Whither China?

Political Revolution or Counterrevolution

In 1939, James P. Cannon, the historic leader of American Trotskyism, remarked: “Who touches the Russian question, touches a revolution. Therefore, be serious about it. Don’t play with it” (The Struggle for a Proletarian Party). Revolutionaries today must approach the “Chinese question” in the same way.

The “market reforms” of the past three decades have reintroduced capitalist—and in some cases, even pre-capitalist—forms of exploitation for millions of workers in China. This has led many leftists to conclude that the Chinese Communist Party (CCP) bureaucracy has transformed itself into a new ruling class and turned “Red China” capitalist.

CCP censorship and the impressionistic “news management” of the Western media have contributed to widespread confusion about the nature of Chinese society. Making sense of recent developments is further complicated by the sheer immensity and diversity of China. There are vast regional disparities between the booming southeast, rusting northeast and the comparatively underdeveloped and isolated west. There are also enormous differences between provinces within the same region, counties within the same province and even villages within the same county. For example, in Nanjie village in Henan province, where collectivized agricultural production has been maintained, industrial enterprises still provide employees with the guaranteed “iron rice bowl” introduced by Mao Zedong in the 1950s. Yet in other Henan villages state-owned and collective industrial enterprises have been almost completely privatized.

In the final analysis the class character of a state is based on the underlying social relations of production. The Chinese Revolution of 1949 created a bureaucratically deformed workers’ state modeled on the Soviet Union under Stalin. While foreign and domestic capital was largely expropriated, political control was monopolized by a privileged caste—the top layers of the CCP—that pursued class-collaborationist policies internationally while promising to chart an autarkic path to a nationally isolated “socialist” China.

To assert that China remains a deformed workers’ state is not to deny that the policies of the CCP over the past several decades have increased momentum toward a restoration of capitalism. It is, in fact, the only description that provides a coherent explanation of the class character of the CCP, the origins and development of the state created by the social overturn of 1949 and the alternative prognoses for the future of the Chinese Revolution.

Capitalist restoration—that is, the overthrow of the CCP and its replacement by a regime committed to the privatization of the land, the banks and the rest of the state-owned sector of the economy—would most immediately impact China’s 1.3 billion citizens, the vast majority of whom are workers and peasants. It would also have enormous international repercussions, greatly increasing pressure on Vietnam, North Korea and Cuba, the world’s other deformed workers’ states. Opening China’s immense market to untrammelled foreign penetration would set off a chaotic and dangerous struggle involving the United States and Japan, and possibly other imperialist powers, over the spoils of counterrevolution.

The Chinese Question Today

China has long been an important touchstone for Marxist internationalists. The bloody defeat of the Second Chinese Revolution of 1925-27 led Leon Trotsky to generalize his theory of permanent revolution. Trotsky concluded that, just as in Czarist Russia, the indigenous capitalists in China and other backward countries were too closely tied to foreign imperialism, and too fearful of plebeian revolt, to be capable of carrying out a bourgeois-democratic revolution:

“With regard to countries with a belated bourgeois develop-ment, especially the colonial and semi-colonial countries, the theory of the permanent revolution signifies that the complete and genuine solution of their tasks of achieving democracy and national emancipation is conceivable only through the dictatorship of the proletariat as the leader of the subjugated nation, above all of its peasant masses.”
—“What is the Permanent Revolution?”

In the 1930s, under Mao’s leadership, the CCP advocated the Menshevik-Stalinist strategy of “two-stage” revolution. This class-collaborationist scheme called for a first, “New Democratic” stage of unity with the “progressive” bourgeoisie (represented by Chiang Kai-shek’s Guomindang) that would supposedly benefit both the exploiters and their victims. The socialist “second stage” was postponed to some hazy point in the indefinite future.

But in the course of a savage and protracted civil war that polarized Chinese society, the CCP was eventually compelled to abandon any thought of coalition with the Guomindang. In 1949, the CCP’s peasant armies finally rolled into China’s major cities and Chiang and his generals fled to Taiwan, along with most of the big capitalists. The CCP’s victory smashed the existing bourgeois state and freed China from imperialist control. The property of the gentry-landlord class was expropriated and millions of hectares of farmland were turned over to poor and middle peasants to cultivate. In the cities, property belonging to the “bureaucratic bourgeoisie” was nationalized and a state monopoly of foreign trade was instituted. At the same time, the CCP ruthlessly crushed all attempts at independent political activity by the workers’ movement and created a centralized, bureaucratically-planned economy.

The Chinese Revolution stunned Chiang’s imperialist backers and fanned the flames of anti-colonialism and social revolt throughout East Asia and beyond. It quickly resulted in enormous advances for the vast majority of China’s population. Women, who were living under conditions approximating slavery, were able to enter into social and economic life for the first time. There was a tremendous expansion in literacy, as well as massive improvements in health care, housing, education and the provision of other basic social services. Mammoth irrigation and waterworks were constructed, creating the prerequisites for subsequent advances in agricultural productivity. Life expectancy, which stood at 35 years in pre-revolutionary China, had nearly doubled to 65 by the mid-1970s.

