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Pao-yu Ching’s ‘China: Socialist Development and Capitalist Restoration’

July 10, 2010

China: Socialist Development and Capitalist Restoration

Pao-yu Ching

This paper is based on the concrete experiences of China during its socialist development from 1949 to 1976, and then during its capitalist restoration that began in 1979 when Reform policies were implemented until the present time. The paper will not be following the sequence of events that took place in China during these two periods in a past six decades, but instead will emphasize the fundamental components of socialist development versus capitalist development, as well as the theories and political forces that were/are supporting the development during each period.

How does one distinguish China’s socialist development from the capitalist development of less developed nations in the post World War II era? Based on the concrete experiences of China there are two components that are fundamental to its socialist development. These fundamental components are development based on self-reliance and development with satisfying people’s needs as a goal. These two components explain why China’s socialist development during the first three decades of the People’s Republic is diametrically opposed to either the capitalist development in the majority of developing nations or the capitalist development in China since the 1979 Reform.

Part One of this paper covers China’s socialist development in 1949-1976. The discussion will include the meaning and the significance of two fundamental components of socialist development as stated above. Part One also explains the political forces after the revolution that supported socialist development and why only socialist development can possess these two components. Part Two of the paper explains how China’s Reform since 1979 has fundamentally changed its development from socialist to capitalist, and the political forces that have supported this change. Part Two also explains the consequences of this change on the majority of Chinese people. Part Three will summarize the contrast between the two periods.

Part One: China’s Socialist Development, 1949 – 1976

I. The Meaning and Significance of the Two Fundamental Components of China’s Socialist Development

The two fundamental components of socialist development are self-reliance and setting up satisfying people’s needs as the goal of development:


There are two important and interrelated dimensions of self-reliance: reliance on self-financing for development, and reliance on building a nation’s own system of technology.

Reliance on self-financing for development

In today’s world of imperialist domination any country that genuinely wants to develop its economy must rely on internal financing. “Experts” in developmental economics have created the myth that poor countries have to rely on external finance to develop. However, experiences of less developed countries in the past several decades have proven that the exact opposite is true. These experiences show that relying on external finance has meant that several times more resources have been taken out of these countries than what little came in1. Many of these countries that borrowed heavily from abroad have been left in shambles, and their people are actually worse off after several decades of “development.” During the last three decades of the past century, underdeveloped countries ended up paying large sums of interest to international monopoly capital and international financial institutions. Moreover, under the neo-liberal policies pursued by governments of many less developed countries, large foreign multinationals have gained control of many sectors of their economies including manufacturing, communication, transportation, and also in finance and banking.

The concrete experiences of China’s socialist development in 1949 to 1976 show that a less developed country can indeed develop by tapping into its own resources. However, to achieve self-reliance development through internal financing means that domestic resources have to be mobilized. In any less developed country where the industrialization is either lacking or is still in its early stages, resources for development, or the initial investments needed for industrialization, have to come from surpluses generated in the agricultural sector.

During the early stages of industrialization, China paid great attention to the balances between the industrial sector and the agricultural sector. China’s socialist development model emphasized that after the transfer of surplus from the agricultural sector, as the economy developed, the agricultural sector needed replenishment from resources provided by the industrial sector. In a poor country such as China was after the revolution, development in industries of metal, heavy machinery and equipment was necessary to lay the foundation for future development. However, China realized in the 1950s that it had to avoid the mistakes made by the Soviet Union by over-emphasizing heavy industry at the expense of the light industry and agriculture, which provide goods people need. In Mao Zedong’s “The Ten Major Relationships,” he discussed the importance of maintaining a balance between the agricultural sector and the industrial sector of the economy as well as the balance between heavy and light industries within the industrial sector. (Mao, 267-288).

After more than one hundred years of foreign invasions and civil wars, China’s countryside after the revolution was in ruins. Moreover, under feudalism the landlord had over-exploited the land with little or no investment put back into the land. For many decades before the revolution China suffered severe drought and flooding, because its rivers and its irrigation system had been too long neglected. The majority of Chinese peasants lived in extreme poverty. How could China develop its agriculture with such a severe natural environment and extreme lack of resources? Moreover, how could the agricultural sector generate the surplus needed for industrialization?

