successfully demanded cheap credit from the Nazi government under a threat of cutting back investment if its demand was not met

In Japan, the economy is dominated not by state owned enterprises, but by the Kereitsu or the Capitalist Cartels. Each keiretsu resembles a fighting clan in which business families join together to vie for market share. Keiretsu and cartels just as competing companies elsewhere in the West do. And virtually all business activity is part of one or another keiretsu or cartel. Everything in the Japanese economy is functionally ran by Capitalist Cartels, not the State leading development.

South Korea is incredibly similar, but instead they are called Chaebols. The chaebol lobby for favorable legislation and public policy, meaning the government is usually subservient or has to deal with the interests or work with the interests of the Chaebol. Chaebol's also play a large role in politics, using their financial powers to back and prop up executives who help promote their Capitalist agenda.

In Italy, the commanding heights such as the railways, telecommuniciations, the largest shipbuilding and machinery firm, life insurance and motorways were privatized by Mussolini in the 1920s. The rate of privatization was only matched by Nazi Germany a few decades later in the 1930s. Oligopolies were formed by Capitalist Cartels, succesfully lobbying to smash the State Owned Enterprises over life insurance. The rate of cartel formation in Italy was seen comprable to other developed european nations, with increased monopolization within the hands of the private sector.

The monopolies within the 4 examples I have given, which all follow the notion of a "regulated market with private ownership" They tend to be dominated by capitalist cartels, where these capitalist cartels can strongly influence government policy, pushing for more pro bourgeoisie policies. There is no constitutional policy dictating the Public/State sector will always be the largest, lead development or be in charge. The commanding heights such as banking, railway, machinery, shipping and telecommuniciations are privatized. Economic planning is subject to the whims of the Capitalist, where State directives are overrturned or completely ignored by Capitalist firms.

The nature of SOE's in the Asian tiger economies vs China

The nature of SOE's determines China’s basic economic system. It is a matter of national security and the party’s ruling foundation and must be well-accomplished. The nature of SOEs boils down to ownership by and service for the entire people, the public economy. The Third Plenary Session of the 18th CPC Central Committee emphasised that,

“State-owned enterprises belong to the entire people and are an important force in advancing modernization and safeguarding common interests of people”.

Essentially, the purpose of SOEs is to fully embody the fundamental attributes and internal requirements of said enterprises, and give play it's socialist nature so as to serve the interests of the masses. And as mentioned previously, SOEs are where the the great bulk of the means of production in industry and the transport system remains in the hands of the proletarian state. This will be further elaborated upon later, but the fact that the Commanding Heights of the economy are retained with the SOE/Public Sector, while countries have continued to divest themselves or SOEs or lack a sufficient SOE domination of the commanding heights is rather telling.

According to a study published by Gavekal Dragonomics, the size of SOE's have continued to increase. SOEs have consistently bulked up in terms of assets and revenues over the past decade, though they are not as profitable. In contrast, in Taiwan and South Korea, which are "Asian tigers", underwent massive privatization. Having a large state sector was not unusual among developing economies in the 1950s-70s. Direct quote from the article:

"The two most successful developing economies in Asia (and indeed the world), South Korea and Taiwan, both had large state enterprise sectors during their high-growth phases. These were gradually reduced over time, and the SOE role in both economies is now much smaller. But while China shares some features of the development model pursued by Korea and Taiwan, it is not following a similar trajectory on SOEs. Substantial privatization of SOEs did not occur in either Taiwan or Korea until after a political regime change that began a transition to democratic rule. Trimming the state sector was as much a political statement as an economic policy. China shows no sign of going through such a political transition. And the government under Xi Jinping has become more rather than less attached to SOEs, increasingly valuing them as tools of state policy and symbols of national economic strength."

China’s state sector is exceptionally large in global context. While the amount of revenue that China’s government extracts from the economy is not unusually high compared to most other countries, the size of its SOE sector is. For France, SOEs made up 24% of the national GDP in 1985 and the proportion decreased to 10% in 2005; in Germany, the SOE proportion of GDP went down from 12% in 1979 (the Federal Republic of Germany) to 9% in 2002; in Italy, from 24.7% in 1978 to 9% in 2002; in the U.K., 10.5% in 1979 (excluding the public enterprises owned by regional governments) to 1.9% in 2008.

Postwar Japan always had a minimal SOE sector, and public corporations have accounted for just 1.4 percent of GDP in expenditure terms over the past decade. Some other East Asian economies have had larger SOE sectors, but in both South Korea and Taiwan the SOE share of GDP never went much above 10 percent and has substantially declined in recent decades. Even in Eastern European economies, which have had socialist regimes, the SOE share of GDP has generally fallen below 30 percent in recent years.

In the East Asian tiger model or the "four little dragon" model, there is still a boundary between the state and the market, despite institutional intermediaries like the afformentioned Kereitsu and Chaebol. The role the state plays in such an economy is not concrete and is subject to debate. This is in contrast, where in China, the role of the state is well defined and placed at the spearhead of development. China also has a few structural conditions absent from the Asian Tiger model, which is continued constitutionally ratified domination of Central State Owned Enterprises, the local development state and powerful state planning agencies and state funds, such as the National Comission for Development and Reform.

Certain detractors have claimed China is similar to Singapore when it comes to how it managages it's SOEs, saying that China's SASAC is identical to Singapore's Temasek, or a merely "more leftist variant". This is a disingenious comparison. A study from Singapore, published on investigating Chinese SOE's and how they compare to Singapore's Temasek model found that, unlike China's SASAC, the Singaporean model had very glaring differences.

This included that Temasek was ran perates as a commercial company instead of a necessarily state owned one. Chinese SOEs do not operate on a commercial basis and instead run like government branches and Central SOEs even have political ranks, compared to Temasek which acts merely as an investment company which manages government linked companies on a commercial/for profit basis, effectively separating the government’s shareholder role from its regulatory and policymaking functions.

Unlike the SASAC, temasek's style and structure resembles commercial companies, in contrast to the "government style model" of the SASAC. According to Temasek independent board members comprise its 13-member boards, with independent, non-executive directors chairing three central committees. The roles of Chairman and CEO are separate, occupied by two different individuals. Just four of the board members are current or former civil servants, with the majority coming from business backgrounds and some from outside Singapore. The majority of people on the board are not even civil servants.

The decision rights differ. In China, CEOs and Chairmen of the Board of Central SOEs also have political titles and ranks. In fact, they are regarded as government officials. They are appointed by the Communist Party’s Central Committee Organization Bureau, not by the Central SASAC. However, Temasek is directly involved in appointing CEOs and chairmen of the boards for their portfolio companies. Temasek has little to no political allegiance and wields a great deal of economic autuonomy from the state, unlike China's SASAC.

Nature of Capital in China vs Capitalist nations

In contrast, Capital cannot rise above the State in China and it doesn't. Corporations have shown real tangible efforts to be subjected to the policies put forward by the CPC, which I will elaborate more on when it comes to the section on how the CPC is comitted to building higher socialism. China's drive to solving unequal development comes at a net loss for the capitalist firms. Chinese economic behaviour is not driven by capitalist cartels, instead China is driven by an overarching five year plan, with economic planning directed by the CPC, where the State Owned Enterprises dominate and are the "monopolies". Further elaboration on how this is conducted will be explained in the sections regarding how the CPC maintains public ownership.

Eric Li, a Chinese Entrepenur states that:

"China is a vibrant market economy, but it is not a capitalist country, here's why. There is no way that a group of billionaires could control the Politburo as billionaires control American policy making. So in China you have a vibrant market economy but capital does not rise above political authority, capital does not have enshrined rights. In America the interests of capital and capital itself has risen above the nation, political authority cannot check the power of capital, and that's why America is a capitalist country but China is not."

The Socialist Market Economy is a method of resolving the primary contradiction of China during its implementation

The Chinese revolution in 1949 was a tremendous achievement for the international communist movement. Led by Mao Zedong, the Communist Party of China (CPC) immediately charted a course of socialist reconstruction in an economy ravaged by centuries of dynastic feudalism and imperial subjugation from both Europe and Japan. The CPC launched incredible campaigns designed at engaging the masses in constructing socialism and building an economy that could meet the needs of China’s giant population. One can never overstate the incredible achievements of the Chinese masses during this period, in which the average life expectancy in China rose from 35 years in 1949 to 63 years by Mao’s death in 1976.

Despite the vast social benefits brought about by the revolution, China’s productive forces remained grossly underdeveloped and left the country vulnerable to famines and other natural disasters. Uneven development persisted between the countryside and the cities, and the Sino-Soviet split cut China off from the rest of the socialist bloc. These serious obstacles led the CPC, with Deng Xiaoping at the helm, to identify China’s underdeveloped productive forces as the primary contradiction facing socialist construction. In a March 1979 speech at a CPC forum entitled “Uphold the Four Cardinal Principles,” Deng outlines the two features of this contradiction:

"First, we are starting from a weak base. The damage inflicted over a long period by the forces of imperialism, feudalism and bureaucrat-capitalism reduced China to a state of poverty and backwardness."

While he grants that “since the founding of the People’s Republic we have achieved signal successes in economic construction, established a fairly comprehensive industrial system,” Deng reiterates that China is nevertheless “one of the world’s poor countries.”The second feature of this contradiction is that China has “a large population but not enough arable land.” Deng explains the severity of this contradiction:

"When production is insufficiently developed, it poses serious problems with regard to food, education and employment. We must greatly increase our efforts in family planning; but even if the population does not grow for a number of years, we will still have a population problem for a certain period. Our vast territory and rich natural resources are big assets. But many of these resources have not yet been surveyed and exploited, so they do not constitute actual means of production. Despite China’s vast territory, the amount of arable land is limited, and neither this fact nor the fact that we have a large, mostly peasant population can be easily changed."

Unlike in industrialized Western countries, the primary contradiction facing China was not between the proletariat and the bourgeoisie–the proletariat and its party had already overthrown the bourgeoisie in the 1949 revolution–but rather between China’s enormous population and its underdeveloped productive forces. While well-intended and ambitious, campaigns like the Great Leap Forward would continue to fall short of raising the Chinese masses out of poverty without revolutionizing the country’s productive forces.

From this contradiction, Deng proposed a policy of “socialism with Chinese characteristics,” with the reintroduction of markets which would be later known as the Socialist Market Economy.

After Mao’s death in 1976 and the end of the Cultural Revolution a year later, the CPC ,under the leadership of Chairman Deng Xiaoping, launched an aggressive campaign of modernizing the underdeveloped productive forces in China. Known as the four modernizations–economic, agricultural, scientific & technological, and defensive–the CPC began experimenting with models for achieving these revolutionary changes.

Modernization wasn’t something extraneous to socialist construction in China. In the wake of the Great Leap Forward and the turbulent unrest of the Cultural Revolution, the CPC understood that building lasting socialism required a modernized industrial base. Without such a base, the Chinese masses would continue to live at the mercy of natural disasters and imperialist manipulation. Deng outlined this goal in an October 1978 speech before the Ninth National Congress of Chinese Trade Unions:

The Central Committee points out that this is a great revolution in which China’s economic and technological backwardness will be overcome and the dictatorship of the proletariat further consolidated.

Deng continues by describing the necessity of re-examining China’s method of economic organization:

"Since its goal is to transform the present backward state of our productive forces, it inevitably entails many changes in the relations of production, the superstructure and the forms of management in industrial and agricultural enterprises, as well as changes in the state administration over these enterprises so as to meet the needs of modern large-scale production. To accelerate economic growth it is essential to increase the degree of specialization of enterprises, to raise the technical level of all personnel significantly and train and evaluate them carefully, to greatly improve economic accounting in the enterprises, and to raise labour productivity and rates of profit to much higher levels. Therefore, it is essential to carry out major reforms in the various branches of the economy with respect to their structure and organization as well as to their technology. The long-term interests of the whole nation hinge on these reforms, without which we cannot overcome the present backwardness of our production technology and management."

These proposed reforms launched the socialist market economy in China. Beginning with the division of the Great Leap Forward-era People’s Communes into smaller private plots of land, the socialist market economy was first applied to China’s agricultural sector to boost food production. From the 1980s to around 1992, the Chinese state delegated greater authority to local governments and converted some small and medium sized industries into businesses, who were subject to regulations and direction from the CPC.

Since the implementation of the socialist market economy, China has experienced unprecedented economic expansion, growing faster than every other economy in the world. Deng’s socialist market economy decisively lifted the Chinese masses out of systemic poverty and established the country as an economic giant whose power arguably exceeds the largest imperialist economies of the West.

The Socialist Market Economy in China is a Marxist-Leninist tool that is crucial to socialist construction.

While Deng’s concept and implementation of the Socialist Market Economy is a significant contribution to Marxism-Leninism, it’s not without precedent. Proletarian revolution has historically broken out in the countries where the chains of imperialism are the weakest. One of the uniting characteristics of these countries is backwards productive forces; underdeveloped because of decades of colonial and imperial subjugation. Far from the first instance of communists using markets to lay an industrial foundation for socialism, Lenin conceived the idea of the implementation of markets into the socialist economy with his NEP. China’s socialist market economy operates off the same logic as the New Economic Policy (NEP) of the Bolsheviks. According to Losurdo,

"Here is an indirect comparison between the Soviet NEP and the reform policies adopted by Deng Xiaoping in China. It is obvious what the two have in common: total political expropriation of the bourgeoisie does not equal total economic expropriation. Of course there are also differences."

And Deng Xiaoping once said,

“Perhaps Lenin had a good idea when he adopted the New Economic Policy."

The context being that Deng, like Lenin understood how markets could lay an industrial foundation for socialism and be used dto enhance socialism. Facing similar levels of underdevelopment and social unrest, the Bolsheviks implemented the NEP, which allowed small business owners and peasants to sell commodities on a limited market. Designed by Lenin in 1918 and implemented in 1921, the NEP was the successor to the Bolshevik policy of war communism, which prioritized militarizing agricultural and industrial production to combat the reactionary White forces. Correctly perceiving the importance of forging a strong alliance between the peasantry and the urban working class, Lenin crafted the NEP as a means of modernizing Russia’s rural countryside through market mechanism, developing their productive forces. In a piece explaining the role of trade unions in the NEP, Lenin succinctly describes the essence of the concept that would later inspire the socialist market economy:

The New Economic Policy introduces a number of important changes in the position of the proletariat and, consequently, in that of the trade unions. The great bulk of the means of production in industry and the transport system remains in the hands of the proletarian state. This, together with the nationalisation of the land, shows that the New Economic Policy does not change the nature of the workers’ state, although it does substantially alter the methods and forms of socialist development for it permits of economic rivalry between socialism, which is now being built, and capitalism, which is trying to revive by supplying the needs of the vast masses of the peasantry through the medium of the market.

Lenin acknowledges that the introduction of markets into the Soviet economy does nothing to fundamentally alter the proletarian character of the state. More provocatively, however, is his characterization of the Soviet economy as an “economic rivalry between socialism, which is now being built, and capitalism.” According to Lenin, capitalist relations of production can exist within and compete with socialism without changing the class orientation of a proletarian state. Recall that Deng argued that implementing market reforms was essential to modernizing China’s productive forces and consolidating the dictatorship of the proletariat. Lenin would have agreed wholeheartedly with Deng’s assessment, as articulated in an April 1921 article entitled “The Tax in Kind.” Lenin writes:

"Socialism is inconceivable without large-scale capitalist engineering based on the latest discoveries of modern science. It is inconceivable without planned state organisation which keeps tens of millions of people to the strictest observance of a unified standard in production and distribution. We Marxists have always spoken of this, and it is not worth while wasting two seconds talking to people who do not understand even this (anarchists and a good half of the Left Socialist-Revolutionaries)."

The ideological roots of Deng’s Socialist Market Economy go back farther than Lenin, however. In an August 1980 interview with Italian journalist Oriana Fallaci, she asks Deng if market reforms in rural areas “put in discussion communism itself?” Deng responds:

"According to Marx, socialism is the first stage of communism and it covers a very long historical period in which we must practise the principle “to each according to his work” and combine the interests of the state, the collective and the individual, for only thus can we arouse people’s enthusiasm for labour and develop socialist production. At the higher stage of communism, when the productive forces will be greatly developed and the principle “from each according to his ability, to each according to his needs” will be practised, personal interests will be acknowledged still more and more personal needs will be satisfied."