Despite the catastrophic consequences of the “Great Leap Forward” in the late 1950s, and the chaos of the “Great Proletarian Cultural Revolution” of the 1960s, China’s economy grew substantially. Between 1950 and 1977, industrial output expanded at an annual average rate of 13.5 percent, higher than any other major country—“developing” or “developed”—during that period. As historian Maurice Meisner observed, “Without the industrial revolution of the Mao era, the economic reformers who rose to prominence in the post-Maoist era would have had little to reform” (Mao’s China and After: A History of the People’s Republic).

Unlike the Bolshevik Revolution led by Lenin and Trotsky, the 1949 Chinese Revolution led by Mao’s CCP was bureaucratically deformed from the outset. The Russian Revolution of 1917 was carried out by the Bolshevik Party at the head of a class-conscious workers’ movement schooled in many years of political struggle. The Bolsheviks sought to create a state based on institutions of proletarian democracy—workers’ councils—and regarded the October Revolution as the first step in a world socialist revolution. The CCP’s road to power involved a military-bureaucratic social overturn, and the institutions it created were closely modeled on those of the degenerated Soviet Union. The CCP bureaucracy adopted Stalin’s reactionary dogma of “socialism in one country,” which constituted a denial of the importance of extending the revolution globally, and emphasized instead development on a nationally-limited scale.

Trotsky viewed the Stalinist bureaucracy that consolidated power in the Soviet Union after 1923 as a brittle and contradictory caste, rather than as some new kind of possessing class:

“The class has an exceptionally important and, moreover, a scientifically restricted meaning to a Marxist. A class is defined not by its participation in the distribution of the national income alone, but by its independent role in the general structure of the economy and by its independent roots in the economic foundation of society. Each class (the feudal nobility, the peasantry, the petty bourgeoisie, the capitalist bourgeoisie and the proletariat) works out its own special forms of property. The bureaucracy lacks all these social traits. It has no independent position in the process of production and distribution. It has no independent property roots. Its functions relate basically to the political technique of class rule.”
—“The Class Nature of the Soviet State,” October 1933

The Soviet bureaucracy’s power and privileges paradoxically derived from the collectivized property of the workers’ state. It “robbed the people” through endemic social parasitism rather than class exploitation in the strict sense. Trotsky anticipated that those sections of the bureaucracy that hoped to secure their privileges through privatization of state assets would align with the forces of capitalist restoration. More conservative elements, concentrated among those who stood to lose out in the event of large-scale privatizations, would tend to resist counterrevolution and might even throw in their lot with an insurgent pro-socialist workers’ uprising. Trotsky maintained that the ruling Stalinist caste had no necessary social function. In the long run, if the proletariat did not succeed in wresting power from the bureaucracy through a political revolution, capitalist counterrevolution would destroy the workers’ state.

Our analysis of the Chinese Revolution is based on the historic contributions of the Spartacist League (SL) of the 1960s and 70s, when it was still a revolutionary organization. (For an account of its subsequent degeneration see Whatever Happened to the Spartacist League?) During the late 1960s, when Mao’s “Cultural Revolution” was hailed by New Leftists and “Trotskyists” alike, the SL correctly identified it as an intra-bureaucratic feud, and asserted that all wings of the CCP constituted obstacles to China’s socialist development, which depended ultimately on the extension of proletarian revolution internationally. This position was powerfully vindicated in the early 1970s when Mao’s faction, fresh from its victory over its “capitalist roader” rivals, formed an overtly anti-revolutionary alliance with U.S. imperialism against the Soviet degenerated workers’ state.

Despite the enormous changes that China has undergone, there is an essential continuity between Mao’s regime of the 1970s, Deng Xiaoping’s of the 1980s and Hu Jintao’s today. The deformed workers’ state created by the 1949 Revolution has not (yet) been destroyed. In unconditionally defending the Chinese deformed workers’ state against capitalist restoration, Trotskyists uphold the gains of the social revolution, despite—indeed, against—the Maoist/Stalinist bureaucrats who monopolize political power within it.

Impressionists on China: Reformism in Reverse

A decade and a half ago, some leftists imagined that Deng’s “market socialism” might represent a viable “third road” between planning and the market (a view we critiqued in 1917 No. 14). Today, there can be no illusions on this score. Many who once trumpeted “market socialism” currently view China as a purely capitalist society. Victor Lippit, a prominent China scholar with a leftist bent who embraced Deng’s “reforms” in the 1990s, has since concluded that some form of welfare-state capitalism is the most that can be hoped for (Critical Asian Studies, January 2005).

