In this chapter we want to analyze the transformation of China from a Degenerated Workers State into a capitalist and finally an imperialist power. 1 It would of course exceed the limits of this book to deal with the whole history of China’s economy in the past decades. We will instead focus on the question which is of enormous importance for Marxists to develop correct world perspectives and revolutionary tactics in the international class struggle: Should we China consider as an imperialist power or rather as a semi-colonial country which is super-exploited by imperialism?
We in the RCIT are convinced that China is an emerging imperialist power and not a semi-colonial country. 2 In that it is an important and historically exceptional case of Southern countries. Usually, as we show in this book, the countries of the South were not able to develop into an imperialist power. They rather suffered an increasing super-exploitation by the old imperialist powers in Northern America, Western Europe, Japan and Australia.
However, China’s development is different. It has developed into an imperialist state only recently, in the late 2000s. Compared to the biggest imperialist power – the USA – it is still weak (as many other imperialist countries are). As a new, i.e. late-coming, imperialist country it bears various peculiar features, including super-exploitation by foreign monopoly capital. These features are however outweighed by the increasing strength of China’s domestic bourgeoisie. In particular we have to emphasize the role of China’s monopolies in global production, trade and of capital export. Related to this is China’s undisputable emergence as a political and military power in international politics.
The main reasons for China’s successful development into an imperialist power were:
i) The continuing existence of a strong, centralized Stalinist bureaucracy which could suppress the working class and ensure its super-exploitation.
ii) The historic defeat of China’s working class in 1989 when the bureaucracy mercilessly crushed the mass uprising at the Tiananmen Square and in the whole country.
iii) The decline of US imperialism which opened the space for new powers.
What are the Criteria for an Imperialist State?
Before we give a concrete overview of the development of Chinese imperialism, let us try to give a definition of an imperialist state „…without forgetting the conditional and relative value of all definitions in general, which can never embrace all the concatenations of a phenomenon in its full development…“ – as Lenin put it so wisely. 3
At the very beginning of our first Chapter ‘Lenin’s theory of imperialism’ we quoted Lenin definition of imperialism. He described as the essential characteristic of imperialism the formation of monopolies which are dominating the economy. Related to this he pointed out the fusion of banking and industrial capital into financial capital, the increasing of capital export in addition to commodity export and the fight for the possession of colonies respectively spheres of influence.
As a result we can say that the characteristic of an imperialist power has to be seen in the totality of its economic, political and military position in the global hierarchy of states. Thus a given state must be viewed not only as a separate unit but first and foremost in its relation to other states and nations. An imperialist state usually enters a relationship with other states and nations whom it oppresses in one way or another and super-exploits – i.e. appropriates a share of its produced capitalist value. Again this has to be viewed in its totality, i.e. if a state gains certain profits from foreign investment but has to pay (debt service, profit repatriation etc.) much more to other countries foreign investment, this state can usually not being considered as imperialist. Finally we want to stress the necessity of considering the totality of a state’s economic, political and military position in the global hierarchy of states. Thus we can consider a given state as imperialist even it is economically weaker but possess a relatively strong political and military position (like Russia before 1917 and in the early 2000s). Such a strong political and military position again can be used to oppress other countries and nations and to appropriate capitalist value from them.
Viewing a state in the context of the global imperialist order is also important because particularly smaller imperialist states (like Australia, Belgium, Swiss, the Netherlands, Austria, the Scandinavian countries etc.) are obviously not equal with the Great Powers but subordinated to them. They could not play an imperialist role alone. But despite being not equal with the Great Powers – by the way even amongst the Great Powers there is constant rivalry and no equality – these smaller imperialist states are not super-exploited by them. As a result while there is no or no significant value transfer from these smaller imperialist states towards the Great Powers, there is a significant value transfer from semi-colonies to these smaller imperialist states. They ensure this privileged position by entering economic, political and military alliances with the Great Powers (NATO, EU, OECD, IMF, World Bank, WTO, various “Partnerships” etc.)
In short we define an imperialist state as follows: An imperialist state is a capitalist state whose monopolies and state apparatus have a position in the world order where they first and foremost dominate other states and nations. As a result they gain extra-profits and other economic, political and/or military advantages from such a relationship based on super-exploitation and oppression.