Deng’s answer is a reference to Marx’s 1875 Critique of the Gotha Program. Marx describes the process of socialist construction in terms of ‘higher’ and ‘lower’ stages:

"What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges. Accordingly, the individual producer receives back from society — after the deductions have been made — exactly what he gives to it... But these defects are inevitable in the first phase of communist society as it is when it has just emerged after prolonged birth pangs from capitalist society. Right can never be higher than the economic structure of society and its cultural development conditioned thereby."

Engels would seem to agree with Marx's work, as he outlines in the Principles of Communism:

No, no more than existing forces of production can at one stroke be multiplied to the extent necessary for the creation of a communal society. In all probability, the proletarian revolution will transform existing society gradually and will be able to abolish private property only when the means of production are available in sufficient quantity.

Public and non-public ownership; the Communist Party of China's continued leadership and control of China’s economy

It is a common issue of debate regarding Socialism with Chinese Characteristics that China has allowed for private ownership to resurge within China. The so-called ‘privatization’ of small and medium-sized state industries in the mid-1990s and early 2000’s provoked an outcry from Western communists, claiming that this represented the final victory of capitalism in China. Here will be a few key arguments deconstructing that Socialism with Chinese Characteristics has not abandoned Socialism.

The Role of Land Ownership

For one, Mao abolished private property in 1956 and it’s never been restored. Public ownership of land was a powerful countervailing force to the social inequality which inevitably accompanied elements of the market reform, Peter Nolan states:

‘Farmland was “de-collectivised” in the early 1980s. This was not followed by the establishment of private property rights. Because the Chinese Communist Party wished to prevent the emergence of a landlord class, it did not permit the purchase and sale of farmland. Still in 1994, the Party “adhered to the collective ownership of farmland”. The village community remained the owner, controlling the terms on which land was contracted out and operated by peasant households. It endeavoured to ensure that farm households had equal access to farmland… Farmland was not distributed via a free market auction, which would have helped to produce a locally unequal outcome. Rather the massively dominant form was distribution of land contracts on a locally equal per capita basis. This huge “land reform”, affecting over 800 million people, was a remarkably orderly process. It was not a disorganised land grab in which the strong members of the village squeezed out the weak… The egalitarian land reform in the 1980s tended greatly to increase socio-economic stability. It provided equality of access to the use rights of the most important asset in China’s villages… It made public action easier to implement since villagers shared a common position in respect to the principal means of production. It provided a hugely egalitarian underpinning to rural, and indeed national, income distribution.'

And Paul Bowles and Xiao-yuan Dong state that:

‘The distinguishing feature of China’s land tenure system in the post-reform period is separation of individual user rights from other ownership rights which remain “collective”. The right to use village land is granted to individual households. However, the village retains other rights associated with ownership. Specifically the village collective, as the delegated owner, has the right to allocate land among its members, the right to lease land to outsiders or sell land to the state, and the right to claim rent income from the land… Under the household responsibility system, peasant households are the basic units of farm production, while the village collective takes charge of managing land contracts, maintaining irrigation systems, and providing peasants with equitable access to farm inputs, technologies, information, credit, and the services of farm machinery, product processing, marketing, primary education and health care.’

In 2012 it was found by the Food and Agriculture Organization that China (-96 million) and Viet Nam (-24 million) amounts to 91 percent of the net numerical reduction in undernourished people since 1990-92. Scholars associate land reform with China’s advance against hunger (and SOFI12 acknowledges small farmer access to land in China as key); to understanding the progress of China and Viet Nam, experts cite egalitarian land reform as a key. In both countries, small holders secured access to land through state policies. SOFI12 also notes the “situation of relatively equal access to farmland and human capital” in China as important in China's striking progress against hunger.

The Role of State Planning

Back in the 1990s Western market-enthusiast China experts predicted that China was “growing out of the plan." But this never happened, according tothe U.S. Congressional Economic and Security Review in November 2015:

Soviet-style, top-down planning remains a hallmark of China’s economic and political system. Five-Year Plans (FYP) continue to guide China’s economic policy by outlining the Chinese government’s priorities and signaling to central and local officials and industries the areas for future government support. The FYPs are followed by a cascade of sub-plans at the national, ministerial, provincial, and county level that attempt to translate these priorities into region- or industry-specific targets, policy strategies, and evaluation mechanisms.

In the article, Modern China in 2013, Sebastian Heilmann and Oliver Melton throughy debunks the “withering away of the planned economy” argument:

Contrary to this widely held [view]…a “demise of the plan” has not taken place in China. From 1993 on, development planning has been fundamentally transformed in terms of function, content, process and methods. It has provided room for market forces and the decentralization of decisionmaking authority, while preserving the state bureaucracy’s ability to influence the economy and insuring that the party has retained political control even as it has abandoned many of its former powers.

In the brief paper, China’s economic planning: How does it work? by Alicia Garcia Herrero states that

In the Chinese case (even more so in the Soviet case though), the central government goes beyond planning and allocation of credit (surely the case as the vast majority of banks are control by the central or local governments). In fact a relevant share of goods and services are produced by state-owned companies, control by the central government, namely by the State-owned Assets Supervision and Administration Commission (SASAC) or by local government through their local SASACs. China’s economic planning originates from the former Soviet Union but has remained key for policy making until today. The key instrument for medium-term planning is the five-year plan, which started in 1953 until today. The rationale of this five-years head economic planning is to offers specific top-down targets for every actor to strive for.

According to Margaret Pearson,

"At the pinnacle of party-state control over the Chinese economy, there are several comprehensive commissions responsible for overseeing the economy. The government commissions for planning and state asset supervision, as well as several party bodies, are most important for the strategic industries. Such comprehensive oversight is a legacy of central planning, even though the extent of government management of industry's day-to-day operations has declined dramatically with the push for corporatization. Contrary to predictions that the role of such agencies would decline during the past several years, their oversight function has actually gained renewed strength."

The 11th and 12th Five-Year Plans set national priorities and outlined how these were to be met down through thousands of sub plans grouped under three categories: “comprehensive plans,” “special plans,” and “macro-regional plans.” Regional plans included the massive Western Development Program focusing on industrializing western China, the Pearl River Delta Program emphasizes tech innovation, and so on. Hundreds of special thematic plans included five-year plans for individual industries including pharmaceuticals, food processing, chemicals, cement and textiles. Broader thematic plans support science, technology, energy efficiency, rails, highways, power, disaster mitigation and more.

There has been a long tradition of involving universities and research institutes into the process of developing new master plans and creating future visions of cities and regions. Since the late 1970s the number of planners has been steadily increasing from around 3,000 to 10,000 in 2011. Educational programs for undergraduate planning have increased considerably from around 10 in the 1970s to more than 150 programs in 2009, which has also transformed the degree programme of planning into a first tier discipline.

With the increasing demand for planning professionals, the planning programme now shares the same status as Architecture and Geography whilst prior to that period, planning was a sub-discipline at the second tier under the larger program of Architecture. Universities therefore not only produce professionally trained work forces for the planning profession but are also closely connected with the plan-making process itself thus often providing students, especially at the postgraduate levels, to participate in real development projects

Role of State Owned Enterprises & the Commanding Heights

“[State Owned Enterprises] form the economic and political foundation of China’s socialist system and are a key pillar for the [Communist] Party’s rule. They must be built stronger, better and larger...[the state sector's role] cannot be negated or weakened."

In the University Paper, Is China still Socialist by Khoo Heikoo, their research goes into detail of the market share of the economy. In 2010, at least 94% of all financial capital and assets is owned by SOE's out of 150 largest companies in China. Compared to Capitalist nations, where privately owned firms overwhelmingly predominate, most of China’s best-performing companies are to be found in the state sector.

According to a 2011 study, it states:

The Chinese Communist Party (CCP), by controlling the career advancement of all senior personnel in all regulatory agencies, all state-owned enterprises (SOEs), and virtually all major financial institutions state-owned enterprises (SOEs), and senior Party positions in all but the smallest non-SOE enterprises, retains sole possession of Lenin’s Commanding Heights.

Martin Jacques, author of When China Rules The World, stated that:

"Rather than root-and-branch privatization, however, the government has sought to make the numerous state-owned enterprises that still remain as effi cient and competitive as possible. As a result, the top 150 state-owned firms, far from being lame ducks, have instead become enormously profitable, the aggregate total of their profits reaching $150 billion in 2007."

This statement regarding state-led growth is further elaborated and expanded upon in the 2014,The Ascendency of State-owned Enterprises in China: development, controversy and problems by Hong Yu who states:

"In terms of total sales revenue of China’s top 100 enterprises in 2011, the SOEs accounted for around 90%. The state sector remains the driving force behind economic development in China. All the big commercial banks in China are SOEs. More importantly, given the fact that township and village enterprises (TVEs) owned by local governments belong to the state sector but are not regarded as SOEs, and a large number of entities operating inside and outside of China are actually owned or controlled indirectly via SOEs’ subsidiaries, the true size of the SOEs is unknown. Their influence is far greater than official statistics suggest. Woetzel’s study also demonstrates that many firms, which were partially privatized but with the state remaining as a majority shareholder, have not been counted in the SOE category in official statistics."

This is further corroborated by a 2011 US study conducted for the U.S.-China Economic and Security Review Commission by the Washington consulting firm Capital Trade Inc stated that firms under various forms of Chinese state ownership control 50 percent of China’s economy, with huge impact on economic policy and trade outcomes. China’s economic policy dictates that “strategic industries” will stay wholly or largely under government control, “pillar industries” will feature the state as the major player and emerging industries will be the domain of “national champions” that are primarily state firms.

Strategic industries include defense, electric power, petroleum and petrochemicals, telecommunications, coal, civil aviation, and shipping. Pillar industries are equipment manufacturing, auto, information technology, construction, iron and steel, nonferrous metals and chemicals.

As well as stating,

“The current economic direction of China is ‘commanding heights’ state capitalism, with the Chinese government picking the winning industries of tomorrow and developing state-owned national champions that are prominent at home and abroad...If anything, China is doubling down and giving SOEs a more prominent role in achieving the state’s most important economic goals...[Chinese State Owned Firms enjoy] preferred access to bank capital, below-market interest rates on loans from state-owned banks, favorable tax treatment, policies that create a favorable competitive environment for SOEs relative to other firms, and large capital injections when needed."

This is corroborated by Margaret Pearson who states that:

"State ownership of strategic firms also remains highly salient. Normatively, the leadership's metavision— which focuses on state control of key sectors, the desire to create profitable new “national champions,” and continued commitment to certain social and distributive goals—is crucial. As a result, the government's emerging vision of the market for strategic industries endorses only limited competition and restricts market entry to a few huge, market-dominating state firms."

As of 2023, we can see this from the fact that even though there are only about 1,300 formally classified SOEs out of a total of 4,763 listed companies in Mainland China, around 27%, they are capturing 69% of the market revenue and 77% of the total profits. Most leading listed companies across key industries, including but not limited to banks, insurance, brokerage, oil & gas, chemicals, coal, power, telecom, construction, Chinese medicine and liquor, are SOEs.

Examples of large dominant CSOEs would be the China Baowu Steel Group Corporation Limited which is wholly owned by the SASAC, producing 80% of the auto-sheet metal (in automobile and truck (lorry) bodies, major appliances, airplane fuselages and wings, architecture, and many other application) and 60% of the silicon steel (used in generators, motors, and transformers). In both sectors, being the largest producer, as of 2022. The third largest global steelmaker, Ansteel, is likewise majority-owned by the SASAC. And China Minmetals Corporation, making up 90% of the market shareand contract value of domestic metallurgical engineering and construction, which is the construction of industrial metal production engineering machines and items, as of 2021. It is also one of the top producers of tungsten, crystalline graphite, bismuth in the world. And ranks first in copper, zinc and lead extraction worldwide as of 2023. Civil Aviation is also dominated by 3 SOEs, namely Air China, China Southern Airlines and China Eastern Airlines.

In the top 50 nonferrous metal enterprises. In terms of operating income, state owned enterprises held 60% of the total operating incomes of the 50 enterprises. And in terms of asset ownership, state owned enterprises held around 67.5%. Xiamen Tungsten owns 60% of the domestic market share for tungsten molybdenum wire materials. And its output capacity of tungsten smelting products ranking the world No.1, with it being China’s largest producer and exporter of tungsten powder and tungsten carbide powder, it is the largest tungsten and molybdenum production enterprise in China. Zijin mining which is a majority state owned company holds 92% of all domestic copper reserves. And holds 40% of all domestic gold reserves. Another 30% of the gold reserves is held by China National Gold. In the top 10 automobile companies, 73% of sales come from SOEs.

The power-generating industry in China is dominated by five SOE power-generating company groups: China Huaneng Power Group, China Datang Corporation, China Huadian Corporation, China Guodian Corporation, and China Power Investment Corporation. And the public utilities sector is dominated by the State Grid Corporation of China (SGCC) and China Southern Power Grid Corporation 70% of all power is generated by the state sector with 95% of the distribution of all power is done by the state sector. The telecommunications industry in China is dominated by three SOE telecommunications carriers: China Telecom, China Unicom, and China Mobile. The oil and gas industry is dominated by four SOE company groups: China National Petroleum Corporation, Sinopec, Sinochem and China National Offshore Oil Corporation. The total revenue gained by the state sector in oil in 2019 was 89.4% in the oil and gas extraction industry. Coal is also dominated by state industry, SOEs have 75% share of the total revenue from said industry.

The banking industry in China is dominated by four state-owned banks: the Industrial and Commercial Bank of China, the China Construction Bank, the Agricultural Bank of China, and the Bank of China. The construction industry is dominated by large CSOEs and SOEs. Out of the top 10 consultants and contractors, all of which are state owned. The China Railway Rolling Stock Corporation which is the world's largest producer of rolling stock and locomotive is under state ownership and controls 90% of their respective markets domestically. Chinacol which is the world's largest producer of aluminum is under state ownership. China Rare Earth Group holds around 70% of the production quota of heavy and medium rare earths in China. The Chinese State Shipbuilding Corporation builds 48% of all ships in the world, being the largest producer of ships worldwide. China National Building Material Company produces the most cement, commerical concrete, gypsum board, glass fibre, wind power blade, light steel stud and cement technical engineering equipment in the world. It's parent company is China National Building Material Group Co., Ltd. (CNBM), a state-owned enterprise administrated by the State-owned Assets Supervision and Administration Commission of the State Council, thus determining it as state owned.

According to the book, The Logic of Economic Reform in China the following states that (units in Yuan/RMB):

For the perspective of overall development of the state-owned enterprises, operating income of state-owned and state-held enterprises (excluding financial enterprises) increased from 10.73 trillion to 39.25 trillion with the annual increase of 17.6% from 2003 to 2011; total assets and owner’s equity were 85.37 trillion and 29.17 trillion, respectively 4.3 times and 3.5 times compared with those in 2003.

As of 2019 (latest data), the public capital stock of the PRC was roughly around 167.47% of GDP. The USA had 59.49%. India had 59.44%, Russia had 63.31% and the Nordic countries only had an average of 64.85%. Taiwan has 66.27%, France 68.53% and Germany has 44.33%. The country in the global north with the highest public capital stock second only to the PRC was Japan at 120.54%. The average for countries in the OECD (excluding Japan as it is nearly triple the average and is a outlier), 57.92% of GDP.

As of 2019, the ratio of public capital stock to private capital stock (measured in% of GDP is as follows), 0.87:1, 1 being private stock, 0.87 as public stock for China. For the USA it was 0.34:1, India had 0.40:1, Russia had 0.35:1, Nordic countries had an average of 0.31:1. Taiwan had 0.45:1, France had 0.31:1 and Germany had 0.20:1. For Japan, it was 0.50. The average for countries in the OECD (excluding Japan) is, 0.30:1.

A 2022 study found that from 2000 to 2019, Chinese SOEs have a positive influence on value-enhancing upgrading, while the effects on resource-saving and environment-friendly upgrading are inverted U-shaped. These results indicate that innovation partially mediates the relationship between SOEs and the three types of industrial upgrading. Chinese SOEs are able also to promote industrial transformation and upgrading with strong and far-reaching spillovers.

