Socialist market economy

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 Jiang Zemin, then General Secretary of the Central Committee of the Communist Party of China , in the report of the 14th National Congress of the Communist Party of China in 1992. 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 proletariat vs bourgeoisie. Instead it was how to build socialism with underdeveloped productive forces. The answer was inspired by Lenin's NEP: where the markets are controlled by the Communist Party of China. The goal is to modernize the productive forces, to enable the building of higher stage Socialism. This is not a "betrayal" of Socialism or MaoFar 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.

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

Marxist historical materialism believes that the state is the product of the development of human society to a certain stage. 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.

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 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.

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.

Sometimes the "openmindedness" they 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 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 the use of plans. 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.

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

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"

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.

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, China’s socialist market economy has its roots in the New Economic Policy (NEP) of the Bolsheviks.

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 and implemented by Lenin in 1921, the NEP was the successor to Trotsky’s policy of war communism, which prioritized militarizing agricultural and industrial production to combat the reactionary White forces. Because of their economically backward material conditions, peasants overwhelmingly resisted war communism, which resulted in food shortages for the Red Army. 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 mechanisms.

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."

Public and non-public ownership

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 Communist Party of China's continued leadership and control of China’s market economy is central to Chinese socialism.

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. 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 investment firms in 2017 being 80.9% central state owned, 13.7% local state owned and only 4.67% being truly private. 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 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. This statement is further elaborated and expanded upon inThe 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."

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). And during 1991, the national industrial sector only had around 11.41% being truly private.

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

"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 2014, China's top 500, 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. The total profit of these SOEs account for 83.9 percent out of the total 2.4 trillion yuan 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. It showed that state-owned economy remained dominant and controls the leading industries in the national economy.

In a May 2009, Derrick Scissors of the Heritage Foundation lays the issue to 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. "

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."

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. 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.” 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.

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

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."

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. 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."

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. 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.

While the CIS 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.

Opening Up has led to development

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.

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.”

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.

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.

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."

That China can essentially guarantee full employment for workers highlights another way in which the CPC uses markets to advance socialism. In addition to achieving de facto full employment, “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 Profit Rate to Fall.

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. Once you account for disposable income, it has increased 1,000% within 2002 and 2022. Continuing to steadily climb, showing that the Tendency of Profit Rate 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.”

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 new 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.”

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.

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.

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 30 years of market socialism.

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.

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.

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.

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 between foreign capital and labor.

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

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 CCP and the success of modernization via the market economy has paved the way for ‘higher socialism’.

See Also

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