We think such a definition of an imperialist state is in accordance with the brief definition which Lenin gave in his polemic against imperialist economism:
„… imperialist Great Powers (i.e., powers that oppress a whole number of nations and enmesh them in dependence on finance capital, etc.)…“ 4
Before we move to the concrete analysis we need to add two remarks. First, for the definition of the class character of a given state it is important also to view it from a historic perspective. For example an imperialist state can lack temporarily this or that essential feature of imperialism because of specific historic circumstances. For example after the Second World War, Austria was first occupied by US, British, French and Russian troops till 1955 and later its capital export was underdeveloped. However we Marxists rejected the position of the Austrian Stalinist party that the country had become a semi-colony of Germany. Why? For several reasons: Austria had a strong imperialist past (the Habsburg Empire oppressing many nations till 1918, after this a strong banking capital with many links to Eastern Europe etc.). Given its close integration into the world imperialist camp it could after some time regain a position where it systematically and significantly super-exploited other nations. Another example might be Germany or Japan after the WWII which despite certain elements of military occupation and restrictions to its own military capacities obviously remained an imperialist power. So, when analyzing an imperialist state we have to view not only a given moment, but the direction of development. We have to bear in mind Trotsky’s remark: „Dialectic training of the mind, as necessary to a revolutionary fighter as finger exercises to a pianist, demands approaching all problems as processes and not as motionless categories.“ 5
Secondly, we want to answer a possible criticism of our position that China is an imperialist state. One could ask: how could a country become imperialist if it was before – when it was capitalist – a semi-colony? Of course it is true that usually semi-colonies don’t transform into imperialist countries. And indeed one could say that China had – after capitalism was restored around 1992 – for a number of years more features of a semi-colony than of an imperialist state. However it would be completely un-dialectically to exclude such a jump in a country’s development under certain circumstances. There have also been examples in history of such a “jump”. Czechoslovakia was a colony of the Austrian Habsburg Empire for centuries before 1918 but when it became independent, Communists (including Lenin and Trotsky) recognized it as an imperialist state. By the way, such a kind of dialectical development can also take place in the other direction – i.e. a “jump” backward when an imperialist state becomes a semi-colony. Lenin discussed such a potential development in his polemic against imperialist economism when he spoke about the possibility of the transformation of an imperialist war into a just war of national defense.
China’s race to a World’s Major Economy
Since the former bureaucracy introduced capitalism in the early 1990’s Chinese capitalism has grown rapidly. 6 In terms of the total output measured by the Gross Domestic Product China’s share has grown massively in the past two decades. While China produced in 1991 4.1% of the global output, this figure rose to 14.3% in 2011. This makes it the world second-biggest economy. At the same time the USA’s share declined from 24.1% to 19.1% in 2011. 7 Figure 59 gives an overview of the changing share of the world 15 biggest economies in the past three decades.
Figure 59 (see PDF file): Share of Global Economic Output, 1981-2011 (in %) 8
In manufacturing – the core sector of the capitalist value production – China has even become the world’s leading economy. By this it ended the US’s 110-year leading position as the largest industrial commodities producer. By 2011 a fifth of world’s manufacturing came from China (19.8%) while 19.4% originated in the US economy. 9
In one of the world’s main industries – crude steel – nearly half of the global production (48.6%) came from China in 2011. 10
Parallel to this it has become the world’s leading exporter. Figure 60 gives an overview over China’s recent rapid catching-up process and compares it with the development of the USA and Japan.
Figure 60 (see PDF file): China’s Economic Performance 11
In Figure 61 we can see not only China’s increasing share in the world export’s but also an interesting historical comparison with the advance of the USA in the first quarter of the 20th century.
Figure 61 (see PDF file): Share of global manufacturing exports; USA and Britain 1906-29 and China 2000-09 (in %) 12
The World Bank and the Chinese Development Research Center of the State Council pointed out in a joint study, that China has also achieved a number of other advances in its desire to modernize its economy: “China is home to the world’s second-largest highway network, the world’s 3 longest sea bridges, and 6 of the world’s 10 largest container ports.” 13
China’s economic strength is also reflected in its low level of indebtedness to the global financial market. Its external debt stocks as a share of the Gross National Income stands at only 9.3% and its debt service to exports is 2.5%. 14 Compare this to the much higher levels of other industrialized countries from the South like Argentina or Turkey with whom we dealt above and the general assessment of UNCTAD (in Figure 43) which shows that the so-called “Upper middle-income countries” paid between 2005-2010 around 40% of their total export income to service their debts to the imperialist monopolies. In fact it is rather the other way round as we will see below: other countries are indebted to China’s financial capital! So we also see from this angle that China is not a dependent, super-exploited semi-colony but rather an emerging imperialist power.
