[Marxism] What kind of society is China?

Louis Proyect lnp3 at panix.com
Fri Jun 27 09:45:44 MDT 2008

The triumph of state capitalism
What kind of society is China? Steve Freeman analyses the facts and 
figures following his recent visit

The world is getting ready see the new China through the prism of the 
Olympic Games. So I was fortunate enough to visit Beijing, capital of 
the People’s Republic, earlier this year before it all kicks off. China 
has been transformed since a popular revolution brought Mao’s Communist 
Party to power in 1949. The party, with 73 million members, officially 
leads 1.3 billion people in the building of “socialism with Chinese 

What kind of economy and society is it? Beijing is certainly a very 
modern city. It has a population of 15 million. It is ringed by six 
concentric, three-lane motorways, jam-packed with cars. There are three 
million of them, growing by a thousand per day, boasts China Daily.1 A 
grey haze of pollution hangs over the city. In the 1970s pictures of 
Beijing showed almost everybody on bicycles. Just as we in the west are 
being encouraged to get on our bikes, Beijing has gone in the opposite 

One of the first things that struck me was how modern-looking the city 
is. Certain parts are like Canary Wharf, the home of London’s financial 
centre. Skyscrapers are occupied by banks, insurance companies, 
advertising agencies, international hotel chains and many of the famous 
brands you see in London. On the ground modern shopping malls are 
everywhere. It was impressive to see the transformation of what I had 
imagined from the 1980s as a relatively poor third world country.

The official English-language newspaper, the China Daily, tells the 
story of Jia Changzhen, who is leaving the city of Shenzen, fed up with 
having to fight to get paid. He explains the power equipment company he 
worked for had not given him his wages over five months: “Some of my 
colleagues are willing to kneel down and beg for their salaries. They 
have rent to pay and need the money simply to survive.” Although there 
are labour laws to protect workers, he says, these are not always 
guaranteed in private companies which make up the majority of businesses.2

Li Jian, a consultant in an electronics company, was given the job of 
legalising his company’s payment system because hundreds of workers have 
left. The company paid only the city’s minimum wage and no overtime pay. 
Many workers in Chinese cities are in effect illegal immigrants from the 
countryside and need work permits. Shenzen business was now suffering 
growing labour shortages and surveys showed that 18% of the city’s 
migrant workers had decided to leave and not come back.3

Another article tells of students at the Beijing film academy making a 
film about the lives of building workers on the site of the national 
stadium for the Olympics. The film deals with three migrants from 
Jiangsu province. The work on the upper part of the stadium is 
dangerous. Consequently they earn relatively high wages, over 3,000 
yuan, or £214, per month, plus meals and accommodation. Work safety is a 
constant concern. One of the workers is saving for a new house to 
replace his old dilapidated home. He intends to save to buy a car.4 Such 
everyday stories are recognisable to us on the other side of the world. 
They could just as well have been stories about workers here.

Today the Chinese working class produces goods and services to the value 
of $7.2 trillion (gross domestic product). The reference point is the 
United States (GDP: $13.8 trillion). Four years ago 712 million Chinese 
working people, including about 170 million industrial workers, produced 
13% of the world’s output.5 There are an estimated 325 million 
peasants.6 The size of the reserve army of labour is unknown, but the 
Chinese Academy of Social Sciences estimates this at 14% among urban 


Despite the official designation of “socialism with Chinese 
characteristics” there is no doubt in my mind either from what I 
observed, from conversations with local people or from what I have read 
that China can be accurately described as “capitalism with Chinese 
characteristics”. This is hardly a novel designation.8

Let us begin with two sectors featured in capitalist economies - the 
financial sector and the productive sector. The financial sector 
extracts surplus capital and redirects it into profitable investment. It 
enables financial assets to be valued and ownership transferred. Despite 
its importance for capitalism it is unproductive and parasitical. Real 
wealth is generated by wage labour employed in the corporate or 
productive sector, which adds value in the production of goods and services.