Lippit, and others who share his pessimistic assessment, tend to a social-democratic view of the Chinese state as a class-neutral instrument which, if bureaucratic planning fails, can begin to introduce market elements leading to the gradual emergence of a fully capitalist society. Trotsky criticized such notions: “He who asserts that the Soviet government has been gradually changed from proletarian to bourgeois is only, so to speak, running backwards the film of reformism” (op cit).

Marxists, unlike reformists, consider that, at its core, the state is composed of “special bodies of armed men” that exercise a monopoly of force in defense of definite property forms—as Lenin explained in The State and Revolution. Capitalism can no more be restored in a workers’ state through the quantitative extension of market relations than it can be eliminated in a bourgeois state through a gradual expansion of the public sector into banking or manufacturing.

Most accounts of “capitalist restoration” in China are based on the apparent dominance of market relations in the economy. Even the leading organs of imperialist finance capital, which are normally acutely sensitive to questions of property rights, regularly refer to China as “capitalist,” albeit with a modifier of some sort. The 20 September 2008 Economist, for example, speaks of “state-led” and “oligarchic” capitalism in both Russia and China. Elsewhere China’s economy has been described as “authoritarian capitalism,” “bureaucratic capitalism” and “developmental capitalism.”

One of the more plausible “Trotskyist” attempts to explain how the CCP supposedly presided over a seamless reintroduction of capitalism appeared in the December 2007/January 2008 edition of Socialism Today, published by the Committee for a Workers’ International (CWI). In a statement entitled, “China’s capitalist counter-revolution,” Vincent Kolo, representing a minority viewpoint within the CWI, argued that the Chinese Stalinists have carried out a full capitalist restoration. The article asserts that a “brutal social counter-revolution of the last two decades…has seen the former Maoist-Stalinist bureaucracy, like its counterparts in the Soviet Union and Eastern Europe, abandon central planning and shift to a capitalist position.”

Kolo paints a vivid picture of the devastating effect of CCP “reforms” on the provision of education and health, which were previously guaranteed through rural collectives or urban state-owned enterprises (SOEs), but which are no longer affordable for many. He claims that China is more integrated into the global capitalist system than Russia or other former Soviet states in terms of trade and penetration of foreign capital. Chinese companies, he observes, are infamous for union-busting, corruption, environmental destruction and unsafe working conditions. While admitting that China’s banks, which he considers “as parasitic as any in the capitalist world,” are tightly controlled by the state, he argues that this is not particularly unusual in Asia. He concedes that in China land formally remains state property, but claims that successive “reforms” have effectively privatized its usage and amount to a “counter-revolution on the land.”

Kolo points to the fact that employment in the SOEs and collectives fell by half in the last decade as a result of waves of corporate “reforms,” mergers and downsizing, management buyouts and public stock listings. Today, three-quarters of the urban workforce is employed outside the public sector. While conceding that the SOEs account for the majority of fixed investment, Kolo argues that, as they are supposed to turn a profit, the state sector amounts to a “lever for developing the capitalist economy, providing a framework of essential industries such as energy and communications, plus targeted investments in certain advanced technological sectors after the Japanese and Korean models.”

There is no question that the SOEs have been reduced in size and pressured to become profitable. It is also true that the workers in the state enterprises, who could be considered to constitute the bedrock of pro-socialist sentiment within the Chinese proletariat, have been forced on the defensive. Yet a close examination of the evolution of China’s economic “reforms” and their intersection with recent factionalism within the CCP shows that the Chinese state has not undergone a qualitative transformation. It remains a deformed workers’ state.

Market ‘Reforms’ & CCP Control

The Chinese Stalinists introduced market “reforms” in 1978 without any intention of incubating an indigenous capitalist class or undermining the SOEs. On the contrary, they hoped that the spur of market competition would make state firms more efficient, boost exports, modernize production technique and thereby accelerate China’s transformation into a “superpower”—which had been Mao’s goal all along. But as we have pointed out previously (see 1917 No. 14 and No. 26), the logic of the market cannot be harmoniously melded with a system characterized by state ownership and central planning. Capitalist markets impose discipline on workers and managers through the “law of value”—when labor power becomes too expensive, it is shed; when firms cannot compete, they go bankrupt. The “efficiencies” of the capitalist market derive from the commodification of both labor power and the means of production.

Planning in a workers’ state, by contrast, subordinates the law of value to conscious economic coordination. Evgeny Preobrazhensky, the leading economist of the Left Opposition in the 1920s, noted in The New Economics that two laws with diametrically opposed tendencies operate during the transitional period between capitalism and socialism. The first he identified as the “law of socialist accumulation,” and the second, the law of value. If the law of value is not overridden when it conflicts with consciously determined priorities, the planning mechanism will be negated—i.e., scarce investment resources will be directed by considerations of profit maximization rather than social utility.