Land reform in the newly liberated areas began soon after the establishment of the new Republic and was completed in 1954. Hundred of millions of peasants received a plot of land for the first time in their lives. Although holdings averaged only 0.2 hectares per capita, peasants cultivated their land with great enthusiasm. The output of both grain and cotton rose rapidly between 1949 and 1952. However, by 1953 grain production stagnated and cotton production actually fell. As mentioned above China’s natural environment for agriculture was fragile and land was infertile because of ravages of war and long neglect in the one hundred years leading up to the revolution. Shortly after the land reform, peasants’ enthusiasm alone could no longer increase production. Poor and lower middle peasant households – 60 to 70 percent of China’s peasantry – did not even own a plow, let alone other farm tools or draft animals. When bad weather hit in 1953 and 1954, many of these peasant families again had to borrow money. When debt borrowed at high interest started piling up, they were forced to sell their land. By 1954 both land sales and hired labor were on the rise in the countryside. China’s experience after the land reform showed that small landholding was not a viable way to develop agriculture. If agriculture had not been collectivized, land holdings would have again been consolidated in the hands of rich peasants and a new (or old) land owning class. (Hsu and Ching, 1991)

Through several stages of collectivization leading to the formation of the communes in 1958, peasants were able to pool their resources together2, so that scarce resources could be used more efficiently to increase output. (Ibid.) As the industrial sector developed, it provided increasing quantities and varieties of industrial input to agriculture, ranging from simple farm tools in the earlier years to the sophisticated agricultural machinery, irrigation equipment and chemical fertilizer later. With the hard work of the peasants and a gradual increase in assistance from the State (lowering agricultural taxes, better terms of trade for agricultural products and increasing State investment) and more and better input from industries agricultural output increased steadily to provide a better diet for both peasants and workers. After the formation of the commune, with the exception of the “three difficult years” (1959-1961), peasants received a guaranteed grain quota from their production team3. As grain and other sideline production increased, peasants were able to improve their nutritional intake. The Unified Purchase and Supply System crop set up in 1953 assured adequate food rations for all urban residents including the poorest in cities and towns. With rapidly increasing employment opportunities and low food prices, workers’ diet also improved significantly.

From 1958 until 1978, China was able to modernize its agricultural production and improve the lives of the great majority of peasants in most parts of China’s countryside. After pooling together their land and whatever tools they had, Chinese peasants spent tremendous amounts of time and energy in land conservation and improvement projects. They leveled the land and filled small creeks with soil, so later they could use machinery to till large tracts land. Peasants improved the fertility of the land by working intensively to apply organic fertilizer. Peasants built irrigation and drainage systems and power stations, so farmland could be irrigated by electricity. They also constructed roads, bridges and other infrastructure. Additionally they planted trees to fend off desertification and did much hard work to preserve pasture and forest land. (Hsu and Ching, 1991, 28-34)

Commune members did all the work in addition to planting and harvesting crops and they extended their working days into the winter months when agricultural production was slow, thus increasing their workdays per year from 119 days in the mid-1950s to 250 days in the mid-1970s (Rawski, 7-8). Additionally the communes took out “accumulation funds” from their annual revenue to invest in land improvement projects, and in machinery and equipment. Moreover, the State transferred resources back to agriculture by gradually improving the terms of trade between the two sectors in favor of the agricultural sector. It also gradually reduced the agricultural taxes, and increased State investment in large agricultural infrastructure, such as the Red Flag Canal and Yellow River Project among many others.

Peasants’ hard work and China’s development policy changed the whole landscape of China’s countryside and modernized its agricultural production in the twenty years since the formation of the commune. Machine cultivated land increased from 2.4% in 1957, to 42.4% in 1979, irrigated land area increased from 24.4% of all land area in 1957 to 45.2% in 1979. During the same period, land irrigated by electricity (as percent of total irrigated land) increased from 4.4% to 56.3%. In 1957 there were 544 electric stations – by 1979 that number increased to 83,244. During the same period, numbers of large and medium size tractors increased 45 times, agricultural combines increased 12 times, and small tractors increased from 0 to 1.67 million. (Hsu and Ching, 1991, 40)

Agricultural mechanization took the hardest manual work out of farming and dramatically reduced the intensity of farm work. Mechanization in agriculture increase the rural power consumption at an annual rate of 21 percent, and the horsepower per hectare from three types of machinery (irrigation/drainage equipment, tractors and power tillers) increased at an annual rate of 24 percent (Rawski, 82). By the late 1970’s, “These figures show that three types of equipment alone now provide Chinese farmers with mechanical power somewhat larger than the 0.69 horsepower per hectare of cultivated land available to Japanese farmers from all types of power machinery in 1955 (Rawski, 83).