From 2002 - 2011, total SOE assets started at roughly 550% of GDP, declining to an all time low of 410% of GDP in 2008, before reaching a general equilibrium from 2008 to 2011 of 450% of GDP.

In 2006, the report revealed that 349 enterprises in the list were state owned, accounting for nearly 70 percent of the total. Their combined assets reached 39 trillion yuan (4.87 trillion US dollars) at the end of 2005, accounting for 95 percent of the total of the top 500 enterprises. It showed that state-owned economy remained dominant and controls the leading industries in the national economy.

A 2008 article stated that , total assets of Non financial SOEs in China were $6 trillion, or 133% of Chinese GDP, whereas the corresponding numbers for France, a developed country known for its outsized state control in the economy, were $686 billion and 28%, respectively.

In 2012, the total assets held by the State sector in China amounted to 55.78% or 53% depending on the estimate used. However, in comparison with European nations during the same time period, the total assets of eastern European nations held by the state sector were around 13%. For the Netherlands, Italy, Spain, France, Belgium and Portugal, it was around 4.60%. For Ireland and the UK, even less than that number. For Austria and Germany, around 10.79%. For Scandinavia, it was 6.02%

In 2013, a study found that out of the revenue of the top 500 firms, only 19% was held by private firms, 12% were held by firms classified as others (which included cooperatives and most likely firms of mixed ownership), the other 69% were held by various SOEs.

Another 2013 study found that, in the largest developing economies, total assets held by the state sector as a % of GDP, China had by far the largest. With Chinese non-financial state assets being 176% of GDP, for Brazil it was 51%, India it was 75%, Indonesia it was 19%, Russia it was 64% and South Africa it was 3%. In comparison, in 2015, Italian, Korean, Saudi Arabian and Norway's state owned assets did not reach more than 25% of GDP. In 2016, for SOEs in developing European economies, the number did not exceed 100% of GDP, the median being around roughly 45%.

In 2014, China's top 500 companies, 300 are SOEs, accounting for 60 percent. The operating revenues of these SOEs account for 79.9 percent of the total 56.68 trillion yuan, while total assets account for 91.2 percent, out of the total 176.4 trillion yuan for the top 500 companies. The total profit of these SOEs account for 83.9 percent out of the total 2.4 trillion yuan

In 2019 in listed companies (3,777), to be a listed company in China you have to have operating income/revenue of 100 million RMB per year, accumulative over the course of 3 years of 300 million. SOEs held 98% in the Telecom sector. SOEs held 95% in the airline sector. SOEs held 94% in the infrastructure sector. And SOEs held more than 93% in the utilities and energy sector. In the industry sector, SOEs held more than 74% of assets. In the material sector, SOEs held more than 63% of assets. In automobiles, SOEs held more than 62% of assets. SOEs accounted for 29 percent of listed firms and 57 percent of listed firm value-added, capturing around 63% of the revenue. SOE revenues were on average 4.7 times larger than POEs, value added was 3.6 times larger and fixed assets were 6.9 times larger.

And in 2021, out of total asset ownership, 60% are held by SOEs. And in terms of SOE revenue accounts for 70% of GDP. In foundational and security-related sectors such as energy, infrastructure, public utilities and finance, SOEs enjoy a market share of a combined total of over 70 percent. In 2022, The largest 500 private enterprises held 41.64 trillion yuan worth of assets (34.40% of GDP) In 2022, the total assets of CSOEs amounted to 109.4 trillion yuan which is 90.4% of GDP. Similarly, non financial SOEs had assets of 339.5 trillion yuan, which amounts to 280.5% of GDP. Total assets of SOEs amounted to 608% of GDP.

China has also maintained commitment to growing and strengthening the SOE's, directly countering the demands of the USA in the Trade War against China, which is to shrink the size of SOEs. There were 116,499 local SOEs at the end of 2016, up from 103,608 at the end of 2013.The role of SOE's are also used to help invest and improve the material standard of unequally developed interior provinces in China about 60% of fixed-asset investment by SOEs goes to inland provinces, mostly in the form of infrastructure. Since these provinces account for less than half of national GDP, SOE investment is clearly part of a strategy to redistribute income and support poorer provinces.

During the "13th Five-Year Plan" period, a total of 85 local state-owned enterprises were listed on A-shares, more than double that during the "12th Five-Year Plan" period, and the financing amount reached 130.8 billion yuan, a 62% increase over the "12th Five-Year Plan" period, indicating that China's commitment is not just lip service. Within the Five Year Plan period, the CPC has also committed to realizing operating income of Central SOE's to have 36.3 trillion yuan by 2021, a year-on-year increase of 19.5%, and an average increase of 8.2% in two years; total profits of 2.4 trillion yuan and net profits of 1.8 trillion yuan, respectively, a year-on-year increase of 30.3% and 29.8%, the two-year average growth rate was 14.5% and 15.3%, far exceeding the economic growth rate in the same period. Most of the subsequent investments will be in key strategic sectors, though this varies across provinces, but the majority of which are in the energy generation, heavy and light manufacturing, as well as other industrial clusters.

73% of the Chinese companies listed on the Fortune 500 (500 companies with the greatest revenue in the world) are listed as SOE's. Huawei is also listed on there, but it cannot be deemed private due to the nature of its ownership leaning more towards a cooperative.

The capitalist Australia-based Center for Independent Studies (CIS) published a July 2008 article that says that those who think that China is becoming a capitalist country “misunderstand the structure of the Chinese economy, which largely remains a state-dominated system rather than a free-market one.” The article elaborates:

"By strategically controlling economic resources and remaining the primary dispenser of economic opportunity and success in Chinese society, the Chinese Communist Party (CCP) is building institutions and supporters that seem to be entrenching the Party’s monopoly on power. Indeed, in many ways, reforms and the country’s economic growth have actually enhanced the CCP’s ability to remain in power. Rather than being swept away by change, the CCP is in many ways its agent and beneficiary."

There is also a great deal of political control within the State Owned Enterprises, Article 33 of the People's Republic of China's Constitution states:

"The leading Party members groups or Party committees of state-owned enterprises shall play a leadership role, set the right direction, keep in mind the big picture, ensure the implementation of Party policies and principles, and discuss and decide on major issues of their enterprise in accordance with regulations. Primary-level Party organizations in state-owned or collective enterprises should focus their work on the operations of their enterprise. Primary-level Party organizations shall guarantee and oversee the implementation of the principles and policies of the Party and the state within their own enterprise and shall support the board of shareholders, board of directors, board of supervisors, and manager (or factory director) in exercising their functions and powers in accordance with the law. They shall wholeheartedly rely on the workers and office staff and support the work of workers' representative congresses; and they shall participate in making decisions on major issues in the enterprise. They shall strengthen their own organizational development and lead work on political thinking, efforts toward cultural-ethical progress, work related to the united front, and work on trade unions, Communist Youth League organizations, women's organizations, and other people's group organizations"

Party cadre management is an essential mechanism through which the Party leads SOEs in China. SOE executives are both managers and quasi-officials with political ranks, similar to the USSR's "Nomenklatura" As members of the Party’s personnel system, they are selected, trained, appointed, and disciplined by the Party’s OD departments. A 2015 study found that, to improve their political performance and advance their careers, they are motivated to actively implement the Party’s principles, policies, and resolutions in SOEs. This political personnel management system makes SOE executives in China different from their Capitalist counterparts. According to a study released, detailing information from 2000 to 2004 regarding political control within SOE's, they found that:

"Chinese SOEs come under the dual leadership of the state and the CCP. On the state side, the State-Owned Assets Supervision and Administration Commission (SASAC) plays an active, although by no means exclusive, role as ultimate owner. On the party side, the Organization Department selects and appoints firms’ top executives, evaluates their performance, gives them incentives, and oversees their work. This constellation of monitoring and enforcement mechanisms dominated by the CCP ensures that managers at every level pay close attention to policy signals emanating from the highest reaches of the CCP. The CCP remains the political center of SOEs and, as such, handles all political affairs, including applying party lines and policies, enforcing commitment to ideological principles, and ensuring that corporate decisions take national policies into account. It plays a pivotal role in key decisions, for example, the nomination of top executives, executive evaluation and compensation, asset acquisitions and disposals, and annual budgets. The board of directors often seems to have no more than the ability to rubber stamp big decisions"

SOE's since 2003 have been governed by the SASAC, The SASAC is charged with the supervision and management of personnel, corporate affairs, and state assets. This centralized ownership arrangement has lead to an increase in SOEs’ performance. Party organizations are embedded in the governance structure of each tier. Their role is to push SOEs to better serve national strategies while preserving and increasing the value of state assets. Furthermore, Party organizations also assume a coordinating role. Their involvement in all levels of SOE governance enables the entire governance system to operate more smoothly. For example, communication between the tiers of Party organizations helps reduce the information asymmetry caused by the government structure.

The CSIS also states that SOE's account for 71% of total Chinese firms on the list by numbers (out of 136) but represent 78% of total revenue and 84% of all assets from Chinese entrants to the list. They claim that these SOE's have a low return on assets and lower profitability margins compared to non-Chinese companies on the list. They state that Chinese SOEs primarily pursue the logic of asset maximization. This is typical of SOEs in general, as pretty much SOEs are designed for social value and public services, instead of profit maximization. But this demonstrates that the largest companies in China in terms of revenue are SOEs instead of private companies, in contrast to capitalist economies.

Indicating that the commanding heights of the economy, otherwise known as SOE's are still very much operating off of "Socialist logic" and not "Capitalist logic" when it comes to running the business.

Role of State Guided Investment Funds

To understand the role of the state sector of the economy it is not enough to just look at what proportion they have of GDP, nor their degree of concentration. It is also important, if not more so, to look at what proportion of investments are channelled through the state sector, because investments are the driving force of the economy. And under capitalism, through the mechanism of the tendency of the rate of profit to fall, the cause of the boom-slump cycle. Fortunately, statistics about fixed-asset investments (investments in buildings and machinery) are also much more accurate and uncontested compared to GDP statistics.

A casual analysis from the New York Times states the following,

Most economies can pull two levers to bolster growth: fiscal and monetary. China has a third option. The National Development and Reform Commission can accelerate the flow of investment projects.

The role of the NDRC is further elaborated upon by Margaret Pearson, who says

"The National Development and Reform Commission (or NDRC, which is the reformulated State Development and Planning Commission, or SDPC) makes basic decisions as to which industries should receive major government investment. The NDRC is deeply involved in key regulatory decisions and even carries out some of the "classic" regulatory functions of price setting and licensing. It also has been deeplyinvolved in the numerous restructurings of strategic industries, and in 2003, the State Council assigned it responsibility for formulation and oversight of industrial policy."

There is a great deal of evidence that governmental control of investment remains substantial, that governemnt guided investment mechanisms, state controlled banking system and dominant state owned enterprises are still a 'holdover' from the "Mao era economic system". The way these investments are conducted almost perfectly match investments conducted under the "Mao era economic system". They similarly

In the University paper, The Rise of the Investor State: State Capital in the Chinese Economy by Hao Chen and Meg Rithmere discusses how state shareholders can influence the private sector. With the overall ownership of assets within investment firms in 2017 being 80.9% central state owned, 13.7% local state owned and only 4.67% being truly private. The top 20 shareholders within investment firms also finds that shareholders of a private origin are the lowest percentage of roughly around 500 or so registed private investment shareholders. With more than 2,000 central SOE shareholders, more than 1,000 big 4 bank shareholders, roughly 500 for both local SOE and "Other" shareholders respectively and around 700 pension funds. So roughly around 10.8% of all shareholders of investment firms are of a private orientation

The paper also goes on to state:

"The state’s role as owner of firms has narrowed to include a set of large, national champion firms at the central level, but the deployment of state capital has morphed form rather than abated. As we have shown, the state invests broadly in the private sector in a number of forms, a fact that complicates the “state versus private” dichotomy that has dominated the study of China’s political economy during the reform era. Further, the deployment of state capital into the wider economy has accompanied a change in the structure of the state; hundreds of shareholding firms, large and small and owned by local and central levels of the state, now interface extensively with private firms, can intervene with ease in stock markets, and appear to constitute new agents in the execution of the CCP’s overall economic policy."

The study goes onto mention Minsheng group which is on paper the largest "private" investment fund but while being of a hybrid ownership (being legally classified as a joint stock limited company). The largest controlling ownership is held by Dajia Life Insurance which is on paper a joint-stock limited company, holding 17.84% of the total shares (the second largest share is less than 5%) Reports from China Minsheng itself states that Dajia Life Insurance is 98.23% owned by a Chinese SOE (China Insurance Security Fund), thus despite it being the "largest private equity investment company", the controlling shareholder remains squarely in the hands of a SOE. The sentiment of Chinese firm control through investment funds is elaborated in an article by the Economist, which states:

"Between 2015 and 2021 around 2,000 so-called “government guidance funds” collectively raised almost $1trn. Although the pace of fundraising has slowed since its peak in 2016, not least to allow the vehicles to deploy their copious dry powder, the government’s role has been entrenched. Last year the state (including local governments) accounted for one-third of all capital raised in Chinese limited partnerships, making it by far the country’s biggest source of venture capital (vc) and private equity... ...According to Bain, a consultancy, most big Chinese funds that completed fundraising rounds in 2021 were government-led. The Enterprises Reform Fund raised nearly $11bn; the National Green Development Fund brought in $14bn. Provinces set up 20 such vehicles last year, marshalling about 136bn yuan all told, four and a half times as much as they raised in 2020, according to Zero2ipo, a research firm. Cities and other local governments chipped in more."

Another study published in 2013 shows similar findings, that investment by non-SOEs is crowded out by investment by SOEs, which is backed by a stimulus package from the CPC from 2003 onward.

Firms and investments are clearly hinged upon China and the use of State owned capital to accelerate reform. In many cases, it is also noted that state investment crowds out private investment, in turn making the state the primary investor, with private capital getting less and less oppurtunities to invest.

State guidelines for recognising investment losses are often stricter than venture capitalists or private-equity managers would like, and less patient towards failing firms. This means if that private firms end up failing or defaulting, the CPC simply lets them fall to the wayside, and take their place using an SOE. If a guidance fund with a small stake in a sub-fund decides to pull out, its preferential terms will cause the dissolution of the entire vehicle, leaving both the portfolio firms and private investors out to dry.

The same economist article also states:

Beyond China’s largest cities, though, the situation is likely to look less like Shanghai and more like Shandong. In 2018 the eastern province set up the New Growth Drivers Fund. Since then the vehicle has launched more than 270 sub-funds and its cash has found its way into at least 1,000 provincial companies. Our analysis of 50 of these sub-funds reveals that about half are dominated by state capital with little private-sector co-investment. Instead, many of the remaining limited partners are other guidance funds, state-run firms or various government-linked entities. The individuals charged with managing these sub-funds also appear to have much less market experience than their counterparts in Shanghai.

Another university paper states the exact same findings, stating in their conclusion regarding Government Guided Investment Funds in China that,

"Drawing on the case of the GGIF, this paper explores how state-led financialisation has taken place in the Chinese context. This study shows the crucial roles of the central government, local governments and state-owned enterprises in the spread of this financialised policy. Despite market-oriented reform, the use of the GGIF “is not for the market but for using market means to solve problems in development. State-led financialisation in China has not resulted in the decreasing role of the state as what happened in many Western economies...

...Financialisation can be ‘a state-driven process’ in a liberal market economy such as the US, but the role of the state in the financialisation of development policies in China is different as the policies seem to internalise finance in state management by using state capital directly or indirectly. This study shows that the central government has played a key role in designing and promoting financialised policy...

...However, the unexpectedly important role of state-owned enterprises, in particular, state-owned financial institutions such as banks, as key funders in the development of GGIF might bring systematic financial risksto the economy....

...The central government of China has promoted new policy tools that are ‘proactive towards its growth agenda’ In the case of GGIFs established by governments in China, the key funders are state-owned firms controlled by the local or central government. Thus, the approach again reinforces the role of the state in urban development...Since the GGIF has largely failed to attract capital from the private sector, the central role of the state in this new approach has blurred the distinction between GGIFs and traditional state investments to some extent despite the market-oriented design of this policy tool..."