Of course this must not overlook the still existing gap between the old imperialist economies and China’s labor productivity. While the US’s and China’s manufacturing output is nearly the same, the US capitalists produced this output in 2010 with 11.5 million workers while their Chinese rivals needed 100 million. 15 Similarly China technological residual behind the old imperialist economies is also indicated in its substantially lower employment of machinery in the production process. This is reflected in China’s level of capital stock per worker which is less than a tenth of the U.S. (converted at market exchange rates). 16
However because of its enormous size, a unified state apparatus with a massive state capitalist sector and a super-exploited working class the Chinese monopoly bourgeoisie manages not only to play a role on the world market but also to play a leading role in the world capitalist economy. Marx remarked in Capital Vol. III that in the process of capitalist accumulation not only the rate of profit but first and foremost the mass of profits is decisive. And the Chinese monopolies, as we can see, own a pretty huge mass of profits!
„And thus the river of capital rolls on (…), or its accumulation does, not in proportion to the rate of profit, but in proportion to the impetus it already possesses.“ 17
Despite significant Western and Japanese foreign investment in China, the ruling class in Beijing has avoided the dominance of its economy by foreign monopolies. Quite the opposite, it has developed strong Chinese monopolies who today have become “global players” – to use a favorite category of the bourgeois economists for whom the mysteries of the law of value makes them thinking of the capitalist economy as gambling in a casino.
This becomes obvious if one looks at the advance of Chinese monopolies in the list of the biggest global corporations. In The Forbes Global 2000 – a list of the biggest, most powerful listed companies in the world – China already ranks as third biggest country. 121 companies on this list are from China and only the USA (524 companies) and Japan (258 companies) provide more members. These 121 Chinese monopolies have an aggregate profit of $168 billion (which is 7% of the total profit of the 2000 biggest monopolies). 18
In the Fortune Global 500 – another list of the world’s biggest corporation which uses different criteria – we can see the same dynamic of China’s massive and growing place amongst the world’s super-monopolies. Amongst the biggest 10 global corporations – the super-super monopolies so to say – three are Chinese: the petroleum corporations Sinopec and China National Petroleum and the energy corporation State Grid. 19 If one takes the top 500 corporations we see that China already surpassed Japan as the second-biggest country. 73 of these corporations are Chinese, 132 come from the USA, 68 from Japan, and each 32 from France and Germany. (See Table 52)
Table 52 (see PDF file): Where are the biggest global Monopolies located? List of the Top 10 Countries of the Global 500 companies 20
The rise of China’s monopolies in the past decade becomes obvious if one looks at their ranking in the same list at the beginning of the century. As we saw while Chinese corporations numbered 72 in the Fortune Global 500 list of 2012, it was only 12 in 2001 (i.e. one sixth). 21
Again as in world’s output and exports China’s advance was paralleled by a similar decline of the leading position of US imperialism. While in the early 2000 197 corporations amongst the Fortune Global 500 had their headquarters in the USA, this figure was down to 132 in 2012. 22
Let us now show another indicator of China’s rise as an imperialist power. The Marxist economist Martin Seelos has published a very interesting study with numerous statistics and calculations about the global trends in capital accumulation in the past decades. He shows that China’s share of Global Gross Fixed Capital Formation has grown dramatically since the restoration of capitalism in the early 1990s and in particular since the early 2000s. Figure 62 demonstrates that China’s accumulated capital is already as much as all accumulated capital of so-called “Developing Countries” together.