The great improvement made on the fertility of land doubled grain yields per each unit of land area. China made substantial gains in increasing agricultural production and was able to increase grain production from 181 million tons in 1952 at the end of the recovery period to 285 million tons in 1977. With the exception of 1959-1961, grain production increased on the average by more than 3%, which was higher than the average population growth during the same period. The rate of growth during this period was higher than China’s historical record and the records of most developing countries (Groen and Kilpatrick, 1978, 619). By the end of the 1970s, China was able to achieve self-sufficiency in food. The newly built irrigation and drainage systems made it possible for peasants, for the first time in their lives, when their production was less dependent on the weather. Mechanization made it possible for many peasants to be gradually freed from much of the most backbreaking work in the fields.

During the twenty some years of socialist development, China was able to achieve rapid development in agriculture, industry, transport, and construction. The annual growth rate for agriculture, industry and transport, and construction grew at the average rates of 3.4%, 9.4% and 10.7%, respectively during the period of 1952 and 19784. China was able to achieve a balanced growth between industry and agriculture, so peasants’ standard of living in the countryside improved along with that of workers in cities.

The proletarian leadership of the State gave full support to the policy of not overemphasizing higher rates of industrial growth at the expense of agricultural development. This policy of achieving balances between agriculture and industry not only made developmental sense, it was also a policy to solidify the alliance between workers and peasants. The strong alliance between workers and peasants strengthened the political basis for socialist development. China’s development during the socialist transition is exactly the opposite of what we have seen in the less developed countries in the past several decades. In most of the less developed countries the agricultural sector is milked dry; the land is consolidated by large land-holders in many cases in order to produce export crops, so peasants are left with no choice but to migrate to cities to find work. In addition the governments of many countries have subsidized large enterprises in the agricultural sector for the production of export crops. This kind of development policy deprives both workers and peasants of their right to utilize the resources of their own country to support themselves. Most people who migrate to cities, however, are hard pressed to find stable employment and make even bare subsistence wages. As a result, most workers and peasants in these countries live amidst devastating conditions. Of course the same thing has also happened in China since the Reform. (See Part Two.)

The importance of self-reliance on internal finance cannot be overemphasized. When a country is dependent on external finance, it becomes impossible to find any balance between the sectors, even if political leaders are at all inclined to maintain such a balance. The constant and relentless pressure for the country to service their external debt forces them to make promoting exports to earn more foreign exchange their ultimate goal – including those, which in the early post World War II decades declared their political and economic independence from imperialist powers.

International financial institutions controlled by international monopoly capital and imperialist nations have used debt as an instrument to force the Structural Adjustment Program (SAP) on many developing countries. Through the SAP they have been able to dictate these countries’ internal economic and political affairs. Countries placed under the SAP lose their autonomy to decide how to use their own resources to produce food and other necessities for their own people. Under the SAP productive resources are shifted from domestic consumption to produce export commodities. Earning foreign exchange to pay the interest on the forever growing debt becomes the only objective for “development,” while people’s basic needs for food, clean water, medical care, housing and education are nowhere to be found in the “development” program.

During the socialist period, China was able to develop rapidly by mobilizing its own resources. During those twenty some years of development, it is estimated that China was able to devote 25% of its GDP into investment for the future. This estimate does not even include the tremendous quantity of labor that peasants contributed toward building infrastructure and improving the land in China’s countryside5.

Building a system of independent technology for development

The second dimension of China’s self-reliance development is the reliance on its own technology. Better technology is vital to a country’s economic development. Better technology in metal and machinery help build the foundation for industrialization. However, in developing technology a country needs to carefully choose the kind of technology that is appropriate to its own development needs. During the socialist period China used the “Walking on Two Legs” strategy to advance its technology. ”Walking on two legs” meant that China learned advanced technology from the West, but in the process of adopting this advanced technology, it carefully evaluated how such technology would fit its own development needs. “Walking on two legs” also meant that China made use of the advanced technology, but at the same time also used whatever primitive technology was available in order to conserve its scarce capital resources. China did not discard old machinery and equipment that could still be used to produce useful products, even though those products might have been of lesser quality.

On the other hand, governments of many less developed countries that have pursued capitalist development believed the myth that they must have the advanced technology imported from developed countries as advocated by many development “experts”. These “experts” claim that poor countries do not have the capacity to develop their own technology so they must rely on imported technology from highly developed countries. However, dependence on imported foreign technology works very much like dependence on external capital to finance development – such dependence only assures continued dependence. Moreover, once a country becomes dependent on imported technology, it must then adopt and accept the logic of capital and the way capital defines efficiency. To follow the logic of capital, efficiency is achieved, for example, when a factory adopts a new and advanced technology and fires half of its workers. The logic of capital means that “efficiency” can only be achieved by continuingly using “advanced” technology to replace labor. This logic obviously goes against common sense for developing countries that are endowed with abundant labor but scarce capital.