We can clearly see that the CPC is in charge of the private sector using their investments, crowding out private investments ad once private investments have been used up, simply kick them out or leave them out to dry, filling their role with state investments instead.

We can ignore the claims that the "Government guided funds using state capital, nationalized banks and nationalized companies will bring systematic financial risk to the economy...", in an article published by John Ross, Former Director of the London Economic and Business Policy Agency, Senior Researcher at Renmin University Chongyang Institute for Financial Studies explains the mechanisms of how Chinese state investment is actually more efficient than the private investment system of capitalist nations.

He finds that Chinese Incremental Capital Output Ratio in relation to developing nations is lower in relation to other developing nations (the lower the ICOR, provided it is a positive number, representing economic expansion and not contraction, the more efficient investment is in generating growth) Taking the latest available data, for 2021, the average ICOR of developing countries is 8.2 and for China 7.1. As China is by now one of the most highly developed of developing countries, and will in only a few years become a high income economy by World Bank standards, this shows the strong efficiency of China’s investment. China’s efficiency of investment in generating growth was ranked second out the world’s 20 largest economies.

The overwhelming reason for China’s very high efficiency of investment is due to the socialist character of its economy. In particular, it results from China’s extremely strong anti-crisis macro-economic strength which flows from possessing a socialist economy compared to capitalist one. Crisis's in capitalist economies and fall of investment within capitalist economies is because the economy is dominated by private capitalists. If these capitalists decide not to invest the economy goes into recession, which causes an increase in ICOR. There is no large enough or powerful enough state sector sufficient to offset this. Private ownership of all the main means of production therefore produces weakness in Western macro-economic crisis mechanisms.

Because of China’s large state sector, means it is possible to stabilize China’s investment level with much lower increases in state investment, especially in comparison to Western capitalist ones. In short, China’s large state sector is an extremely powerful anti-crisis mechanism. This, in turn, because it sustains economic growth, prevents the type of severe crisis increases in ICOR seen in capitalist economies such as the USA. China’s large state sector, therefore, has a powerful effect in keeping China’s ICOR down and maintaining a high level of investment efficiency.

The point is that the vast majority of government guided funds have increased, and the state's role in funding is deeply entrenched. The CPC continues to play a significant role in the growth of the Chinese economy and the allocation of funds to certain key sectors to stimulate state-led growth in certain economic sectors. Additionally, the movement of capital and investment itself is highly regulated, and it is complicated for wealthy entrepreneurs and corrupt government members to transfer money across borders.

Role of Cooperatives

The TVE's (Township and Village Enterprises), which are in actuality a cooperative sector of the Chinese economy have been described as "private". This collectively owned sector grew rapidly - in 1978 there were 1.5 million such enterprises, by 1995 there were 22 million. In 1978 they employed 28 million people, by 1995 128 million. While they have been claimed to be private, in reality, the CPC legally defines TVE's as One of the main drivers of China’s economic miracle during the 1980s and the early 1990s was the emergence of collectively owned firms or cooperatives, whose share of national industrial output increased from twenty two percent in 1978 to forty-two percent in 1993. Many of the non-state firms were “collectively owned”.

"The term "township enterprises" as mentioned in this Law refers to all kinds of enterprises established in townships (including villages under their jurisdiction) that are mainly invested by rural collective economic organizations or farmers and undertake the obligation to support agriculture.

The term "investment-based" mentioned in the preceding paragraph refers to rural collective economic organizations or farmers investing more than 50 percent, or less than 50 percent, but can play a controlling or actual dominating role.

A township enterprise that meets the conditions for an enterprise legal person shall obtain the qualification of an enterprise legal person according to law."

In 2008, China’s poorest and most backward agricultural areas, such as Guizhou, Henan,and Guangxi,TVEs have an important share of the economy (50-60 percent of gross output value, but in the richindustrial areas, such as Shanghai, Beijing, and Tianjin, they are insignificant (6-12 percent).

In 2012, it was found that in terms of farming assets, cooperatives/collectives held 4.26 trillion RMB of collective assets and the 28 trillion RMB worth of cultivated land, for a total of 32.26 trillion RMB. Since the total assets of rural households amount to 5.01 trillion RMB, the ratio between rural collectives and private household farms is 86.56:13.44.

In 2016, 163,081,417 people were working in Co-Ops. China's employed working force is 762,450,000. 21% of China's total employed population is in the cooperative sector in 2016.

Role of State Ownership and it's role in control over "Private" Firms

One way the CPC maintains ownership over the market sector is through the use of the CPC being the majority shareholder. This is through shareholding schemes organized by the State-owned Assets Supervision and Administration Commission of the State Council or the SASAC which oversees China's state owned enterprises and state investment companies. This is elborated on in the following article. In a May 2009, Derrick Scissors of the Heritage Foundation explains this issue rest in an article called Liberalization in Reverse. He writes:

"Examining what companies are truly private is important because privatization is often confused with the spreading out of shareholding and the sale of minority stakes. In China, 100 percent state ownership is often diluted by the division of ownership into shares, some of which are made available to nonstate actors, such as foreign companies or other private investors. Nearly two-thirds of the state-owned enterprises and subsidiaries in China have undertaken such changes, leading some foreign observers to relabel these firms as “nonstate” or even “private.” But this reclassification is incorrect. The sale of stock does nothing by itself to alter state control: dozens of enterprises are no less state controlled simply because they are listed on foreign stock exchanges. As a practical matter, three-quarters of the roughly 1,500 companies listed as domestic stocks are still state owned. "

The same thing can be found in the text, The Business of Governing Business in China: Institutions and Norms of the Emerging Regulatory State, where Margaret Pearson states

The Chinese government's continuing commitment to predominant state ownership of key strategic assets deeply colors the interests of andpressures on the regulator. Whereas regulatory reform in most transition economies has gone hand in hand with substantial privatization,in China, privatization has not been central to the establishment of regulatory institutions for the commanding heights industries. Even when such firms have issued stocks on public exchanges, the parent state-owned firms have firmly retained majority ownership. While it is often argued that regulatory reform is more effective in the context ofprivatization, the present focus of the Chinese government is to use regulatory reform, in tandem with improvements in corporate governance to enhance the value of state-owned assets

In 2003, it was found that domestic shareholding firms accounted for 70.1% of the domestic fixed asset investment, while foreign joint-ventures accounted for around 27%, the majority of domestic shareholding firms being state owned. A lot of these shareholding firms are also ran as cooperatives, where it was majority owned by employees, but were counted as private, being around 11.7% of the market sector.

In 2004, it was found that 70% of all non-financial firms had SOEs as the largest shareholder. In 2010, data according to the Chinese Statistical Yearbook found that out of 52,425 domestic industrial firms, 42,474 of those firms had the state as either a sole or controlling/dominant role, 300 were Joint-ventures (169 were joint-ventures with collectives/cooperatives) and 9,651 were privately owned. Meaning that around 81% of all 52,425 industrial firms are under the state's direct control, of which there are 42,474. In 2011, it was found that to ensure state control, the government limits individual shares to less than one‐ third of the total. In other words, the state still controls more than two‐thirds of shares within listed companies, either through the holding of state shares by {government agencies} and SOEs, or indirectly through legal‐person shares using CPC members to hold onto these shares.

In the book, China's Great Economic Transformation by Loren Brandt and Thomas G. Rawski found that between 1990 to 2003, only 6.97% could be considered "private", while the rest were very clearly in state hands. These companies are allowed to have acces to private revenue, but their control rights are strongly within the hands of the state and should therefore be considered state firms.

A 2014 study found that from a period of 2004 to 2007, in limited stock companies, the study ‌found‌ ‌that‌ ‌the‌ ‌public‌ ‌and‌ ‌private‌ ‌components‌, public components of total assets were around 63%. From 2008 to 2012, the share of public components of total assets was around 65% of the total for limited stock companies. The study also found that the assets of the mixed ownership economy represented by corporate enterprises have been growing extremely fast and are the largest in terms of scale. In 2012, this sector’s assets accounted for 51.8 percent of total productive assets in secondary and tertiary industry, ahead of all other types of enterprises; moreover, the sector is one in which the state-owned economic component is dominant.

In 2012, 50% of State Controlled Firms (More than, or exactly 50% state ownership) are registered as "Private firms", this includes foreign firms where the classification as 30% of the shares by a foreign entity makes it foreign funded. For example, the joint ventures of the SAIC with Volkswagen, SAIC-Volkswagen are registered as foreign firms, even though 50% of ownership is held by the SAIC. Roughly 2/3 of all firms were directly or indirectly owned by the SASAC

In 2019, it was found that out of the top 300 listed companies in China, 61% of those could be classified as state controlled enterprises, despite being on paper being "public listed enterprises" or not officially designated as SOEs.

In 2001, a study was done compiling the composition of listed companies by nature of dominant shareholder, it found that out of the 1,050 listed companies, 80.5% of the dominant shareholder were SOE's or CPC organizations. Another study was conducted in 2002, out of all publically quoted shareholder companies, which there are 1,105, the state is in the ultimate and absolute control of 84% them.

A 1997 study found that, although individual shareholding constituted 30 percent of the outstanding shares, on average individual shareholders occupied less than 0.3 percent of the seats on the boards of 154 companies, whereas on average the state was overrepresented on the boards. On average, the state retained 50 percent of the seats even though its equity shares amounted to 30 percent.It is also worth noting that Chinese shares are peculiar animals quite different from those in the capitalist world. Chinese shares do not entitle the owner to a share of a company’s assets. Thus, even if 100 percent of the shares in a Chinese company were privately owned, the share owners could not move the machines out of the factories and sell them, as they still belong to the state. No wonder Stephen Green of the Royal Institute of International affairs comments:

“The stock market has been used to support national industrial policy, to subsidise SOE restructuring, not to allow private companies to raise capital."

While the so-called ‘privatization’ process of allows some private ownership, whether domestic or foreign, Scissors makes clear that this is a far cry from real privatization, as occurs in the United States and other capitalist countries. The state, headed by the CPC, retains a majority stake in the company and guides the company’s path. More striking are the industries that remain firmly under state control, which are those industries most essential to the welfare of the Chinese masses. Scissors continues:

"No matter their shareholding structure, all national corporations in the sectors that make up the core of the Chinese economy are required by law to be owned or controlled by the state. These sectors include power generation and distribution; oil, coal, petrochemicals, and natural gas; telecommunications; armaments; Aviation and shipping; machinery and automobile production; information technologies; construction; and the production of iron, steel, and nonferrous metals. The railroads, grain distribution, and insurance are also dominated by the state, even if no official edict says so."

The same sentiment is echoed in a study, which states:

"Of the 1,381 listed companies at the end of 2005. Of all the shares outstanding, fully 65.9% are non-tradable shares. Of these, over half are owned by governments and government organs, with the remainder owned by other legal entities – mostly large state-controlled enterprises or state-managed investment funds. Non-tradable shares are also inalienable – they cannot be freely bought or sold. Their existence has ensured continued state-control of the economy by giving the state majority voting power in the shareholder meetings of major listed firms... This figure may understate the total state-related equity control, as state investment funds also hold tradable shares, and cross-shareholding by SOEs are prevalent. This typical ownership structure has several implications. First, small public shareholders have little or no influence on corporate decisions since the state wields sufficient voting power to appoint the board of the typical listed firm. Second, listed firms do not typically pay dividends on non-tradable shares directly owned by the state, even if they pay dividends on other classes of tradable and non tradable shares. Naturally, vested interests within the state organs see a high dividend as undesirable because they have 100% of the control if the earnings are retained but little to gain once they are distributed."

Interestingly enough, another study also finds that the "privatization" doesn't tend to cause lay offs and still maintains high levels of job preservation, contrary to popular belief that "privatization" always leads to a loss of jobs and decline in employment, with mass lay offs.

"Both anecdotal evidence and our statistical analysis show that the Chinese government has made job preservation an important pre-condition for privatization. As a result, there was no accelerated layoff of surplus labor after privatization, even though the surplus labor problem was severe in both pre-privatization SOEs and post-privatization SOEs."

A research report published in 2009 stated that,

The privatization campaign in China is clearly one with “Chinese characteristics”. In contrast to those in Russia and Eastern Europe, there has not been any transfer of control from the state to the private hands. The Chinese government has introduced a special mechanism to prevent the loss of state control when companies go public. A distinct feature that separates China’s stock market from those in other countries is the creation of state shares and legal pgerson shares, which both carry significant constraints on tradability. These shares are generally state-owned or statecontrolled. On the other hand, tradable shares are composed of A, B and H shares... A typical public company has about one-third of its shares in each category of state, legal person and tradable shares. By holding two-thirds of most companies’ shares, the state can ensure that it still has the power to direct and influence the activities of the companies... The basis of the socialist economic system of the People's Republic of China is the socialist public ownership of the means of production. It appears that even if the shares owned by the state can now be traded on the market, these shares will still be tightly hold by the state for an indefinite period. Indeed, only 10 per cent of these shares have actually gone to the hands of private investors so far

In a statement made by the Business insider it also found that truly private or free floating shares in the stock market was the lowest in Asia, accounting for 30% in 2010. Meaning the other 70% of shares are held up to the discretion of the state or in the hand of the state itself. Which matches previous findings that state that around 2/3 of shares either directly through state ownership or indirectly through legal person shares. The view that the stock market is state dominated is echoed in a 2014 research paper which the abstract states the following:

The combination of state monopolies with Wall Street expertise and international capital has led to the creation of national companies that represent little more than the incorporation of China's old Soviet-style industrial ministries. As for the markets, the government's determination to prevent real privatization has produced separate classes of shares that are defined almost entirely by one thing: the shareholder's relationship to the government.

And in the conclusion of the research paper, it states the following:

China’s domestic market is rife with moral hazard. Beijing plays every role from issuer, to underwriter, to regulator, to controlling investor and manager of the exchanges. Efforts to simplify domestic arrangements—the old share classes have been eliminated—have served only to conceal the fact that the state in its many guises still owns nearly two-thirds of domestically listed company shares.

A comment by a Chinese Law scholar in an article published in 2017 came to the same conclusions. He noted that despite so called "privatization" of former SOE's, the Party state remains dedicated to ensuring control over these supposedly "privatize" entities:

To the present day, the PRC Party State remains absolutely committed to retaining control over converted enterprises in the broadest range of sectors-not just the usual suspects for state control (e.g., defense and national security, power generation, extractive industries, and key infrastructure), but also non-national security and non-key infrastructure sectors that are extremely profitable for central or local Party State insiders, especially when financed by largely passive and information-deprived public investors, Chinese and foreign

The core holding company, managed by Party State nomeklatura appointees who rotate between central and local official posts and enterprise executive offices or directorships (and even between allegedly competing enterprise groups in a single monopoly or duopoly sector), coordinates the entire group's business activities. They do this in the interest, above all, of state industrial policy, and certainly with a preference for such national policy over what might be in the interest of shareholder wealth maximization for the nongroup, minority shareholders invested in the individual legal person subsidiaries often through the public capital markets

...State nomenklatura insider appointees working at the core holding company level, and as directors and officers of the subsidiary entities controlled by the core holding company. As Party State bureaucratic political actors seeking advancement in the Party system, these individuals are perfectly responsive to Party State policy (which necessarily includes national industrial policy), while at the same time they are content to ignore the interests of external minority shareholders in the listed subsidiaries they formally manage

The same article goes onto give a concrete example of how one CSOE (Central SOE) can functionally corner and control the entire market through this shareholding system. The example given is the China National Petroleum and Chemical Group, known as Sinopec:

Sinopec has a monopoly on all downstream hydrocarbons businesses in China, thus gas stations, refining, petrochemicals, etc everything separate from exploration, development and production, and energy transportation businesses, all of which are the province of other enterprise groups. There is a Sinopec core holding company at the center of these enter prise groups, the "Sinopec Group Holding Company", which is 100 percent "owned" by a State Council department now called SASAC.

A majority-controlled subsidiary, department, or affiliated entity would function as a dedicated "finance holding company" necessary for the allocation of funds and finance to and among operations and entities included in the Sinopec Group. Sinopec Group Holding Company, explicitly permitted in its business license to invest in other entities, in turn owns a vast number of only Sinopec business-related subsidiaries, each with a business scope allowing it to operate in a defined sector within the group's larger monopoly or defined geographical areas.