Figure 62 (see PDF file): Gross Fixed Capital Formation, Imperialist Countries, Semi-Colonial Countries and China, 1960-2011 (in real 2005 USD) 23
The Chinese rulers have created a capitalist class. Today a majority share in China’s output is produced by the private sector. This is reflected in the following figures: According to The World Bank and the Chinese Development Research Center of the State Council the non-state sectors contributed about 70% of the country’s GDP and employment. The state sector’s share in the total number of industrial enterprises (with annual sales over 5mn RMB) fell from 39.2% in 1998 to 4.5% in 2010. During the same period, the share of State Owned Enterprises in total industrial assets fell from 68.8% to 42.4%, while their share in employment declined from 60.5% to 19.4%. Their share in China’s exports also fell from 57% in 1997 to 15% in 2010. 24
The Chinese Stalinist bureaucracy created a new indigenous bourgeoisie out of its own ranks since the old Chinese capitalist class was expelled after 1949-52 to Hong Kong, Macao, Taiwan or oversea. Of course it also tries to attract the old Diaspora bourgeoisie but it has no appetite to withdraw from the scene and to hand the economy over to the later. For this reason a process of rapid primitive accumulation was initiated and – contrary to a widespread myth – it was mainly this capital accumulation and not export which was the main factor for China’s growth in the past decades. 25
A major result of this process of rapid capital accumulation was the growth of significant private capitalist sector as the figures above indicate. However given the huge size of the country’s economy and the – in relation to this – small size of the new Chinese capitalist class, the ruling class made sure that a strong state capitalist sector ensures that China avoids the fate of economic collapse like the former Soviet Union after 1991. Quite the opposite, the state sector operates under the law of value and is the core of the economy and the spearhead for its operation on the world market.
In fact the state capitalist sector is the decisive heart of Chinese imperialism. Today the state owned enterprises are responsible for about 35% of the fixed-asset investments made by Chinese firms. More than two-thirds of Chinese companies in the Global Fortune 500 are state-owned enterprises. The biggest State Owned Enterprises (SOE), excluding banks and insurance companies, are directed via controlling stakes which are owned by a central holding company known as the State-Owned Assets Supervision and Administration Commission (SASAC). Banks and insurance companies are majority owned by other agencies of the state. The banking sector is totally dominated by the state banks while foreign banks hardly play any role. The banking sector is also responsible for half of the whole financial system. If one combines this figure with the government bonds, the state sector provides nearly 2/3 of the financial system. (See Figure 63) Since Lenin developed the category of “state monopoly capitalism”, there has never been a more pure form of state monopoly capitalism than China in the last two decades.
Figure 63 (see PDF file): International Comparison of Ownership Structure of the Banking Sector (2005) and Financial System Structure (2009) (in %) 26
After introducing the law of value in the early 1990s Chinese rulers undertook a massive transformation of the state sector. This was necessary since the task was to transform it from a state bureaucratic into a state capitalist sector. Therefore a massive process of downsizing and restructuring took place in the 1990s where thousands of the State Owned Enterprises went bankrupt and many more were fused into bigger units. (See Figure 64 for the SOE’s declining share in numbers, employment and assets) One of the core institutions of world imperialism – The World Bank – formulates approvingly: “Many SOEs were corporatized, radically restructured (including labor shedding), and expected to operate at a profit. (…) As a result, the profitability of China’s SOEs increased.” 27 According to the official report from the State-owned Assets Supervision and Administration Commission, the biggest 120 state-monopolies (which are mostly in sectors like electricity, petroleum, aviation, banking and telecoms) earned in 2011 net profits of 917 billion Yuan ($142 billion). 28
As a result both the state capitalist and the private capitalist sector massively increased their profits. In Figure 64 we can see the calculations of two Chinese socialist economists, Zhang Yu & Zhao Feng. They attempt to calculate the profit rate in the Chinese manufacturing industry between 1978 and 2004 from a Marxist point of view. Of course one has to put in mind that before the early 1990s the earnings in the manufacturing industry were not rate of profits in the sense as Marx understood it. Nevertheless the Figure indicates the difficulties of the capitalist restoration process in the 1990s and the upswing of the profit rate from the late 1990s onwards when it nearly tripled.
Figure 64 (see PDF file): The Trend of Rate of Profit in the Chinese Manufacturing Industry, 1978-2004 (in %) 29
In Figure 65 we can see the continuing growth of the profits of the SOE’s and even more of the non-state enterprises. The SOE’s reported average return on equity grew from 2.2% in 1996 to 15.7% percent in 2007, before sliding back somewhat to 10.9 percent in 2009. The return on equity of the non-state enterprises even climbed to more than 20%.