This dimension of self-reliance is of critical importance and is related in self-reliance on internal finance. When we contrast the self-reliant development model and the one based on external finance and imported technology, the difference is clear. When a country becomes heavily indebted to international monopoly capital and the international financial institutions, it has to forgo all other development objectives and to use whatever means necessary to promote export in order to pay the interest on its debt. In addition, when a country’s production is concentrated on exporting either agricultural products or industrial products, it also must employ advanced technology that is controlled by monopoly capital in order to compete in the international market.

By relying on its own internal finance and independent technological development, China was able to develop rapidly during the thirty years before 1979. China was able to develop sophisticated technology in its industrial sector and, as stated earlier, raise the level of mechanization in its agricultural sector. There were also countless technological advancements in steel making, building other heavy industries such as machinery and equipment for light industries and for agriculture, chemical industry, transportation (railroad, ship building, aerospace) and telecommunications. After the commune system was established, the communes and the central government set up as many as 40,000 agricultural technological expansion and improvement stations.6 The network of these research and experimenting stations covered the whole rural area, and they greatly improved the level of technology for agricultural production by improving seed strains, controlling plant diseases, and improving soil conditions to increase production. (Weins, 1978)

By the mid-60s, along with growth in agricultural production, small-scale industries were set up by production brigades and communes in the countryside. These small industries not only provided supplies for and services to the increasingly mechanized agricultural production and they also produced light industrial goods, such as fertilizer for farming and cements for construction as well as consumer goods for rural residents. Additionally these industries employed commune members and raised the level of technical know-how in China’s countryside. The small-scale rural industries often did not use the most advanced technology but they served the increasingly modernized agricultural sector well by using the level of technology available to them. This was a good example of the “walking on two legs” development strategy.

A model based on self-reliance had made it possible for China to develop its economy during the socialist transition, to better the lives of its people, and to consolidate alliance between workers and peasants. It needs to be made clear, however, that China did receive financial aid and technological assistance from the former Soviet Union in the 1950s. Aid from the former Soviet Union, given in the spirit of helping another socialist state, had a very positive impact on China’s heavy industry development. However, the Soviet Union withdrew all of its technical personnel and left many projects unfinished in 1960 after the Chinese Communist Party criticized the Communist Party of the Soviet Union on its revisionist path taken after the its 20th Congress in 1956. The Soviet Union also demanded immediate repayment of all the debt.7 China also learned from this experience the importance of self-reliance.

It also needs to be pointed out that self-reliant development does not mean a country has to rely totally on itself without trade with other nations. China had always maintained that it welcomed trade as long as it benefited both trading partners and was carried out on a basis of equal treatment. For many years, however, China was not able to trade with many countries, because the United States had imposed a trade embargo on China.

Under the self-reliance model, China did import technology from advanced capitalist countries. In a paper written by Alexander Eckstein, who was an expert in China’s socialist economy, he said, “Complete-plant imports from Japan, Western Europe, and to some extent the United States are making a major contribution to the expansion of production capacity in the chemical fertilizer, petrochemical, and iron and steel industries, as well as in power generation and commercial aviation, in the 1970s.” (Eckstein, 107) China benefited from selected technology imports, because it was able to use it to upgrade its own. During that time, after a complete-plant design was imported and built, China was able to build a copy of the plant in a fairly short time.

John G. Gurley, another expert on Chinese economy said, “In the 1960s, China purchased four complete nitrogenous-fertilizer plants from the Netherlands, Britain, and Italy, which were installed in 1966. It began building its own fertilizer plants in 1964, and around this time set a goal of one large-scale plant for each of the country’s 180-190 districts and one smaller plant for each of the more than two thousand counties. In fact, much of the increased production of chemical fertilizers in the 1960s came from the medium and small-scale plants that were constructed throughout the countryside during the decade.” He continued to say that China continued to import fertilizer from abroad as well. (Gurley, 249) The small-scale plants Gurley indicated here were those owned and operated by the communes and production brigades.

