Essay:A short defense of the Socialist Market Economy of China

THIS ESSAY IS SHORT AND "DEFUNCT", FOR A BETTER AND MUCH MORE COMPREHENSIVE ARTICLE, WITH SOURCES AND FAR GREATER DETAIL, CHECK THE ONE I WROTE FOR PROLEWIKI:

Why China is not Capitalist

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The Socialist Market Economy and the Reform + Opening Up Period was necessary for the People's Republic of China. It was to necessitate survival in a globalist world, where trade options are limited, one had to open themselves up to market forces and to build up the productive forces.

Those who cry "revisionist" and stuff along those lines don't understand basic economics. Marxism is a Frankenstein ideology that evolves and reforms with the times. The concept of building the productive forces was a byproduct of formulations the Second Internationale. Marx also talks about this in Critique of the Gotha Programme.

The existence of companies and markets do not dispute nor contradict with the Socialist character of the People's Republic of China. The New Economic Policy proposed by Lenin was the inspiration for Deng Xiao Ping's Reforms. The NEP allowed for Small to Medium sized businesses (and so does the Dengist Reforms) to exist with the State as a guiding hand. The market is regulated by the state. Markets have existed long before Capitalism, Markets do not come about nor exist because of Capitalism.

The Chinese state has not once relinquished state control of agricultural pricing, heavy industry, power and energy, transport, communications, foreign trade and finance/banks. "Private companies" in China operate on a very different character than ones that do in the West. As Derrick Scissors of the Heritage foundation puts it,

"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" (By state owned, this not only refers to SOE, but Joint-ventures, where the State works with the private sector to form a company

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.

China is not state capitalist either. 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" (CIS, Center for Independent Studies, a Capitalist Australian think-tank) 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."

In "Private" companies, the CPC still maintains at least 50% ownership of the Board, thus having de-facto control over the private sector. Private Chinese companies produce things like pens, socks, shoes, toys, ties, and Christmas decorations. They are big in the building industry. They employ carpenters, plumbers and electricians, but the largest building industry, which is on the Fortune 500 list, is state owned. This company is called China State Construction and employs 294 000 people. The service sector is a much smaller sector than anywhere else in the world compared to manufacturing. Services, where 55 percent of all private companies are found, take care of tourists, catering and haircuts among other things. These are hardly sectors that would be nationalized even in a healthy workers state.

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, proxy voting is not permitted at shareholders meetings. This favor's those that own many shares. In China, that is often the state

A quick referral to Lenin's quotes on the NEP and the use of market forces within Socialism.

"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 nationalization of the land, shows that the New Economic Policy does not change the nature of the workers’ state"

"Socialism is inconceivable without large-scale capitalist engineering based on the latest discoveries of modern science. It is inconceivable without planned state organization 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)"

If you are wondering how China controls the economy instead of having it being regulated by Capitalists, they do it via: the state banks, the state budget, the five-year plan (it can decide upon the what direction the economy should take...The state planning body, the NDRC (National Development and Reform Commission) drafts the five-year plan that is then approved by the Communist Party. The SASAC controls the flow of investments to the SOEs and tries to make sure that the economy runs along the lines laid down by the five-year plan. SASAC was established in 2003 as a means of strengthening the central governments control over the economy.)

The Chinese government does more than control the flow of investments. They also appoint the top managers. When the government thought that the managers of the two mobile and the two fixed telephone line companies were spending too much time competing with each other they switched the managers around, forcing them to take each other’s jobs, so that they would learn to co-operate better. The main reason for planning is to abolish the anarchy of the market. That is, abolish the competition between large privately owned companies, and replace their competition with a general plan. The central state should not be involved in details which should be taken care of lower down the line. This is more or less how things function in China today.

Breaking down China's GDP and which economic sectors make up it:

[First] About one third of GDP is produced by the SOEs. They are highly concentrated and completely dominate investment. They run the decisive sectors of the economy.

[Second] About one third of the economy is private. However, the state has a considerable influence on this sector. Firstly a large part is agriculture, which is heavily dependent on the state (through the use of Worker Co-Operatives) and is run by peasant households that do not want to break their dependence on the state (Worker Co-Op's)

Secondly, the state, although a minority shareholder, exercises a disproportionate influence over many private companies. Thirdly, the state through joint-ventures and other means has a high degree of control over foreign multinationals, and dispenses with them as soon as they can build up a domestic alternative. The residual private sector is very small.

[Third] About one third of GDP is produced by the TVEs. [Township and Village Enterprises. The TVEs consist of small and medium sized businesses, some export oriented, mainly in rural towns and village.] The majority of this is produced by larger TVEs controlled by local governments. The smaller ones are mainly private and are in the poorest and most backward parts of the country.