Figure 65 (see PDF file): Size of State-Owned Enterprises and Rate of Return in Private and State Enterprises in China, 1998-2010 (in %) 30
As we said, these state-owned enterprises are operated as capitalist units. They are mostly stock companies with the state holding the majority of shares. (This model, by the way, is also often applied in state-capitalist enterprises in Western European countries.) Their operation according to the law of value is underlined by the fact that they don’t pay the dividends, which have increased since a reform in 2007 to 5-15% of profits, to the finance ministry – the formal majority share holder. They pay them rather into a special budget reserved for financing state enterprises, i.e. to themselves. As The Economist – a leading mouth piece of the Western monopoly capital – put it accurately: “SOE dividends, in other words, are divided among SOEs.” 31
Unsurprisingly, the top positions in the state-owned enterprises are dominated by the ruling party’s sons and daughters. Two academics, Li-Wen Lin and Curtis J. Milhaupt, have shown in an actual study the very close relations and interweaving of the party, state and the state-owned enterprises. They conclude with justification: “We call the organizational structure of state capitalism as practiced in China a networked hierarchy.” 32
According to another report, “more than 90 percent of those in the richest 20,000 people in China are said to be ‘related to senior government or Communist Party officials,’ creating a whole class of millionaire and billionaire ‘princelings’ the offspring of top officials.“ 33
The creation of a Chinese capitalist class is reflected also in the prominent place the country’s super-rich gain increasingly in the world’s exclusive club of multimillionaires. According to the Hurun Report the number of millionaires surpassed one million the first time in China in 2010. 34 251 of them are dollar billionaires, up from as little as only 15 billionaires six years ago. 35 The report says that “half of the millionaires are business owners, and the rest are investors in stocks or real estate or are what are known in China as “golden collars,” or high-level executives. China’s superrich are mostly business owners.” 36
This growing Chinese capitalist class is, of course, still substantially smaller than its US rivals, but it is already on an equal footing with other imperialist rivals. According to the World Wealth Report 2012, published by Capgemini and RBC Wealth Management, China has the fourth biggest number of super-rich, only behind US, Japan, Germany but ahead of Britain, France and Canada. 37 Another list of the super-rich – measuring the number of so-called “Ultra high net worth individuals” defined as those with net assets exceeding US-Dollar 50 million – ranks China (behind the USA) in the second place with 4,700 representatives (5.6% of the global total), followed by Germany (4,000), Japan (3,400), the United Kingdom (3,200) and Switzerland. 38 The Boston Consulting Group comes to slightly different results, ranking China as number three in the list of millionaire households. 39 The general picture, however, is pretty clear: China’s emergence as a new imperialist power was accompanied by the formation of a super-rich class of monopoly capitalists.
Exploitation and Super-Exploitation of the Working Class
The material basis for China’s leap into an imperialist power was the creation of a massive amount of capitalist value through the huge super-exploitation of its working class. There was hardly any other capitalist power in the history of the 20th century (except the phase of fascism), which could not only exploit its working class but also extract huge extra-profits by the super-exploitation of the majority of the proletariat. This is the “secret” behind the Chinese economic miracle.
After the historic defeat of the Chinese working class delivered by the reactionary Stalinist bureaucracy in June 1989, the working class was massively robbed of its social gains. 40 They successfully introduced the law of value in the economy and transformed the workers into a commodity like in the capitalist world. An author of the China Left Review summarized this fundamental change adequately with the following words:
“The Chinese economy today is capitalist, I have argued, because employment relations have been transformed along capitalist lines. Work unit members have been expropriated; they have lost their membership rights and are now simply contract labor. This fundamental change has allowed Chinese enterprises to act like capitalist enterprises. Freed from long-term responsibilities for their employees, they can now treat labor as a flexible input, which allows them to focus on maximizing profit. This is true not only of private companies, but also of the remaining state-owned enterprises and all of the public-private hybrids in between.” 41
One of the attacks was the introduction of piece-rate wages where each worker got an individual wage according to his or her individual working results. Another one was the shift from lifetime employment to a system of labor contracts. Under this new system, workers had to sign and renew their contracts with the management annually on an individual basis. Despite long resistance by the workers the state bureaucracy finally succeeded in implementing it. So whil