Throughout the 1980s, Beijing’s economic policy oscillated—with bouts of “reform” alternating with periods of retrenchment—as the negative consequences of reliance on market indicators became too pronounced. The brutal suppression of the Tiananmen demonstrations in 1989 was followed by a period of infighting within the CCP leadership between “conservatives” and pro-market elements headed by Deng. The victory of Deng’s faction in 1992 produced an uninterrupted wave of dramatic “reform,” many of the consequences of which are cited as evidence of China’s capitalist transformation.

The market reforms have resulted in large-scale appropriations of state property by both legal and illegal means. This has produced many of the phenomena that could be expected to accompany a social counterrevolution, including endemic corruption, environmental degradation, mass layoffs and the shredding of the social safety net. Yet, while clearly indicative of the direction in which China is headed, these developments do not signify that capitalism has been restored.

An important factor that must be considered is the extent of privatization in the economy. China’s agricultural sector remains extremely socially and politically significant because some 700 million people—roughly half the population—still work the land. Some leftists mistakenly view Deng’s decollectivization of agriculture as de facto privatization. In fact, land remains state property, and this has insulated many poor peasant families from the full impact of the vagaries of the market. While conditions vary widely between regions, it is common for township governments to redistribute land-use rights, regardless of leases, in order to maintain rough parity in holdings. Legal prohibitions on farm households using their land for non-agricultural purposes have limited speculation and capitalist appropriation. Restrictions on land use have proved to be a lifeline for the millions of migrant laborers now returning to their home villages in the interior after being laid off by the export industries of China’s east coast (China Leadership Monitor, Winter 2009).

Legal formalities have not prevented some local governments from selling peasant land to industrial and commercial interests—nearly half of the 90,000 “mass incidents” in China last year were sparked by such seizures. The Western bourgeois press has gleefully reported how some desperate peasants have embraced privatization in an attempt to protect their land tenure from illegal seizures. Pro-privatization sentiment certainly exists, but it is by no means universal. In 2008, several hundred angry farmers in Longzhuaoshu, a village near Beijing, erected a large banner that read: “Collectively Owned Land Should Not Be Used For Commercial Purposes” to protest the paltry compensation they were given for the conversion of their farmland to non-agricultural use (Toronto Star, 15 November 2008). For three days they blocked trucks, bulldozers and steam shovels. They were eventually dispersed by hired goons and local police, but their willingness to resist this social parasitism points to the importance that the land question is likely to have in future political and social struggles.

China’s entry into the World Trade Organization (WTO) in 2001 potentially threatened the livelihood of peasant farmers unable to compete against the large-scale, mechanized production of imperialist agribusiness. While meeting some WTO obligations with lower tariffs and import quotas, Beijing has thus far shielded small agricultural producers to avoid bankrupting millions of poor peasant households. The CCP’s “new socialist countryside” program, which eliminated tuition fees for primary and secondary schools, reduced agricultural taxes, expanded infrastructure investments and increased funding for social services, has also eased conditions for many rural families.

In the industrial sector, the SOEs underwent dramatic changes a decade ago when some 30 million workers were laid off, and tens of thousands of small and medium-sized enterprises were privatized or “corporatized” through issuing shares and entering into joint ventures (see 1917 No. 26). These measures were pushed through by the CCP’s Zhu Rongji/Jiang Zemin leadership as a form of “shock therapy” in preparation for China’s entry into the WTO. Their intention was to force the largest SOEs to become internationally competitive while retaining state ownership. In fact, the SOEs survived, regardless of their profitability, as a result of state control of the banking system.

In 2003, SOEs accounted for some 70 percent of total fixed assets and 30 percent of non-agricultural production. The state sector remains dominant in most strategic industries, including heavy machinery, steel, petroleum, non-ferrous metals, electricity, telecommunications and transportation. In recent years, the privatization of larger SOEs has virtually ceased. Only a tenth of insolvent SOEs filed for bankruptcy in 2007 and 2008; the rest were prevented from doing so by local officials concerned about losing access to government resources (Economist, 13 December 2008).

The size of the state sector distinguishes China from its capitalist neighbors, including the so-called “tigers.” Singapore’s SOEs account for about ten percent of GDP, South Korea’s five percent and Taiwan’s half that (UBS Investment Research, “How to Think About China”). The dimensions of the state sector, combined with land ownership, means that, despite the inroads of private property, the Chinese economy is still predominantly collectivized. Zhiwu Chen, a Yale economist, notes:

“Despite privatization, there are roughly 119,000 state-owned enterprises today, with a book value of about $4-trillion. State-owned land is valued at more than $7-trillion. Combined, these state-owned assets total almost three-quarters of China’s national productive wealth.