Those subsidiaries will always show majority equity ownership in the hands of the Sinopec Group Holding Company or one of its controlled subsidiaries, but they can be financed directly by bank loans, minority non-public investment, or the public capital markets, domestic or foreign. This Sinopec Group can seek to reorganize a traditional SOE grouping of productive and social assets conducting a petrochemicals business, like in the Shanghai suburbs of Jinshan District into a Sinopec Group Holding Company-controlled company called "Sinopec Shanghai Petrochemical Company Limited," which could complete an IPO on the PRC domestic or foreign capital markets.

After the IPO, issuer Sinopec Shanghai Petrochemical Company Limited would still be dominated absolutely by the core holding company (which is the Party-State Ran State Owned Enterprise of Sinopec) via an 80 percent equity stake and its power to appoint all directors and officers of the listed subsidiary.

Moreover, Sinopec Shanghai Petrochemical Company Limited would benefit from wel ladvertised preferences critical to its commercial success, preferences relating to regulatory breaks, supply or other inputs, availability or pricing, or exclusive access to certain markets at preferred (higher) prices, importantly preferences delivered not just by other Sinopec Group affiliates but even by other Party State-controlled competitors...

In the previously mentioned book, The Logic of Economic Reform in China found that

The average state-owned equity in the 34 second- level and third-level enterprises under CNOOC is 40–65%, and most such enterprises are basically enterprises of mixed-ownership. From the perspective of public listed companies, by the end of 2011, the number of public listed companies held by central enterprises was 368 in total, including 260 purely domestic listed companies and 78 purely foreign listed companies as well as 30 companies which are both listing at home and abroad. Over 40 central enterprises achieved the overall listing of the primary business among the public listed companies, and the central enterprises engaging in petroleum and petrochemical, aviation, shipping, telecommunications, metallurgy, construction and other industries basically achieved the overall listing of the primary business. With the constant development of mixed-ownership enterprises, the dominant position of public ownership has been gradually consolidated.

No capitalist country in the history of the world has ever had state control over all of these industries. In countries like the United States or France, certain industries like railroads and health insurance may have state ownership, but it falls drastically short of dominating the industry. In essence, we can see that there is no "true privatization" in a sense of the word and there remains a state control pervasive through the overwhelming majority of firms.

Role of CPC ran banks and CPC ran bond markets

The importance of this widespread state ownership is that the essential aspects of the Chinese economy are run by the state headed by a party whose orientation is towards the working class and peasantry. Particularly damaging to the China-as-state-capitalist argument is the status of banks and the Chinese financial system. Scissors elaborates:

"the state exercises control over most of the rest of the economy through the financial system, especially the banks. By the end of 2008, outstanding loans amounted to almost $5 trillion, and annual loan growth was almost 19 percent and accelerating; lending, in other words, is probably China’s principal economic force. The Chinese state owns all the large financial institutions, the People’s Bank of China assigns them loan quotas every year, and lending is directed according to the state’s priorities."

The People’s Bank of China (PBC) highlights one of the most important ways in which the CPC uses the market system to control private capital and subordinate it to socialism. Far from functioning as a capitalist national bank, which prioritizes facilitating the accumulation of capital by the bourgeoisie, “this system frustrates private borrowers.”

Control is maintained not just through economic coercion, but by having direct party members on the ground regulating the banks, imbedded within them occur as well.

As of the end of 2017, there are only 17 private-owned banks among 4,532 financial institutions classified as the banking industry. The number of people employed by these 17 private-owned banks only accounts for 0.1% of all banking staff.

A book published on China's economic structure found that,

While individual banks, business enterprises, and regulatory agencies appear distinct on paper, they are actually highly integrated because the CCP OD handles human resource management (HRM) decisions throughout all of them (Macgregor 2010). The future careers of top bankers and bank regulators thus depend on how cadres in the CCP OD assess their performance.

China’s specialized policy banks were designed to help the government achieve its long-term goals in areas where profit-driven banks might be reluctant to lend. Beijing can also draw on them when there’s a pressing short-term need to boost the economy. China’s policy banks are of a much larger scale and play a bigger role in the country’s state-directed economy in comparison to Capitalist nations who may have similar policy banks.

Firms in China are also incredibly bank dependent, because there are no real means of securing external finances, banks are the only way to actually secure financial funding. Thus, firms in China are more bank-dependent, which makes them much more sensitive to changes in bank loan supply, State ran banks also control 98% of all banking assets within China itself. Interestingly enough, State owned banks within capitalist societies tend to favour merely large firms, while State owned banks in China lend primarily to SOE's and is unresponsive to firm profitability. Indicating that SOE's received more bank loans and invested more than non-SOEs. Similarly as a side note, the stock market has not played a role as prominent as the banking sector in financing firms and economic growth for most of the past two decades. Stock market returns in both developed economies, such as the US, UK, Japan, Korea and Taiwan, and large emerging economies, such as South Africa and Brazil, are strong predictors of GDP growth in the following year. The correlation between market returns and future GDP growth for China, however, is much lower and statistically insignificant.

This belief is corroborated in a 2019 study that found that,

“Currently state-owned firms receive more subsidies and lower interest rates than formerly state-owned firms, which in turn are favored relative to always-private firms... former SOEs still benefit from some forms of state support. These firms receive low-interest loans and subsidies more frequently, and in greater quantity, than other enterprises.”

The same belief is echoed in the book, Capitalizing China by Joseph PH Fan and Randall Morck who argue that China continues to remain a broadly socialist nation, stating the following regarding CPC ran banks

Allen et al. show most bank lending flowing to SOEs, rather than the hybrid sector they find better equipped to generate wealth-despite SOES' ongoing accumulation of nonperforming loans. Their findings suggest that politics and connections dominate financial viability in bank loan alloca- tion decisions, sheltering banks from market forces as well. Unsurprisingly, simultaneous capital shortages and surpluses ensue-excess capital being wasted in some sectors and firms while, simultaneously, chronic capital shortages blocks needed growth in other sectors and firms. The capital shortage in the hybrid sector is due to the lending bias of state-controlled banks, which prefer to lend to large state-controlled enterprises; frequent government intervention in the financial system merely reinforces this bias.

The hybrid sector in this context refers to local government controlled enterprises through a shareholding scheme or Township and Village Enterprises.

There is a definite bias towards State Owned Enterprises and former SOE's which have been turned into private companies, but functionally speaking they would still be underneath the control of the state, former SOE's are not "root and branch privatized" as, previously discused through the stock ownership model and how stock ownership manifests, these former SOE's are still managed and controlled through majority CPC stockholder ownership.

The CPC floods the market with public bonds, which has a crowding-out effect on private corporate bonds that firms use to raise independent capital. Another example of this would be how there is a strong price cap on how much money you can move out of the country, with a cap on outflow of wealth to external bank accounts or bringing money into China being around 20,000 - 50,000 USD, making the control of investment in and out of the country, subordinate to the CPC's goals.

This also renders state bonds far more valuable than private bonds and the credit deterioration of non-state bonds is worse than state bonds. State Owned Enterprises receive much more preferential treatment from the government due to this model of flooding state bonds and far more valuable bonds into the market, with comparable private bonds declining in terms of value and being unable to compete.

In 2018, this is clearly demonstrated after the implementation of more regulations on the shadow banking market, leading to investors flocking towards much more valuable State bonds over private ones. This inevitably creates a feed back look where State bonds have a "premium" and are objectively more valuable than private ones.

This is corroborated by a 2016 study which found that,

"Whereas the governments of Japan and Korea worked hand in glove with private institutions that had close relationships with financial regulators and line ministries, the Chinese approach has been to pervade the entire corporate bond market with state-owned and state-linked actors. The principal role for private actors in this market is as passive suppliers of capital to SOEs and LGFVs (local government financing vehichles)...the Chinese government’s approach has been to prioritize SOE interests over non-SOE interests in a tightly managed market that is simultaneously massive in scale and seriously underdeveloped institutionally."

By harnessing supply and demand in the bond market, the PBC prevents private firms, domestic or foreign, from accumulating capital independently of socialist management.

Role of Party Committee's

In one defining way that the CPC maintains control over the "private" sector is through the use of party committees and party units. A survey conducted in 2006, investigated 400 private enterprises in 26 provinces. Only 9% of all respondents believed party committees held no or a weak sway over decision making.

Another study conducted in 2008 states that:

"State-appointed independent directors often see the world much as do state-appointed CEOs. Moreover, every listed firm’s board has a parallel authority structure, the firm’s Party Committee, headed by its Party Secretary. Reforms to the board leave this hidden – or not-so- hidden – real power structure untouched. The Party Secretary may or may not chair the board, and Party Committee members may or may not serve as directors. Where the two structures do not overlap, real power flows through the Party channels, leaving the board and formal corporate top executives with scant real authority. In the large SOEs, the Party Secretary appoints the top executives and directors, often simply relaying orders from the Communist Party of China’s Organizational Department, and exercises a leading role in the company.

The ultimate function of the Party Committee and Party Secretary may change as corporate governance reforms occur, but this remains unresolved. For example, whether listed companies’ managers might someday report to shareholders, rather than the Party, is debated. At present, the Party Committee monitors and evaluates corporate executives, determining their prospects for career advancement. The CEOs of the largest 53 national SOEs are appointed directly by the Communist Party of China’s Organizational Department. The other senior management positions are mostly appointed by the State-Owned Assets Supervision and Administration Commission (SASAC), which is directed by the State Council. Similar patterns hold for the local SOEs.

In November 2004, the top managers of the three largest telecommunication companies in China – China Mobile, China Telecom and China Unicom – exchanged positions almost overnight without prior notice to public shareholders. In short, executive positions in listed firms are filled by State and Party bureaucrats and are seen as steps in the career of a successful civil servant. "

A similar statement provided in the book, Capitalizing China finds that:

Parallel this corporate governance system, each enterprise also has a Communist Party Committee, headed by a Communist Party Secretary. These advise the CEO on critical decisions, and are kept informed by party cells throughout the enterprise that also monitor the implementation of party policies. Indeed, the party secretary plays a leading role in major decisions, and can overrule or bypass the CEO and board if necessary (Deng et al. 2011). For example, foreign independent directors on the board of CNOOC reportedly first learned of that enterprise's takeover bid for Unocal, an American oil company, from news broadcasts (Macgregor 2010). Directors often also learn of such major strategic moves, and of equally major personnel moves such as the rotation of oil company top managers described earlier after the fact. Despite their formal powers, CEOs and boards are thought to welcome party advice, and any directors likely to have reservations are kept out of the loop to preserve harmony-especially if issues the CCP views as strategically important are involved.

According to the Constitution of the People's Republic of China, the party commitee's role within the non-public sector are to:

Primary-level Party organizations in non-public sector entities shall implement the Party's principles and policies, guide and oversee their enterprises' observance of state laws and regulations, exercise leadership over trade unions, Communist Youth League organizations, and other people's group organizations, promote unity and cohesion among workers and office staff, safeguard the legitimate rights and interests of all parties, and promote the healthy development of their enterprises.

The independence of private companies is limited, as many are to a certain extent dependent on the state for supplies, distribution and even customers. Symptomatic of this is that in a survey in 1995 of 154 private firms where the state had a minority stake of an average of 30 percent it still had an average of 50 percent of the seats on the boards of these companies. Unlike in the west, proxyvoting is not permitted at shareholders meetings. This favours those that own many shares. In China, that is often the state. In 2018, the Organization Department reported that 73.1 percent of private companies had established a Party organization, up from 58.4 percent in 2013. With the number predicted to continue to increase.

Most of listed shareholder firms have a party secretary. Data was collected on 4,104 firm-years between 2000 and 2004, which represents 68% of the total firms with A-shares in China during that period. Only 11% of the firms said that they did not have a party secretary. In those firms with party secretaries, many of the secretaries hold other management positions as well: 5% also serve as both the chairman and the CEO; 18% also serve as the chairman; 6% also serve as the CEO; and 26% also serve as a supervisor, director, or executive. Thus, many party secretaries have a significant affect on firm management.

According to Scholar Nicholas Howson,

PRC corporate groups, and by extension their subsidiaries and divisions, are therefore actually controlled by Party State nomenklatura insider appointees working at the core holding company level, and as directors and officers of the subsidiary entities controlled *by the core holding company. As Party State bureaucratic political actors seeking advancement in the Party system, these individuals are perfectly responsive to Party State policy (which necessarily includes national industrial policy), while at the same time they are content to ignore the interests of external minority shareholders in the listed subsidiaries they formally manage

So quite simply, even if the company is listed on the public shareholder market, the ultimate decision making power at the highest level comes from the CPC. This is how the CPC exerts power and influence over the "Private" sector, even though the sell of stock and the sell of shares into the "private market" is permitted.

And as explained in previous arguments, the vast majority of shares all end up in the hands of the CPC anyway, considering that more often than not the CPC maintains largest equity shareholder. Even if it doesn't, the use of the CPC party committees and cells ensure compliance and control over these private companies.

The role of the party commitee's are further elaborated upon by Trey McArver, co-founder of consultancy Trivium/China, which advises companies working in China, who states:

“No company, private or state-owned, gets ahead in China without aligning itself with the party's larger goals and strategies. That is more the case than ever in Xi’s China...Xi [Jinping] has reasserted the centrality of the party in all facets of society, including within the economy.”

Fraser Howie, a long-time follower of China’s markets and author of Red Capitalism also states:

"Being non-state does not mean you are private... it was always a blurred line and it's become ever more so."

Extra-Legal Control Rights

The Chinese state also exercises significant extra-legal control rights over private firms. State encroachment into private ownership of enterprise is particularly acute, however, when the state does not scrupulously follow clearly delineated and neutrally enforced legal rules in exercising its control rights over private firms.

The Chinese state relies on several means to exercise extra-legal influence over private firms. One mechanism is the socalled industrial association. Established in industries where the former line ministry has been disbanded, these nominally private organizations are designed to coordinate activities within an industry. Yet the industrial associations are staffed by former government officials from the defunct ministries and retain basically the same organizational structures and functions as those ministries. The industrial associations actively supervise the operations of firms in their respective industries and have retained much, if not all, of the power exercised by their state predecessors.

For example, in 2010, China’s main cooking oil producers raised or were planning to increase prices due to cost pressures. Concerned about the impact of these price hikes on food price inflation, the NDRC interviewed executives of the cooking oil producers three times to urge them not to increase prices. During one of the interviews, the NDRC flatly ordered the producers to freeze prices for four months, and the producers complied.

Yet another means by which the state exercises extra-legal control over private firms is through the practice of prodding or even forcing private firms to participate in state-led industrial restructuring efforts. The right of corporate ownership implies the right to sell control and to refuse offers to purchase control. But in China, this right must yield to the state’s plans for restructuring an industry. In 2009, for example, Shandong Steel Group, a major SOE in Shandong Province, acquired a 67 percent stake in Shandong Rizhao Steel, an emerging private steel producer, under the auspices of a restructuring plan for the industry previously adopted by the Shandong provincial government.

The government routinely enforces its policies by extra-legal means, the added degree of autonomy that ordinarily flows from private, as compared to government, the so called "private ownership" of a company may be illusory.

The Role of Social Credit Score & Anti-Monopoly Laws in regulating the Market Sector

Of course, there is also an additional way that the CPC maintains control of the private sector. It is through the use of it's social credit score and social credit system. How the social credit system does this according to the The “Planning Outline for the Establishment of a Social Credit System (2014-2020)” issued by the CPC states that:

"must have advancing the establishment of creditworthiness in government affairs, commerce,and society and establishment of judicial credibility as its primary content; must have advancing the establishment of a culture of creditworthiness and establishing mechanisms to encourage trustworthiness and punish untrustworthiness as key points; must by supported by advancing the establishment of industry and region specific credit, and developing credit services markets; must have raising the entire society’s awareness and levels of creditworthiness, and improving the economic and social operating environment as its goals; and must put people first, to form an environment across all society in which trustworthiness is honored and untrustworthiness is shameful, and make honesty and trustworthiness the entire populations' conscientious behavioral norm."