Financial sector

China has three stock exchanges: Hong Kong, Shanghai and Shenzen. The 
Shanghai stock exchange (SSE) has a market capitalisation of nearly 
$2.38 trillion, making it the fifth largest in the world. The stock 
market has been undergoing a boom. Between 2005 and 2007, share prices 
rose by 400%. Some experts see this as evidence of a bubble - a 
‘downward adjustment’ is waiting to happen.

In 2007 the Shanghai stock market index topped 5000. It had risen 90% 
since the beginning of that year. The total value of Chinese shares 
(capitalisation) exceeds the GDP. The Chinese media were enthusiastic 
that this was “progress towards a more advanced stage of capitalism”.9 
In January 2008 share prices fell across Asia by about 10%. The Hang 
Seng index (Hong Kong) fell 5.4% on January 16 2008. But the Shanghai 
market fell by only 2.8%.10

Of the top 10 Chinese firms quoted on the SSE, seven are financial 
corporations, including banks and insurance companies - China Life, 
China Merchants Bank, Ping An Insurance and China Pacific Insurance. It 
is hardly surprising to find that one of the most profitable sectors is 
that of stockbroking and securities companies. China’s largest 
stockbroker, CITIC Securities, predicted net profits growth of over 400% 
for 2007. The Shanghai-based Haitong Securities posted net profit 
increases of 700%.11

China has some very large state-owned banks. The four biggest are the 
Industrial and Commercial Bank of China (ICBC), the Bank of China, China 
Construction Bank and the China Development Bank. These have been caught 
up in the sub-prime crisis. In August 2007 the Bank of China said it had 
a $9.6 billion exposure to US subprime mortgages and would put aside 
$151 million to cover its losses.12 The ICBC and China Construction Bank 
also had subprime holdings of $1 billion.

The Chinese government has told speculators not to worry because its 
banks are very profitable, with earnings growing by 40% per annum. They 
can ride out the storm because Chinese bankers have lots of money and 
not much to do with it. The China Development Bank (CDB) meanwhile 
announced it was taking a stake in Barclays and will have a seat on the 
Barclays board.13

Corporate sector

Today China is a ‘mixed economy’. Productive workers may be employed in 
state enterprises, foreign multinationals, joint ventures with Hong Kong 
and Taiwanese firms or in township and village enterprises (TVE). In the 
1980s 100% of all capital was state-owned. By 2005 there were 140,000 
state-owned enterprises (SOEs) employing about 40 million workers. These 
enterprises owned half of all industrial assets and produced about a 
third of the GDP.14

In the 1990s state planners set out to reform the state enterprises and 
build world class ‘corporate dragons’. The aim was to take 30 to 50 of 
the best SOEs and turn them into globally competitive multinationals.15 
The number of SOEs was reduced by closures, mergers and privatisations. 
An estimated 20-30 million workers were made redundant.16 Now there is a 
group of 169 centrally controlled SOEs which are very profitable.

The Chinese market provides a vast opportunity to build a manufacturing 
base from which to go global. Chinese corporations have become 
multinationals. Take Hisense, a $3.6 billion consumer electronics group 
producing TVs for over 10% of the Chinese market. The firm also produces 
air conditioners, personal computers and telecomms equipment. It 
manufactures in Algeria, Hungary, Iran, Pakistan and South Africa and 
sells 10 million TVs and three million air conditioners per year in 40 
countries. It is the best selling brand of flat TVs in France.17

BYD has become the world’s largest maker of nickel cadmium batteries. 
Johnson Electric, a Hong Kong-based firm, has half the world market in 
tiny electronic motors used in cameras and cars. The BMW series 5 has 
over 100 such motors to operate wing mirrors, open sun roofs, etc. 
Johnson produces three million such motors per day.18 Chery automobiles 
is China’s leading car exporter. It has plans to build factories in 
eastern Europe, the Middle East and South America. Lenovo has bought out 
IBM’s personal computer business.19


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