“With the state owning so much, most of the gains in asset values experienced over the past 30 years have gone into the government’s coffers. When most households own no productive assets, they cannot share any of the asset appreciation or property income. For most citizens, wages are the only source of income.”
—Globe and Mail [Toronto], 26 November 2008

Of course, a deformed workers’ state cannot be identified solely by the extent of state ownership. There are indeed many cases where capitalist states have resorted to extensive nationalizations in response to major crises or to prop up enterprises in strategic sectors that are unable to compete successfully on the market. Various semi-colonial states have also nationalized oil and other natural resources in order to boost revenues and increase autonomy from imperialist predators. None of these are “anti-capitalist” acts, but rather attempts to strengthen the position of the bourgeoisie as a whole.

Those who see China as capitalist claim that nationalized property serves this function today, and treat the CCP bureaucracy as simply an agent of foreign and domestic capitalist interests. While it is true that, for the time being at least, China’s capitalists limit themselves to talk of “reforming,” rather than overthrowing, the CCP, both the imperialists and the indigenous capitalists look forward to the establishment of a bourgeois “multi-party democracy” where everyone is “free” to buy as much political influence as they can afford.

In the economic sphere, bourgeois ideologues tend to focus on proposing “reforms” to incrementally shrink the state sector and unfetter capitalist accumulation, thereby strengthening the restorationist forces in anticipation of the inevitable political crisis that China is drifting toward. A 2006 paper by Wing Thye Woo, a Chinese economist who teaches at the University of California (Davis), provided a wish list for those who want to see capitalism restored:

“The most important economic task for China is to adopt the best economic growth engine that world economic history has identified: a market economy where com-petitive private enterprises constitute the norm, and where the state focuses mainly on the provision of public goods and social insurance. The switch to the new growth engine necessitates that China continues the privatization of non-defense-related state enterprises that are not natural monopolies, begins the privatization of [state-owned banks], and reduces drastically the legal discrimination against the private sector.”
—Journal of Chinese Economic and Business Studies, February 2006

In December 2008, a clot of “dissidents” presented the world with “Charter 08,” an even more overtly counterrevolutionary statement named after “Charter 77,” the 1977 manifesto that served as a rallying point for capitalist-restorationists in Czechoslovakia. The foreword to Charter 08 dismissed the 1949 Revolution with the claim that: “the Communist defeat of the Nationalists in the civil war thrust the nation into the abyss of totalitarianism.” The document contains the following blueprint for social counterrevolution:

“We should establish and protect the right to private property and promote an economic system of free and fair markets. We should do away with government monopolies in commerce and industry and guarantee the freedom to start new enterprises. We should establish a Committee on State-Owned Property, reporting to the national legislature, that will monitor the transfer of state-owned enterprises to private ownership in a fair, competitive, and orderly manner. We should institute a land reform that promotes private ownership of land, guarantees the right to buy and sell land, and allows the true value of private property to be adequately reflected in the market.”
—reprinted in New York Review of Books, 15 January

The increasing weight of private capitalist enterprises, both foreign and domestic, strengthens the forces of counterrevolution but does not automatically resolve the fundamental issue of which class rules. The decisive task of the capitalist counterrevolution is the political conquest of state power. The massive and continuing resistance of workers and peasants across China to capitalist encroachment, while so far entirely politically inchoate, is evidence that the ultimate fate of the Chinese Revolution has yet to be determined.

CCP’s ‘Left’ Turn

During the Jiang Zemin/Zhu Rongji regime (1996 to 2002), an influential section of the ruling bureaucracy openly embraced the notion that a gradual and harmonious transition to a capitalist economy could be accomplished without disturbing the supremacy of the CCP or touching off major social conflict. But it appears that the majority of party functionaries recognize that they would have no role to play in a thoroughly privatized economy. The SOEs are supposed to be profitable—and most have actually made money during the past few years—but their value to the party bureaucrats is not simply economic. They provide the foundation for the CCP’s political power, the primary justification for its existence and a key training ground for its core cadre. All top-level appointments, promotions and dismissals at the SOEs require the approval of the party’s Organization Department and Ministry of Personnel.

SOE managers who want to advance their careers must balance the pursuit of profitability with other requirements laid down by the party. In 2002, two oil executives were up for promotion from alternate to full members of the Central Committee at the 16th Party Congress—Ma Fucai of PetroChina and Li Yizhong of Sinopec. They both had to deal with strikes in their enterprises, but Ma, who had refused to make any concessions to his workers so that company profits would be higher, was passed over and remained an alternate, while Li, who took a conciliatory approach more in tune with the party’s concerns about social cohesion, was promoted to full membership (Erica S. Downs, “Business Interest Groups in Chinese Politics: The Case of the Oil Companies,” in China’s Changing Political Landscape).