What is credit worthiness? It is being able to comply on financial agreements and willingness to pay debts. And to ensure that in the context of the social credit score, to ensure companies enact on their promises. The score is used to regulate the private sector and continue to clamp down on potential exploitative behaviour that may be undergone. The score is given to private firms and there are real punishments and draw backs for those who do not comply or fail to achieve a high score

"The National Development and Reform Commission (NDRC) is pushing ahead with social credit-based supervision of all commercial entities from large firms to small, independently owned and operated business, prompting complaints over corporate privacy and heavy handed government intervention. The social credit rating will include court rulings, tax records, environmental protection issues, government licensing, product quality, work safety and administrative punishments by market regulators. 'All the existing credit incentive and punishment measures listed in the memorandums are based on laws and regulations... For severe violations, especially those endangering life and property, harsh punishment will be adopted, such as a temporary or even permanent ban on market entry - Lian Weiliang, deputy chairman of the NDRC"

And in a horizons article which goes over how corporate social credit works,

"While the China Blacklisting system is still in its early stages, it is already the most prominent system of its kind worldwide. China has already put this system into action, and has barred thousands of Chinese residents’ rights to buy plane tickets and travel either domestically or abroad. However, most of the blacklisting that has occurred to date has been as a result of violations or misbehavior of companies and the individuals working for them."

Individuals who end up on a black list due to mistreatment of workers or violating the laws around workers rights are given penalties and can be as severe as having their business license revoked or barring them from using social amenities and public services until they fix their social credit score. There are real consequences for breaking the PRC's laws regarding worker rights and treatment of workers. How the social credit score is measured according to CreditChina, the website responsible for openly publishing corporate social credit data lists the following reasons for a low social credit score:

”Basic identifying information for the company, including the company’s Unified Social Credit Code and permits held； Any applicable administrative penalties; Any payment defaults recognized by the Courts; Any instances of tax evasion and fraud; Instances of illegal importing or exporting; Unpaid wages”

The Social Credit System is meant to serve as a market regulation mechanism. The goal is to establish a self-enforcing regulatory regime fueled by big data in which businesses exercise "self-restraint". The basic idea is that with a functional credit system in place, companies will comply with government policies and regulations to avoid having their scores lowered by disgruntled employees, customers or clients. Companies with bad credit scores will potentially face unfavorable conditions for new loans, higher tax rates, investment restrictions and lower chances to participate in publicly funded projects.

And for those wondering about State Owned Enterprises or other government institutions, a similar method is also employed to ensure citizens have faith in SOE's and the government. The social credit system targets government agencies, assesses local governments' performance and focuses on financial problems such as local governments' debts and contract defaults In this way, local governments and SOE's are regulated and encouraged to increase trustworthiness among the chinese masses, as well as putting a form of "government self-discipline" upon the companies.

The way the discipline of the social credit score system and the effects are primarily undertaken by the National Development and Reform Commission and the State Administration for Market Regulation. This tends to lead to large fines being enacted on both domestic and foreign companies that breach the laws and regulations set out by the social credit system. An example of this would be Meituan, which was fined US$530 million for monopolistic behaviour. Meituan was also ordered to refund exclusive cooperation deposits paid by merchants, totalling 1.29 billion yuan.Alibaba Group Holding was fined 18.2 billion yuan after the conclusion of its own antitrust investigation, in 2019.

China also expanded Anti-Monopoly Bureau as more crackdowns occur on companies that appear to breach anti monopoly trust laws. This included hefty fines, as afformentioned. But also blocking mergers and preventing private companies from merging together, decreasing the potential influence and impact that large private companies could already have on the pre-existing private sector. The revised anti monopoly law in 2022 strenghtened the party's role over controlling the aspects of large private sectors, wanting to avoid monopolistic behaviour in all sectors dominated by large private companies. The CPC will continue to maintain a close eye on the activity of large companies. The new law prohibites the use of technology to engage in monopolistic behavior suggests that the authorities will be looking closer at platform companies’ rules of engagement, M&A deals, and contracts with partners and third parties. Meanwhile, the draft provisions governing consolidation indicate that more large companies will be required to undergo antitrust reviews when they engage in M&A or other consolidation.

While the CIS and other bourgeoisie economist thinktanks goes on to discuss about the lack of economic and political freedoms in China, Marxist-Leninists should read between the lines and know the truth: China isn’t capitalist, the CPC isn’t pursuing capitalist development, and the Socialist Market Economy has succeeded in laying the material foundation for ‘higher socialism’. We can clearly see that with the commanding heights of the Chinese economy that China remains socialist and a Marxist-Leninist nation. The claims that China has restored the capitalist road is fundamentally untrue.

True Size and Nature of the State and Market sector

“All enterprises must persevere in putting proletarian politics in command and ideological and political work first.”

If the small and medium sized enterprises were state owned - and the largest companies and banks were privately owned, and the banks lent almost exclusively to large private companies - it is quite clear that China would be a capitalist economy even if the majority of workers worked in state owned companies. But this is the opposite of that which exists in China. Western analysts seem to believe that the CPC has accomplished this goal. Although modern China has an expansive market system, the CPC uses the market to both secure and advance socialism. Rather than privatizing major industries, as is often alleged by detractors, the state maintains a vibrant system of socialist public ownership that prevents the rise of an independent bourgeoisie. Deng talked specifically about this very deliberate system in the same interview with Fallaci:

"No matter to what degree we open up to the outside world and admit foreign capital, its relative magnitude will be small and it can’t affect our system of socialist public ownership of the means of production. Absorbing foreign capital and technology and even allowing foreigners to construct plants in China can only play a complementary role to our effort to develop the productive forces in a socialist society."

Renationalization: the state sector advances, the private sector retreats

There is a famous saying in China, the state sector advances and the private sector retreats. The role that Xi is playing exposes the nature of the State and the market economy, that the market is subservient to the state and the state advances, while the private sectore retreats. Many private firms have been forced to default and ended up being renationalized as Xi Jinping cracks down much harder on the private sector. This phenomenon will be further elaborated upon in how the CPC remains comitted to building higher socialism.

Private companies are forced to comply to developmental goals set out by the CPC, with the rise of Xi Jinping as General Secetary, bourgeoisie thinktanks interept Xi's actions as returning to "Mao era China". The Regulation of the market sector has taken a much deeper step, afformentioned with how social credit is used to punish companies.

The acquisition of A-share private enterprises by local state-owned enterprises has also become an important point of view in the capital market. From 2019 to 2021, more than 110 A-share listed private enterprises were acquired by local state-owned system enterprises, with a total market value of more than 600 billion yuan. There is a greater degree of re-nationalization within China. The goal of which appears to be acquiring key technology and assets, promote local industrial upgrades and to obtain listed company shells for back-door listing. This has been a growing trend since 2020. The most common target industries appear to be building renovation and furnishing, pharmaceutical and biotechnology, and environmental protection; hi-tech manufacturing companies are the most popular strategic investment targets.

Similary, there is a great deal of bias and red tape surrounding these private enterprises. In Zhanjiang prefecture, Guangdong province, a private mining enterprise went bankrupt in 2003, allegedly because of the excessive fees and “penalties” extorted from it by the Municipal Land and Resources Bureau. As another example, the owner of a private firm that produces wrapping paper claimed that the taxes and fees levied upon it were so hefty they had put a severe dent (of more than 50%) in his profits. In Shijiazhuang prefecture, the capital of Hebei province, a private enterprise spent nearly three years collecting a total of 166 departmental approvals in order to develop a real estate project but missed the opportunity to do so by the time the project was given the green light. Consistent with these findings, the Chinese Academy of Social Sciences found in a survey in 2003 that 70% of the profits of private enterprises went to fees imposed on them by the local authorities—not to mention the high transaction costs arising from “red tapes” or over-regulations in dealing with local governments.

The Polity IV’s measure “constraint on the executive” for China is also sympathetic with these anecdotal accounts; the country’s score of 3 (out of 7 with 7 indicating the highest constraint) during 1989-2010 is substantially lower than the global average of 4.5-5.7.

In 2011, China’s central government picked 750 champion firms, and plans to provide them with the support needed to make theirs a self-fulfilling prophesy. And China selected 426 firms to essentially die off. or "losers'. National champions which are overwhelmingly SOE's get free land, cut-rate financing, instant approvals, guaranteed domestic markets and expedited stock-market listings. The losers, consisting of companies in disposable foam plastic dinnerware, vertical gas water heaters and cardboard detonators, get nothing but a date by which they must terminate operations. China’s losers also have a third category, industries not set for termination but will be terminated at a later date.

An example of this is how Shanxi's coal industry was all forcefully nationalized as the risk and dangers of private coal mines were far too great, forcing many of these coal industry CEOs to go bankrupt.The government of China's coal-rich Shanxi Province, southwest of Beijing, is trying to drive almost all private mine owners out of business, forcing more than 1,500 mines to shut down or sell out to state-owned enterprises at prices so low, coal bosses say, that some may go bankrupt. The national government has been laying the groundwork for the takeover or shutdown of small mines for the last few years, beginning with Shanxi, where a wave of mine disasters contributed to the sackings last year of the provincial governor and numerous lower-level officials. This has lead to an increased rate of worker's safety in coal mining, which I will discuss later on.

These are industries that will be tolerated for a while. These include villa-type real estate developments, golf courses, artificial leather, certain types of toothpaste and small versions of the winners, like small coal mines, for example. These tolerated sectors, recieve no governemnt favours and will disappear over time, either being consolidated into the State Sector or simply left to die off.

True Size of the Market Sector

Even after the economic reforms, China's public ownership sector remained great, according to the paper "China’s Collective and Private Enterprises: Growth and Its Financing" by Shahid Yusuf, during 1985-1991, on average only around 7.1% of the Industrial Sector was actually private (started by entrepreneurs and foreign businesses), when it came down to measuring the raw output of resources. And during 1991, the national industrial sector only had around 11.41% being truly private.

The true nature of the private sector is actually quite small once you take into account it's breaking down. In 2005, the private sector is dominated by small sized enterprises, only 5 per cent of private enterprises employ more than 500 and only 2% more than 1000 workers. The number of private industrial firm ownership appears to have peaked in 2013 at around 23% of asset ownership but the number has never risen above 23%.

Contrast this with the state sector where 80% of workers work in companies employing over 500 workers. The number of private companies rose from 90,000 in 1989 employing 1.4 million workers, to 3.6 million companies in 2004 employing 40 million workers. 74% of private companies originated as new start ups, 7% are privatized state owned companies, 8% are privatized rural collectives and 11% are privatized urban collectives. The average income of an entrepreneur is $6600 US per year (2002 figures) this gives an idea of the small scale of the overwhelming majority of private sector enterprises in China.

In some areas the contribution of private companies can appear to be impressive. 70 percent of theworld lighters are made by private Chinese companies in the city of Wenzhou. However, these lighters are produced by 3,000 small firms, some specialising in components, some in final assembly. Their specific weight in the Chinese economy does not amount to much. 90 percent of private companies employless than eight people. Companies like that cannot compete for influence with the giant SOEs.

Regulation of Special Economic Zones

Shanghai is often presented as the shop window of capitalism in China. But this is nothing more than a successful advertising campaign on the part of the bureaucracy to attract large foreignmultinationals for joint-ventures. Although Shanghai is the richest area of China, the indigenous private-sector is among the smallest. Wage income is high in Shanghai, but asset income (income from shares, property, land, bank accounts) is the lowest in the country. Fixed asset investment by the indigenous private sector peaked in 1985 in Shanghai and has declined every year since then. By 2004, it was back to the same level as it was in 1978, in absolute terms.

This is not surprising if one knows that there are many political, regulatory, and financial restrictions on private enterprise. A few examples: Professors, civil servants, SOE managers, and workers for non-profit organisations were not allowed to start businesses on the side; the Shanghai government rigorously enforced zoning arrangements about what areas are allowed to be used for businesses and tightly controls land transactions; in critical infrastructure projects privatecompanies are forbidden.

It is because of this, not despite it, that Shanghai with its 17 million people has managed to reach a GDP per capita similar to Portugal. The Shanghai and Shenzhen stock markets have exploded (and then declined), but this does not either represent a transition to capitalism. An overwhelming proportion of companies traded there are SOEs.

How the CPC manages foreign capital

No better proof of the Russian Soviet Republic’s material and moral victory over the capitalists of the whole world can be found than the fact that the powers that took up arms against us because of our terror and our entire system have been compelled, against their will, to enter into trade relations with us in the knowledge that by so doing they are strengthening us. This might have been advanced as proof of the collapse of communism only if we had promised, with the forces of Russia alone, to transform the whole world, or had dreamed of doing so. However, we have never harboured such crazy ideas and have always said that our revolution will be victorious when it is supported by the workers of all lands. In fact, they went half-way in their support, for they weakened the hand raised against us, yet in doing so they were helping us.

China’s opening up to foreign investment and its integration into global markets is often presented by some leftists as prima facie evidence of its having become a capitalist country. China’s joining of the World Trade Organisation in 2001 was seen as the final death blow to Socialism in China. However, this is not the case. Jenny Clegg explains that WTO membership had nothing to do with capitalist restoration, and everything to do with developing China’s productive forces, strengthening its geopolitical position, and thereby building a better life for its people. China joined the WTO in order to able to

"insert itself into the global production chains linking East Asia to the US and other markets, thus making itself indispensable as a production base for the world economy. This would make it far more difficult for the United States to impose a new Cold War isolation.”

And that it allows China to undergo

“the unprecedented global technological revolution, offering a short cut for the country to accelerate its industrial transformation and upgrade its economic structure.”

The opportunity to rapidly learn from the advanced capitalist countries’ developments in science and technology was the principal reason for ‘opening up’, based off of Zhou Enlai's principle of the Four Modernizations. Blockaded by the western countries after the revolution, and then cut off from Soviet support as a result of the Sino-Soviet split, China in 1978 was objectively technologically backwards, despite it having made some great advances and having developed a standard of living for its people that was far ahead of other countries at a similar level of development. According to Edward M. Graham and Erika Wada,

“Currently, the central government of China, as well as provincial governments, do regulate entry of FDI closely or at least attempt to do so. Entry of foreign firms is often conditioned on the achievement of industrial policy goals aslaid out by the state. Foreign firms are most welcome when these goals cannot be fulfilled bydomestic firms. The entry of a foreign firm can be subject to numerous conditions, for example,such performance requirements as having to use local suppliers, often designated by thegovernment, or locating in certain areas, or setting up the local operation as a joint venture."

Restrictions on Foreign Investment

There are real administrative measures to restrict foreign investments or to keep a strong leash on foreign investment in regions where the CPC deems of critical importance, and certain actions are prohibited among foreign companies which the CPC deems undesirable. One example of which would be as of 2021, foreign shares in any given company cannot exceed 30% of the total number of shares. In the book, China's superbank: debt, oil and influence: how China Development Bank is rewriting the rules of finance it found that the expansion of state capital into private equity in China has coincided with a drop in investments by foreign firms, who face growing amounts of red tape. Investments by Chinese firms rose to $7.8 billion in 2011, exceeding for the first time the $7.4 billion put in by US and other foreign funds, according to the Asian Venture Capital Journal, which tracks the industry. While the number of foreign-currency funds in China fell to 25 in 2011 from 44 in 2008, domestic ones increased to 129 from 70. Any local RMB funds that also contained foreign source investment, were deemed as foreign as well, restricting foreign investment in media, educations, telecommunications, internet and technology.

Contrary to popular belief, foreign direct investment into China does not make a large portion of GDP, with it consistently falling all the way to 0.98% of GDP as of 2021. Foreign inflow of direct investment peaked at 6.19% in 1993, with it gradually going down ever since.

Similarly, Western capitalist shills lament the way China constructs and uses foreign investment. China uses something called vaariable-interest entity, or VIE. Many big-name Chinese companies that have sold shares in foreign markets (including Hong Kong) over the past two decades have done so only quasi-legally at best. Beijing prohibits foreign ownership of large sections of the Chinese economy, and especially the most profitable parts involving digital technology and data. The workaround was to create an offshore holding company or VIE. The Chinese operating company would bind itself contractually to remit its profits to the offshore entity, which could then sell shares to foreign investors.