Fear of social instability has constrained the CCP’s privatization program. Workers in China’s state sector, which still constitutes the core of the economy, tend to identify state property as their own and feel antagonistic toward private capitalists. A former employee at a state window frame enterprise, witnessing the demolition of his factory after it was sold to a private real-estate developer, remarked bitterly:

“Every inch of grass and every piece of steel in the factory belonged to us workers. They were our sweat and labor. People had tears in their eyes when they saw the fallen pieces of window frames left on the burnt ground. Those were state assets and these officials just squandered them….”
—Theory and Society, Vol. 31 (2002)

In denouncing the incursions of capitalist social relations, state-sector workers frequently employ the CCP’s own socialist rhetoric. When the Changjiang Sugar Factory was privatized, its employees protested:

“How to restructure the form of property should be democratically determined by workers. The county government cannot unilaterally decide it….Workers are the master of the enterprise and the main body (zhuti) of reform. Restructuring without consulting the workers’ and staff council and selling the factory without informing workers are serious violations of workers’ democratic rights. We demand to get back our democratic rights.”
—Modern China, Vol. 29, No. 2 (April 2003)

Such complaints resonate deeply within Chinese society. There is a widespread perception that the government operates as a tool of wealthy and powerful elites who have been enriched by the market reforms at the expense of ordinary working people. The current administration of President Hu Jintao (who is also CCP General Secretary) and Premier Wen Jiabao has responded with the CCP’s first “left” turn since the Tiananmen events, and is attempting to present itself as an opponent of the excesses of the capitalist roaders and a defender of workers and peasants.

The first indication of this shift came in 2004, when prominent intellectuals of what has become known as the “Chinese New Left” exposed the massive squandering of public assets that accompanied the privatization of several prominent state-owned companies. In November of that year, the government halted management buyouts of SOEs—the main mechanism for privatization—while the State-owned Assets Supervision and Administration Commission (SASAC, established in 2003 to manage the SOEs) implemented measures to maximize the value of state holdings and prevent asset stripping. The privatization of large SOEs has since stalled. Foreign ownership of steel companies was prohibited and a number of small private mines (where a spate of deadly accidents had taken place) were abruptly renationalized.

These measures have been accompanied by new restrictions on both the country’s “red capitalists” (CCP officials who become “entrepreneurs”) and foreign investors, the two primary beneficiaries of the WTO-oriented “market reforms.” The central government has been closely regulating urban land transactions and has imposed price and expenditure controls, including on food. Collusion between local officials and private businesses has been targeted, and a massive anti-corruption campaign, focused on the coastal elites, has been launched.

In 2006-07, the CCP imposed new regulations on foreign capital, increased scrutiny of foreign-backed mergers and introduced further restrictions on banking, retailing and manufacturing. These measures, aimed at aiding domestic companies and slowing the growth of poverty and inequality, led Myron Brilliant (vice president for Asia at the United States Chamber of Commerce) to complain: “It’s not only a threat to foreign investors but it also undermines China’s transition to a market-based economy” (New York Times, 16 November 2007).

The curbs on the private sector, while extremely limited, signal that significant layers of the CCP, feeling pressure from below, are uneasy about the pace and extent of “market reform.” In June 2007, state media ran horrific accounts of children and the mentally ill being forced to work as virtual slaves in brickworks in Shanxi, a relatively poor interior province. The revelation that local CCP officials apparently condoned this brutal exploitation sparked fierce popular outrage and renewed public criticism of pro-capitalist “reform.”

A group of 17 senior CCP cadres, including influential retirees from the military and industrial ministries, issued an open letter criticizing the extent of foreign penetration of the economy, the marginalization of the state sector and the low wages that have accompanied the reforms. The authors urged the approaching 17th Party Congress to reverse the pro-capitalist course and return to “Mao Zedong Thought,” i.e., renationalization and central planning. They warned that if the market reforms continue, “a Yeltsin-type person will emerge, and the Party and country will tragically be destroyed very soon” (reproduced on mrzine.monthlyreview.org).

The Maoist oppositionists’ proposals failed to pass. The “conservatives” are clearly a minority within the CCP and the openly Maoist faction smaller still. But the 17 who signed the letter are not minor figures. While it is impossible to know how widespread “conservative” sentiments are within the CCP, the tortured history of China’s property law suggests that they are not insignificant. In 2007, the National People’s Congress overwhelmingly approved a “Property Rights Law of the People’s Republic of China,” by a vote of 2,826 to 37, with 22 abstaining. This legislation, which spelled out the rights of private owners for the first time, had been held up by “conservative” and Maoist opposition for 13 years. As late as 2006, its supporters had been unable to have it considered, so it seems safe to presume that objections are still being aired behind closed doors.

The CCP bureaucracy places a great deal of importance on projecting an impression of stability by maintaining a united public face, but Hu’s left-populist turn appears to have increased internal tensions. The “conservatives” view the highly publicized crackdown on some of the worst examples of unbridled capitalist competition as too superficial to contain the rising tide of plebeian discontent. The capitalist-restorationists, or “neo-liberals,” have the opposite concern: they fear that Hu’s measures may stall the movement toward unrestricted market relations. With the support of some of China’s most prominent economists, they are proposing that the leading “dragonhead” SOEs should be the next target for privatization.

For Workers’ Political Revolution in China!

The direction and tempo of future developments are difficult to predict. It is clear however that, despite the deep inroads made by capitalist social relations and the emergence of a significant layer of “red capitalists,” China remains a deformed workers’ state. The CCP bureaucracy has neither transformed itself into some sort of new possessing class nor become a reliable instrument for foreign or domestic capital. The Chinese Stalinist bureaucracy remains a brittle and contradictory caste that acts as a transmission belt for the pressure of world imperialism, but whose political power and privileges derive from the collectivized property forms established by the social revolution of 1949. With significant elements within the party’s deeply fractured top echelon publicly advocating diametrically opposed programs—a return to central planning versus outright capitalist restoration—it is evident that the CCP’s grip on power is becoming increasingly tenuous.

Talk of China’s emergence as a global economic “superpower” reached its peak during the 2008 summer Olympics in Beijing, but the financial crisis that immediately followed has highlighted the vulnerability of China’s export-led development model, the depth of domestic social instability and the unrelenting hostility of the imperialist powers. The negative effects of China’s integration into the capitalist world economy are being felt most acutely in the heavily privatized and export-dependent south.

Already more than half of China’s toy factories have been forced out of business, throwing some two million people onto the street. A total of 670,000 small firms closed in 2008, with a loss of 6.7 million jobs. Construction projects have been suspended; automobile sales have plummeted and property prices are declining. Demonstrations, strikes and riots by laid-off workers take place every day throughout the faltering export zone. Although most of these events go unreported in the Chinese media, the CCP leadership is very concerned by them. In a December 2008 teleconference, Meng Jianzhu, China’s Minister of Public Security, implored the country’s police chiefs to “be fully aware of the challenge brought by the global financial crisis and try their best to maintain social stability” (China Daily website, 19 November 2008).

The basis for the explosive growth of China’s privately-owned export sector was the explicit and implicit assurance that capital could operate free from government interference. This has limited the CCP authorities’ ability to intervene. When the Weixu Shoe Factory in Dongguan, Guangdong went bankrupt and the boss absconded with two months of back pay owed to his 4,000 workers, a local taxi driver commented: “This is not a state-owned enterprise….You shouldn’t bother the government about it. It is a matter between you and a private company” (Financial Times, 11 November 2008). But the CCP bureaucracy fears that if it is too “hands off,” workers may try to settle accounts with their bosses directly. So local governments throughout the Pearl River Delta in Guangdong province—where more than a third of China’s exports originate—have been trying to defuse protests by stepping in to pay overdue salaries.

The Beijing authorities hope that a massive expansion of state spending may help ameliorate the effects of the global economic downturn, as it did during the 1997-98 Asian financial crisis. The CCP is proposing to invest 4 trillion yuan, the equivalent of 16 percent of China’s annual GDP, in a variety of projects including affordable housing, rural infrastructure, water and power projects, transportation, environmental improvement, technological innovation, health care and reconstruction following natural disasters.

There are significant differences between the Chinese initiative and the “stimulus packages” in the U.S. and other imperialist countries, where public funding is being used to bail out bankers and other financial parasites. In China, central government spending accounts for only a quarter of the total, with most of the rest expected to come from the state-owned banks and SOEs, i.e., those sectors most characteristic of a workers’ state:

“Chris Wood at CLSA, a brokerage, says the effectiveness of the stimulus hinges on the extent to which China is now a capitalist economy. The more ‘capitalist’ it is, the deeper the downturn now; the more it is still a command economy, the better the chance of recovery in 2009. State-controlled firms, which account for one-third of industrial output and almost half of all investment, have been ‘asked’ not to cut jobs and capital spending. All the big banks are state-owned and their chairmen are appointed by the government. If they get a phone call telling them to lend more they are likely to do so.”
—Economist, 24 January

China’s government is also committed to shoring up the largely private export-oriented sector. To ensure cheap labor power, the bedrock of private-sector profitability, the regime has delayed scheduled increases in the minimum wage, reduced taxes for export industries and restored subsidies that had previously been rescinded. In an attempt to re-inflate China’s urban housing market, taxes on real estate transactions were slashed and bankers encouraged to make new home loans. Deputy Finance Minister Wang Jun estimates that government revenues will decline by 300 billion yuan in 2009, turning a projected small surplus into a significant deficit (Caijing website, 24 December 2008). Some bank directors, who have been pressured for years to turn a profit, are reluctant to return to the days when non-performing loans made up much of their portfolio. One senior banker grumbled: “Do you expect banks to lend immediately in response to the government’s call?…We go through a procedure when signing each loan and it is not fast” (Caijing website, 26 December 2008).