The Western investor doesn’t own anything, since ownership of the VIE does not translate into a claim on the assets of the operating Chinese company. The Western investor can make no demands on the management of the Chinese company because absent an equity stake there is no mechanism by which to influence or change management. In the event of a dispute, no one can guarantee a Chinese court would enforce the contracts binding the operating Chinese company to the VIE that Western shareholders do own. Beijing has played foreign investors like a fiddle. It induced them to finance the expansion of the riskiest parts of its economy while distracting them from asking why China couldn’t use its enormous financial resources to back unicorn tech companies itself. This funded national champions to compete with the Western giants, while insulating domestic middle-class investors—a politically sensitive cohort if ever there was one—from the risks.

Forced Technology and IP transfer

Deals with foreign investors were drawn up such that foreign companies trying to expand their capital in China were compelled to share skills and technology, and operate under Chinese regulation. According to David Rosnick, Mark Weisbrot, and Jacob Wilson, The Scorecard on Development, 1960–2016: China and the Global Economic Rebound, 2017

"Foreign investment was regulated to make it compatible with state development planning. Technology transfer and other performance requirements ― conditions attached to foreign investment to make sure that the host country gets some benefit from foreign investment, such as the use of locally produced inputs, or the hiring of local managers ― were common and are still an issue of contention with the United States today.”

Even though these investors may have wanted to keep their technologies a secret, they had no choice.

Martin Jacques, When China Rules The World: The Rise of the Middle Kingdom and the End of the Western World, Penguin, 2012 states

"As China has grown more powerful, the demand for technology transfer has become ever more insistent, with foreign companies, complain though they may, generally conceding.”

And Peter Nolan states,

" in order to gain access to the vast and rapidly growing China market, Boeing was required to assist the main Chinese aircraft manufacturer in Xian to successively establish a capacity to produce spare parts and then manufacture whole sections of aircraft, and finally to assist in the development of a capacity to produce complete aircraft within China. In order to gain the right to invest in car production in China, Ford Motor Company was required to first invest for several years in upgrading the technical capacity of the Chinese automobile spare parts industry through a sequence of joint ventures.”

Ever since 2006, the CPC has been implementing new policies that seek to appropriate technology from foreign multinationals in several technology-based industries, such as air transportation, power generation, high-speed rail, information technology, and now possibly electric automobiles. These rules limit investment by foreign companies as well as their access to China’s markets, stipulate a high degree of local content in equipment produced in the country, and force the transfer of proprietary technologies from foreign companies to their joint ventures with China’s state-owned enterprises. The new regulations are complex and ever changing. They reverse decades of granting foreign companies increasing access to Chinese markets and put CEOs in a terrible bind: They can either comply with the rules and share their technologies with Chinese competitors, or refuse and miss out on the world’s fastest-growing market.

Heavy bias towards domestic companies

In late 2009, China’s Ministry of Science and Technology demanded that all the technologies used in products sold to the government be developed in China, which would have forced multinational companies to locate many more of their R&D activities in a country where intellectual property is notoriously unsafe.

A few examples of how China has coerced foreign capital is outlined by the Harvard Business Review:

...from 1996 to 2005 foreign companies held a 75% share of the Chinese market for wind energy projects. Then the government decided to grow the market dramatically, offering buyers large new subsidies and other incentives. At the same time, it quietly increased the local-content requirement on wind turbines from 40% to 70% and substantially hiked the tariffs on imported components. As the market exploded, foreign manufacturers were unable to expand their supply chains quickly and meet the increased demand. Their Chinese competitors, who had been licensing technology mainly from small European turbine producers, took up the slack rapidly and cost-effectively. By 2009 Chinese companies, led by Sinovel and Goldwind, controlled more than two-thirds of the market. In fact, foreign companies haven’t won a single central government–funded wind energy project since 2005.

In the early 2000s the superior equipment of multinational corporations such as Alstom, which built France’s TGV train system; Kawasaki, which helped develop Japan’s bullet trains; and Siemens, the German engineering conglomerate, gave foreign companies control of about two-thirds of the Chinese market. The multinationals subcontracted the manufacture of simple components to state-owned companies and delivered end-to-end systems to China’s railway operators. In early 2009 the government began requiring foreign companies wanting to bid on high-speed railway projects to form joint ventures with the state-owned equipment producers CSR and CNR. Multinational companies could hold only a 49% equity stake in the new companies, they had to offer their latest designs, and 70% of each system had to be made locally. Most companies had no choice but to go along with these diktats, even though they realized that their joint-venture partners would soon become their rivals outside China.

Owing to hypercompetition between Chinese companies, which spilled into overseas markets, the prices of solar panels fell worldwide by about 50% in 2009 and 2010, driving higher-cost Western producers into the red. Germany’s Q-Cells, an industry pioneer, slid from an operating profit of 16% of sales in 2008 to an operating loss of 60% of sales the following year. China now exports 95% of its solar panels, and Chinese companies such as Suntech, Yingli, and JA Solar control half of the German market and a third of the U.S. market.

What is worse for many foreign companies is that they are being out-competed in China by Chinese state companies. As independent private companies, present day state companies might not stand achance, but as part of a planned economy and with the backing of cheap credit from the state banks,they are doing well. Ningbo Bird and TCL, two state-owned mobile phone producers, haveovertaken both Motorola and Nokia in China, despite China being Motorola’s second largest market(and Motorola being the biggest foreign company in China). Procter & Gamble had a good start totheir shampoo sales, but were soon undercut by Chinese rivals. P & G’s market share dropped fromover 50 percent in 1998 to 30 percent in 2002. Whirlpools’ Chinese adventure ended up with themending production of their own brands in China, instead a Chinese state-owned company, Kelon,outsourced to them.

In regards to Sinovel and Goldwind who control the majority of the market, Sinovel and Goldwind are both subsidiaries of the CPC's state owned enterprises, giving the CPC main controlling rights over these companies. Western pundits have directly named and consider these companies officially "state owned" despite their legal classification as a limited company, with stte related organs holding the largest and controlling share, or being subsidiaries of a state owned parent company.

Forced cooperation with the CPC subsidiaries and directives

China also bars many foreign companies from participating in the Chinese market. As a result, companies need to enter the market through other means, such as setting up a wholly foreign-owned enterprise (WFOE) or forming a joint venture with a Chinese business partner. It is also alleged that Chinese Joint-Ventures and Chinese companies tend to steal IP and technologies from these foreign companies, as demonstrated in the above quotes. And many foreign investors have also stated that there are no legal protections for these foreign companies and Chinese attorneys will lobby in favour of the state, this indicates that foreign companies clearly do not run amuck in China. Many foreign investors have complained about the lack of freedom of voice in the Chinese market, with the state being the ultimate deciding factor in many cases. The international monopolies have to accept a rate of profit in China that is lower than anywhere else.

"A study of American Commerce Department data conducted by a research publication, China Economic Quarterly. showed that direct and indirect profits made by American affiliates in China mounted to $2.8 billion in 2001—less than the $4.4 billion made in Mexico, with a population of just 100 million. Although profitability has undoubtedly improved, many companies are not even covering their cost of capital, much less getting a proper return on their investment. Norman Villamin at Morgan Stanley says that some multinationals deliberately lower the required rates of return for their China operations to wave through projects that would not usually qualify, and charge costs to head office to make the China arm seem more profitable than it is.... ... A few large multinationals, notably General Electric, are planning to go much further, moving advanced production lines and research facilities there in order to transform their entire corporate cost base. But many of those lured to China for the domestic market will struggle to generate sustainable profits. And all foreign companies have to face the fact that China is still not a rational place to do business."

Working conditions are generally quite good and wages relatively high for employees of the bigmultinationals in China. The Communist Party exercises a great deal of control over foreigncompanies that are considered decisive for the development of China. Take the example of the gian tAmerican computer processor producer Intel’s experience. In a book by Harvard professor Tarun Khanna the work of an American employed at Intel’s lab in Shanghai in 2002 is described:

“Work in the lab was rigorous, requiring continual interface with the government. The Shanghai government was not the slow bureaucracy he associated with federal jobs. In China, the governmentdemanded performance and held to aggressive time lines. His boss said, ‘The head members of thelocal branch of the Communist Party set the deadline and they are reviewing the finished product. You won’t feel so good saying no to a Communist Party member.'

Use of Social Credit and Anti Monopoly laws

Similarly to the afformentioned social credit system, foreign companies are equally subject to the social credit system in China. According to the president of the EU chamber of commerce, he states:

“The corporate social credit system could mean life or death for individual companies...The overwhelming absence of preparation by the European business community is deeply concerning.”

The foreign sector is still cowed into submission, the previously discussed ways the social credit system influences the private sector still apply to the foreign sector.

After many decades since China first opened up up, China is has became one of the world’s leading innovators in science and technology; it has caught up, through strategically and methodically integrating itself into a globalized value chain. While continuing to promote the Socialist principle of focusing on the needs of the masses.

Use of Party Commitee's

Foreign Companies have yet to be spared from the existence of party commitee's as well, the same afformentioned party commitee system is used to regulate the foreign companies as well. The same logic applies. In Joint Ventures such as Nissan-Dongfeng, it is found that their Party organization has been written into the enterprise charter, with members of the Party organization playing a role in human resources decisions.

This clearly indicates that these party commitee's within the company are extolling or fighting for "Pro worker rights" considering they deliberately have a role to play in human resources. Statistics show that by the end of 2016, a total of 75,000 foreign-funded enterprises across the country had established party organizations, accounting for 70.8% of the total number of foreign-funded enterprises.

The Socialist Market Economy and Socialism with Chinese Characteristics has allowed China to rise to unprecedented economic heights

(See: Reform and Opening Up#The Achievements'/Successes of Reform and Opening Up for more information)

While the Great Leap Forward was an ambitious attempt at laying the industrial foundation necessary to build socialism, the facts are in: China’s gross domestic product (GDP) in 1960, after the GLF, was $59.72 billion. In 2009, China’s GDP sits at 5,101 billion, making it the second largest economy in the world. In other words, the modern Chinese economy is about 89 times the size of its economy following the Great Leap Forward, which was previously the largest socialist economic overhaul in Chinese history.

Ironically, Capitalists admire yet despise the success of the Socialist Market Economy. They hate China's commitment to socialism but cannot deny its success. Scissors admits in the same Heritage foundation article that "between June 2002 and June 2008, China's GDP more than tripled and it's exports more than quadrupled" He also states

"This rapid GDP growth has created jobs: by the end of June 2008, the unemployment rate among registered urban voters was a mere four percent — even lower than the government’s ambitious target of 4.5 percent. That figure may understate true joblessness by ignoring rural and unregistered urban employment, but it accurately reflects trends in the broader job situation. So many migrant workers from rural areas were absorbed into the urban labor force that the 20 million such workers reported to have lost their jobs in late 2008 still left well over 100 million rural migrants with jobs in cities."

China is able to dynamically handle unemployment through smart distribution of labor and the creation of jobs through development unseen in capitalist countries, “Urban wages have climbed significantly, by 18 percent between 2007 and 2008,” representing serious material gains for the Chinese working class. This also leads into my point that China is not Capitalist, because it doesn't demonstrate the Tendency of the Rate of Profit to Fall. Interestingly enough, a paper published in 2019 states that:

"This paper follows the monopsony research tradition and examines the Chinese manufacturing sector along several likely indicators of monopsony power. These include the turnover rate in the manufacturing sector, the relation between marginal factor cost and average factor cost, the relation between average real labor productivity and real wage in the manufacturing sector, and the comparison of labor costs between China and other countries. This study found that worker exploitation/monopsony in the manufacturing sector is not as severe as previously reported."

To take the modern example, the Capitalist class will choose less labor intensive and cheaper methods to try and maximize profits, causing a decrease in wages. This causes overall wages and disposable income to decrease, causing workers being unable to pay for more goods and services. This leads to Capitalists to end up not being able to profit, due to the lack of workers being able to afford their products. This is the inevitable nature of Capitalism. Except, this doesn't happen in China. As demonstrated previously, job rates and wages have continued to increase.

Richard D. Wolff in his video, Economic Update: China's Economic Record and Strategy from 8:38 to 12:51 demonstrates that The real wage in China (IE the wage adjusted for the prices you pay) has gone up 4x in the past 25 years, more than any other country. This is staggering considering it's the most populous country on the planet. The US real wage by comparison is lower in 2019 than it was in 1973. In advanced G20 economies, real wage growth fluctuated between 0.4 and 0.9 per cent, while rising more rapidly – between 3.5 and 4.5 per cent annually – in emerging G20 countries. Between 2008 and 2019, real wages more than doubled in China (Around 9 per cent annual increase). This means Once you account for disposable income, it has increased 1,000% within 2002 and 2022.

Between 1988 and 2008, in adjusted 2005 PPP prices, the average per capita income in China grew by 229 percent – ten times the global average of 24 percent, and far ahead of the rates for India (34 percent), as well as other Asian economies (68 percent) Per capita income in China doubled in the decade from 1980, whereas it took Britain six decades to achieve the same after the Industrial Revolution in the late eighteenth century and America five decades after the Civil War.

As of 2011, Chinese labor cost's were higher than every single developing asian country with the exception of Thailand and Malaysia. By 2015, the average monthly wage of manufacturing workers reached 4126 yuan (US$635) by the end of 2015 which is far below the US (US$3099 per month) but is nearly the same as in Brazil and significantly greater than in other emerging markets (Malaysia, Thailand, Mexico, Vietnam and India).Chinese labor is no longer "cheap", between 2013 and 2022 manufacturing wages doubled, to an average of $8.27 per hour. Malaysian, Filipino, Vietnamese, Indian and Thai wages do not exceed $3 per hour.

Continuing to steadily climb, showing that the Tendency of the Rate of Profit to Fall is not demonstrated in China, as China has continued to industrialize and increase roboticization.

The successful elevation of China as a modern industrial economy has laid the basis for ‘higher’ forms of socialist economic organization.

The market is not a mode of production; rather, the market is a form of economic organization. Deng explains this distinction well in a lecture series he gave in 1992. He states:

"The proportion of planning to market forces is not the essential difference between socialism and capitalism. A planned economy is not equivalent to socialism, because there is planning under capitalism too; a market economy is not capitalism, because there are markets under socialism too. Planning and market forces are both means of controlling economic activity."

Markets are neither capitalist nor socialist, just as economic planning is neither capitalist nor socialist. Both of these forms of economic organization are just tools in the toolbox, and in some situations, markets are a useful tool for socialist construction. For 30 years, the CPC has successfully used markets as a tool for revolutionizing the country’s productive forces. Precisely because of this success, the state is rapidly moving towards more advanced forms of socialist industrial organization to replace the market mechanism. Markets under socialism was first implemented in the agricultural industry with the same aim as Lenin’s NEP: to aggressively expand and modernize food production. However, the CPC introduced markets as a tool to build socialism, rather than as a permanent functioning mode of economic organization. This is a very important distinction because it means that Deng and the CPC viewed market reforms as a transient form of ‘lower socialism’, to borrow a term from Marx, that they would replace with collectivized agriculture after the material conditions changed. Deng explains this in a talk delivered to the Central Committee in May 1980. Entitled “On Questions of Rural Policy,” Deng addresses concerns about contemporary market reforms to the agricultural sector:

"It is certain that as long as production expands, division of labour increases and the commodity economy develops, lower forms of collectivization in the countryside will develop into higher forms and the collective economy will acquire a firmer basis. The key task is to expand the productive forces and thereby create conditions for the further development of collectivization."

Deng understood that building a socialist agricultural economy capable of meeting the needs of China’s enormous population required developing the productive forces in the countryside, which markets could accomplish. Only after revolutionizing the productive forces of the entire country could the material basis for a full-scale collective economy–‘higher socialism’–exist.

Mao said that “Practice is the criterion of truth,” and after 30 years of practice, Deng’s statements have come true. In 2006, the CPC announced a revolutionary overhaul of the Chinese countryside and pledged to use China’s newly acquired wealth to transform rural areas into what President Hu Jintao calls a “new socialist countryside.”

Addressing Unequal Development

Even today, most of China’s population remains in rural sections of the country, but the application of modern farming techniques and mechanized agricultural practices have generated a net surplus of grain production in China. Among this new policy’s many provisions, China’s 2006 rural policy promises “sustained increases in farmers’ incomes, more industrial support for agriculture and faster development of public services.” Additional provisions allow peasant students to “receive free textbooks and boarding subsidies,” and the state will “increase subsidies for rural health cooperatives.”