As China’s private sector contracts, the CCP tops face unpalatable choices. A sustainable state-sector expansion will mean, at a minimum, sharply increasing taxes on foreign and domestic capital, thereby squeezing profits and accelerating layoffs and shutdowns. On the other hand, a failure to expand state spending could produce a social explosion that undermines the authority and stability of the regime. Popular mobilizations on the scale of the 1989 Tiananmen protests could split a CCP polarized between “conservatives” and capitalist-restorationists. In the event of a major confrontation, the conservative faction would inevitably be forced to rely, if only indirectly, on support from the plebeian masses, while the pro-capitalist elements would be backed by domestic entrepreneurs, the substantial overseas Chinese bourgeoisie and global imperialism.

Those “revolutionaries” who maintain that capitalism has already been restored in China could only view a split in the CCP as a division within the bourgeoisie. The logic of this position would either be neutrality, or more likely, supporting the “democratic” counterrevolution, as the CWI, Workers Power, the United Secretariat and most other ostensibly Trotskyist groups did in August 1991 when they backed Boris Yeltsin’s rabble against the decrepit Stalinist remnants of Gennady Yanayev’s “Emergency Committee.”

In a similar showdown between Chinese Stalinist “conservatives” and open restorationists, Trotskyists would bloc with the former against the latter, as we did in the Soviet Union in 1991 (see “Soviet Rubicon & the Left,” 1917 No. 11). This is the only position that is congruent with the policy Trotsky outlined in the Transitional Program:

“From this perspective, impelling concreteness is imparted to the question of the ‘defense of the U.S.S.R.’ If tomorrow the bourgeois-fascist grouping, the ‘fraction of Butenko,’ so to speak, should attempt the conquest of power, the ‘fraction of Reiss’ inevitably would align itself on the opposite side of the barricades. Although it would find itself temporarily the ally of Stalin, it would nevertheless defend not the Bonapartist clique but the social base of the U.S.S.R., i.e., the property wrenched away from the capitalists and transformed into State property….

“Although it is thus impermissible to deny in advance the possibility, in strictly defined instances, of a ’united front‘ with the Thermidorian section of the bureaucracy against open attack by capitalist counter-revolution, the chief political task of the U.S.S.R. still remains the overthrow of this same Thermidorian bureaucracy.”

The CCP conservatives are inherently incapable of addressing the underlying contradiction in the Chinese deformed workers’ state between the collectivized property at its core and the maintenance of the political monopoly of a venal and incompetent bonapartist bureaucracy. A victory by Stalinist conservatives in a confrontation with a “fast track” restorationist faction would not put political power directly into the hands of the working class; but it would give revolutionaries an opportunity, at a critical juncture, to win the most advanced layers of the Chinese proletariat to the perspective of a political revolution to wrest power from the CCP. A victory by Chinese Yeltsinites, on the other hand, would represent an enormous historical defeat for the working class, both in China and internationally, and create an immensely more difficult terrain for future struggles.

There are important differences between the situation in the Soviet Union under Gorbachev and in China today. On the one hand, China’s private sector, while increasing the size of the industrial proletariat by roughly one hundred million, has produced a capitalist class that is vastly more powerful and cohesive than the fledgling Russian bourgeoisie of 1991. Private enterprise contributes 50 percent of China’s GDP and accounts for up to 70 percent of employment in some cities. On the other hand, China’s workers have a far clearer understanding of the realities of “free market” exploitation than did Soviet workers, and have demonstrated a willingness to actively resist capitalist attacks. The current international economic crisis, which has thrown so many out of work, can only have reinforced anti-capitalist sentiments among China’s proletarians and their poor peasant allies.

China’s workers manifestly possess both the social power and fighting spirit necessary to overthrow the brittle and deeply fractured CCP bureaucracy. A proletarian political revolution could open the road to an egalitarian, socialist future through the expropriation of both domestic and foreign capital and the institution of a centrally planned economy organized on the basis of genuine workers’ democracy. A successful insurrection will require a mobilization of millions led by a revolutionary socialist party armed with an internationalist, Trotskyist perspective. Such a party would advance a program to address the issues faced by workers in private-sector sweatshops and link their struggles to the defense of state-sector employees against privatizations and layoffs. Revolutionaries would also take up the particular problems faced by peasants and members of rural collectives, as well as national minorities, women and other oppressed sectors.

A victorious proletarian political revolution in China would be a world-historic event. It would instantly transform the entire framework of global politics. It would spark a revolutionary resurgence from Indonesia and the Philippines through South Korea and Japan, all the way to the imperialist citadels of Europe and North America. The first step in realizing this goal is to assemble a nucleus of Chinese Trotskyists committed to the unconditional defense of the gains of the social revolution of 1949 and to forging a Chinese section of a reborn Fourth International.