The late Egyptian political scientist Samir Amin, who was by no means uncritical of Chinese socialism, pointed out that “the growth of income has been a reality for almost all the population even if that growth has been much higher for some than it has been for the others.” Therefore in China, “growing inequality has been accompanied by reduction of poverty”, unlike in the vast majority of countries of the Global South, where “growth – and in some cases significant high growth – has benefited only a minority.” He also makes a point about gini coefficient and how it's not a holistic metric, because "China and India may have the same Gini coefficient, and yet the social meaning of the same apparent phenomenon (growing inequality) is very different"

Arthur Kroeber notes that:

A host of policies specifically designed to reduce urban-rural inequality and inequalities between poor and rich regions. Programs to boost rural incomes have included: a relaxation of rules requiring farmers to grow grain, enabling them to increase production of more profitable cash crops; the easing and finally abolition of taxes and fees on agricultural production; a major push to build farm-to-market roads, helping farmers gain access to richer urban consumers; and stepped-up investments in food processing industries.

Massive state investment in agricultural infrastructure is “a significant shift away from the previous focus on economic development.” Because of the success of modernization, “greater weight will be given to the redistribution of resources and a rebalancing of income.” Instead of viewing market socialism as an end in itself, the CPC has harnessed the market as a means to generating an industrial base sufficient to build ‘higher socialism’. China’s extraordinary GDP growth and technological development via market socialism makes it possible to implement these sweeping revolutionary changes.

Xi Jinping has also pushed for wealth redistribution, forcing private companies to donate large sums of their profits, around 76% into rejuvenating the unequally developed interior regions and area's still stricken with poverty. Xi has promised to tackle income inequality, which is a 'warning signal for the wealthy'

Turning to the macroeconomic situation, China’s application of the socialist market economy has led to serious disparities in income. While undoubtedly a defect of ‘lower socialism’, the Chinese state takes this contradiction very seriously and announced an unprecedented government spending campaign in March 2011 aimed at closing the income gap. By increasing public spending by 12.5% in 2012, the CPC will allocate enormous government resources “for education, job creation, low-income housing, health care, and pensions and other social insurance.”

Growth of Cooperatives

Thanks to a 2007 law strengthening rural cooperatives This has lead to roughly 48% of all rural households by 2018 as apart of a cooperative. And as a way to increase agricultural efficiency through integration both horizontal — by combining small farms into larger, more efficient entities — and vertical — by bringing together the production, processing, storage, transportation, and sales into one industrial chain. In the process, agricultural officials hope to transform the country’s scattered landholders into large-scale farms, realize economies of scale, and improve farmer bargaining power. In 2017, there were 30,281 primary (village-level) supply and marketing cooperatives (SMCs), 2,402 country-level federations of SMCs, 342 city-level federations of SMCs, 32 provincial-level federations of SMCs, 21,852 cooperative enterprises and 280 cooperative institutes represented by ACFSMC (All China Federation of Supply and Marketing Cooperatives). There were 3.4 million employees in all SMCs represented by ACFSMC. And under Xi Jinping's administration, About 95% of towns and villages have a SMC as of 2019, compared to 50% a mere 6 years prior.

Under the Xi Jinping administration, the Zhejiang economic model is spear headed by cooperatives and cooperative growth. The cooperative sector continues to grow, China's supply and marketing system will realize sales of agricultural products of 2.7591 trillion yuan and daily necessities of 1.4925 trillion yuan, a year-on-year increase of 24.3% and 17.1% respectively. A recruitment notice stated that in 2023, the All-China Federation of Supply and Marketing Cooperatives plans to take the examination and recruit staff from the agency. Outstanding young people who are interested in joining the supply and marketing cooperatives are welcome to apply for the examination.

Healthcare Reforms

The New Cooperative Medical Scheme (NCMS) was rolled out in China from 2003-2008 which provided insurance to 800 million rural Chinese. A study found that there was a significant decline in aggregate mortality, with the program saving more than one million lives per year at its peak, and explaining 78% of the entire increase in life expectancy in China over this period.

On health care, Austin Ramzy of TIME Magazine reported in April 2009 that “China is laying out plans to dramatically reform its health care system by expanding coverage for hundreds of millions of farmers, migrant workers and city residents.” These plans consist of spending “$125 billion over the next three years building thousands of clinics and hospitals and expanding basic health care coverage to 90% of the population.” Rather than a reversal of the Deng-era reforms, China’s move back towards public health care is the logical progression of the more modernized and expansive health care system achieved through the Socialist Market Economy.

China’s round of health system reform in 2009 has made good progress. Almost everyone is covered by the social health insurance system and basic public health service package, and unmet health needs and inequities have decreased. In 2003, 29.6% was the proportion of patients who were advised by doctors that they needed treatment in hospital but did not use inpatient care. By 2013, that number dropped to 7.4% In 2000, 50% of health expenditures were out of pocket, this has decreased to 28% in 2017. In 2000, infant mortality was 25.2%, this decreased to 3.8% by 2017.

Fiscal investment in healthcare in the PRC have more than tripled over the course of 2010 to 2018. In new drugs, pharmaceuticals from Pfizer to Roche have agreed to cuts of as much as 70%. For generic drugs, prices have dropped an average of 52% so far through a government bulk-buying program. Funding for Chinese biotech firms has more than quadrupled within the span of 2017 to 2019.

In 2018, 85.2 percent of the hospital visits come from state owned hospitals, even though 46% of hospitals in China are state owned. The number of public hospitals was 12,032 with an average of 399.1 beds per hospital, while the number of private hospitals was 20,977 with 8.5 beds per hospital; utilization rate was 91.3 percent in public hospitals and 63.4 percent in private hospitals. 85.2 percent of the treatments were carried out by public hospitals and the remaining 14.8 percent by private ones.So despite common belief that healthcare is actually dominated by private hospitals, state owned hospitals are far larger and service more people.

China is also curing cancer much faster and cheaper than any developed nation, with 55% of all CAR-T research being conducted in China. Of course, the reasoning is because of State directives and economic planning, for the "Healthy China 2030" plan to spearhead cancer reduction and is currently spearheading effective cancer cure research out of all the world's nations.

Improved Working Conditions

As foreign capital entered China, the corporations of imperialist countries–attracted by China’s vast labor pool–exploited some Chinese workers through capitalist relations of production. The exploitative behavior of foreign corporations constitutes a major contradiction in the Chinese economy that the CPC has taken concerted steps towards resolving. While all people in China retain access to essential goods and services like food and health care, the CPC places restrictions on foreign corporations’ ability to operate in China that severely curtail their politico-economic power in China.

The CPC has therefore made tremendous efforts to meet the demands of local protests and strikes as well as hold local governments accountable for causing or mishandling protests that spin out of control. Chinese workers have successfully organized collective action to get local governments, and the courts as mentioned above, to help accommodate their claims, most notably getting payment for wage arrears.

Far from abandoning Chinese workers in the pursuit of modernization, the CPC announced the Draft Labor Contract Law in 2006 to protect the rights of workers employed by foreign corporations by ensuring severance pay and outlawing the non-contract labor that makes sweatshops possible. Viciously opposed by Wal-Mart and other Western companies, “foreign corporations are attacking the legislation not because it provides workers too little protection but because it provides them too much.” Nevertheless, the Draft Labor Contract Law, which “required employers to contribute to their employees’ social security accounts and set wage standards for workers on probation and overtime,” was enacted in January 2008. In 2008, the number of migrant workers suffering from wage arrears was roughly 4%.

Similarly, a study in 2009 found that more often than not, the arbitration tribunals in mainland China are biased in favor of employees suing their employers. Because arbitration tribunals are sympathetic towards employees-who are traditionally seen as the weaker party-they will sometimes overlook acontract violation by the employee. In addition, sometimes tribunals assume that companies can bear the financial losses more readily than employees. Therefore, more often than not, employees win in arbitration or in court based on prejudice in their favor. In 2008, the number of labor-related cases doubled to over six hundred thousand, and that number has stayed relatively steady since then. In 2011, workers won almost two hundred thousand of the cases they brought, whereas employers won less than seventy-five thousand.

Since 2009, China's worker fatality per 100,000 workers was the same as Australia's. By the end of 2010, China's worker fatality rate per 100,000 workers was lower than Australia's and the gap continues to widen. The fatality rate per 100,000 workers in Australia is 1.6% in 2015. The fatality rate per 100,000 workers in China is 1.07% in 2015.

Another study in 2013 found that younger generations of migrant workers experienced far greater job satisfaction than older generations, as well as more likely to rely on governemnt channels to help solve disputes in the work place compared to older generations. While also having increased wages, insurance and a slight decrease in work hour. This indicates the state apparatus for solving work related disputes have increased in efficacy and conditions on the whole are rising. A similar 2013 survey found that out of 43 nations surveyed in the OECD, China had the most protective legislation for employed permanent workers against individual and collectivie dismissal.

In 2013 among migrant workers in the construction industry 1.8 per cent suffered from wage arrears, compared to the 0.9 per cent in the manufacturing sector. In 2014, it was 1.4 per cent in construction compared to 0.6 per cent in manufacturing. While wage arrears remains an issue, it is a gradually declining and miniscule issue that affects less than 2% of the total rural migrant working population in those industries, therefore the issue of underpaying or refusing to pay migrant workers at all is an overexaggerated issue that is blown out of proportion.

The recent series of labor disputes between Chinese workers and foreign corporations testify to the working class orientation of the Chinese state. In response to widespread strikes at Western factories and manufacturing plants, the CPC undertook an aggressive policy of empowering Chinese workers and backing their demands for higher wages. Beijing’s regional government raised the minimum wage twice in six months, including a 21% increase in late 2010. In April of 2011, the CPC announced annualized 15% wage increases with “promises to double workers’ wages during the 12th five-year plan that lasts from 2011 to 2015.”

Dramatic increases in wages and benefits for Chinese workers, particularly migrant workers, is a serious blow to foreign corporations and makes China a decisively less attractive hub of cheap labor for foreign investors. Contrary to the actions of a capitalist state in the face of labor unrest, which generally consists of petty reforms or brutal repression, China’s response is to launch an offensive against the hoarding of wealth by foreign corporations by forcing them to pay substantially higher wages.

In the book, A New Deal for China's workers (released in 2016) states that,

"In enacting the LCL, and in doubling down on its employment protections by restricting the use of labor dispatch, China is swimming against both a modest liberalizing current in parts of the developed world and deeper trends toward declining job tenure, splintering of work organizations, outsourcing of production, and contingent work arrangements. The continuing slide from long-term employment within integrated firms toward a “gig” economy, though celebrated by some, has potentially dire consequences for workers who risk losing the entire panoply of rights, protections, and benefits that twentieth-century reforms had attached to the employment relationship. But China is seeking to defy that trend, and to shore up job security and stability."

Though trying to portray the CPC in a negative light here, it still admits that the CPC opposes and seeks to ensure better job security and stability compared to the Capitalist nations of the West. Defying a gig economy and seeking to double down on employment protection has done far more than the rest of the "developed world" in securing and defending the rights of the working class.

Since 2013, the proportion of migrant workers who are owed wages has been below 1%, but there are fluctuations from year to year. From 2013 to 2015, the proportions of migrant workers who were owed wages were 1%, 0.76% and 0.99% respectively. The number of migrant workers in 2016 who were owed wages was 2,369,000 out of 281,710,000, which is 0.84% of the total rural migrant population. In 2016 in the manufacturing, construction, wholesale and retail, transportation, warehousing and postal industries were 0.6%, 1.8%, 0.2% and 0.4% respectively.

In 2018, there were a total of 1,110,175 people involved in labor disputes. The number 1 cause being labor renumeration/wage arrears. Number 1 reason for case settlement was agreed upon increase in wage, and the number 1 way this was administered was legal order to make required adjustment. Out of 894,053 cases of labor issues, 93,823 were won by employers. The proportion of migrant workers who suffered from wage arrears was dropped to 0.67%. The three indicators of wage arrears cases investigated by the National Labor Inspection Bureau, the amount of arrears and the number of people involved have also shown a downward trend year by year, with the decline rate in recent years being more than 30%.

From a period of 2008 to 2019, the average late wage payment/wage arrears rate is 1.29%, with the highest of 4% in 2008 and the lowest rate of 0.5% in 2012. In 2020, there were a total of 1,283,491 people involved in labor disputes, which is around 0.16% of the entire employed population of China . The number 1 cause being labor renumeration/wage arrears. Out of 1,100,681 cases, 112,053 were won by employers. The number 1 way this was enforced was legal order to make required adjustment.

A 2020 study goes over the dramatic rise in worker's safety in the Coal mining industry in China, paired with state intervention and the reduction of private enterprise within the sector. The study states that:

Coal mine safety management is undoubtedly one of the most successful public governance practice cases in China in recent 20 years. The death toll from accidents decreased from 7625 in the peak year of 1989 to 225 in 2020.

Strenghtened Unions/Worker's Congresses

A 2003 study found that input of the trade union and SWRC does have a significant positive impact on the protection of the workers’ occupational health and safety.

A 2004 study found that these Worker's Congresses were able to dismiss managers when they failed to get more than 60% votes of confidence, and that it was possible for these unions to significantly improve health and safety conditions, or to fairly distribute new housing benefits.

In 2005, a study released regarding the influence of Worker Congresses and Chinese unions analyzed the effects of companies that had unions or no unions. When surveyed, the worker satisfaction along the metrics of greater worker rights, greater wages and greater abilities to settle conflcits in favour of workers. It was found that generally speaking, worker satisfaction was higher than in companies without them. And in the same study, claims around 80% of all companies have some form of workers union on board. Worker's participation however, is not mandatory in these Unions and those who do not wish to unionize are not required to have a union.

A study analyzing data in a 2006 survey of 1,268 firms in 12 cities found that unionization is significantly associated with higher hourly wages and larger pension coverage and weakly associated with lower monthly working hours. Further econometric analysis finds that unions promote individual and collective contracts. The effect of collective contracts vanishes when unions are present, whereas individual contracts have independent and positive effects. In addition, unions have effects on workers’ welfare independent of collective and individual contracts.

In 2012, the number of unions in SOE's were 88.1% and in non-SOE's to be around 85.5%. It also states that within Chinese companies 32.7% of employee representatives at the company and plant level are nominated and elected directly from employees, while 61% of them are nominated by the Party committees and elected by employees. The same study finds that worker congresses are positively associated with better health and safety, and more likely to report issues or flaws within company structure, as well as a useful consultation method that better leveraged worker voices towards the higher ups.

In 2021, Several laws and regulations to protect the rights of workers in the “gig economy”. Tech companies “must now sign labour contracts with their gig workers, and provide them with the insurance coverage of state-run insurers”; furthermore, in 2022, China’s Trade Union Law has been revised to enable and encourage unionisation of gig economy workers.

The state is an instrument of class oppression. Bourgeois states reluctantly give the working class reforms, like minimum wage, when no other course of action is possible. Their orientation is towards improving conditions for the bourgeoisie and subordinating labor to capital. Proletarian states boldly support and immediately respond to the collective demands of the workers because they constitute the ruling class in the society. Greater willingness by the CPC to confront and attack foreign capital in the interests of the working class is the deliberate product of market socialism’s success in developing China’s productive forces. Having resolved the primary contradiction–backwards productive forces–the CPC is breaking ground on the contradiction of unequal development.

Far from a move designed to placate any social unrest, this monumental boost in social spending and deepening a more "Planned sector" of the economy demonstrates the Chinese state’s continued proletarian and peasant class orientation.

Concluding Thoughts

A correct position on China requires above all else a holistic examination of the country’s economy placed within the context of the CPC’s path towards modernization. Focusing too narrowly on China’s market economy and its defects clouds the most important facts, which is that the working class and peasantry still rule China through the CPC and the success of modernization via the market economy has paved the way for ‘higher socialism’.

The People's Republic of China remains comitted to Socialism and we can clearly see that with how the Economic system of China is constructed.

See Also

• Deng Xiaoping
• Socialism with Chinese Characteristics
• People's Republic of China
• Reform and Opening Up