Satisfying Human Needs as the goal

This goal of socialist development is to increase production to take care of peoples’ basic needs and raise their standard of living. Thus, every effort is made to ensure that the most urgent needs are met first. Common sense dictates that people must have enough food that supplies adequate nutrients to ensure good health, clean water to drink, adequate shelter, basic medical care for their health, and basic education. This goal is diametrically opposed to the goal of capitalist development, which is to increase capital accumulation. When satisfying human needs is the goal of development, we see things in an entirely different light. Investment in the steel industry is done to build the capacity to produce machinery and equipment for light industries, in order to produce consumer goods and services to satisfy people’s needs. Or, investment in steel can also provide the raw material for agricultural machinery that makes farm work less labor intensive for peasants.

In contrast, in the overwhelming majority of less developed countries today, investment in steel has to be weighed against other kinds of investment, depending on their rates of return. The rates of return on different kinds of investment depend to a large extent on the products’ export market. In the early 21ist century, many less developed countries, which had invested in steel, tried to export their steel only to find that the price on the international market had fallen drastically. Facing a world-wide over supply of steel and lower steel prices, the United States protected its domestic market by setting up anti-dumping measures to block steel imports. Steel is only one of many products exported by less developed countries that have suffered from lower prices and the effects of growing protectionism by imperialist countries.

As mentioned earlier, in Mao’s “Ten Major Relations” he showed the dialectical relationship between development in agriculture and development in heavy and light industry. In addition to the balance between the agricultural sector and the industrial sectors, China’s socialist development placed the balance between the city and the countryside as one of its main priorities. The balance between agriculture and industry, of course, is the key to the balance between the city and the countryside. Moreover, as mentioned earlier, by the 1960s with the growth of agricultural production, China’s countryside started to industrialize when production brigades and communes set up small-scale industries. These small industries did not use advanced technology, but they provided a vital function for the modernization of agricultural production. They produced tractors and other agricultural machinery as well as providing repair and maintenance services. They produced chemical fertilizers for farming and cement for construction. They also produced light industrial goods for rural residents. (Perkins, 1977, 121)

By the 1970s in most rural areas peasants were engaged in productive work all year round in agricultural production and/or in building infrastructure, and/or became workers in industries. The balance between city and the countryside went beyond just a more equal income between the city and the countryside. Mao emphasized that in the countryside, education and cultural activities in general had to be raised so that the gap between life in countryside and in the city could be narrowed. After the commune system was established in 1958, elementary and junior high education spread quickly and by the end of the 1970s, most production brigades had their own elementary schools, most communes had junior high schools, and most counties had high schools. Moreover, the health services in the countryside improved both in accessibility and quality. The improvement in health and education was especially significant after the Cultural Revolution. Medical personnel from cities came to conduct training programs to improve the quality of health services. The barefoot doctor network in the countryside reached members of production teams and made basic medical care widely accessible.

With the exception of some very poor communes, most peoples’ lives in rural China improved immensely. Each member of the production team received a quota grain8 from his/her production team, even if he/she was too young, too old, or too sick to work. In addition to food grain, teams also set aside welfare funds from their income to provide low cost health care and low cost education for their members9. The welfare funds also covered major expenses for needy families10. In addition the State allocated funds to pay for education (teachers’ salaries and school construction) in the rural areas, as well as the training of teachers and healthcare personnel working in the countryside.

Workers in State factories were paid low wages but they only had to pay a few RBM for their housing and utilities. They also had free medical care and only had paid a small fee for the coverage of their families11. Food in factory cafeterias was cheap and they paid low prices to buy rationed food, clothing, and other supplies. Childcare and education for their children were practically free12. They were able to save a small amount each month and use their savings over time to buy radios, bicycles, sewing machines, watches, camera, and goods that were been considered semi-luxury items. When they retired (men at 60 and women at 55), their monthly pension equaled 80% of their former wages with full medical and other benefits. Over the period of socialist development workers’ lives improved tremendously. Above all their lives were secure and they had no worries of being laid-off or not being able to cover their living expenses.

At the same time as people’s diet was improving, China made rapid progress in other areas that improved people’s health. In only one decade and a half after the revolution China was able to eradicate most of the infectious diseases that had plagued its population for centuries, including cholera, diphtheria, tuberculosis, schistosomiasis (snail fever), typhoid fever, smallpox and many others. Before the revolution, the outbreaks of these diseases and malnutrition had been the main reasons for China’s high death rate. During the 1930s China’s crude death rate was 27 per 1,000, and the infant mortality rate was 156 per 1,000 births for the country as a whole, and was possibly as high as 200 per 1,000 for the peasant population. Approximately one third of all children died before the age of five. For the peasant population life, life expectancy at birth was less than thirty. (Perkins and Yusuf, 133-134) These kinds of grim statistics are not surprising, considering that in 1949 only one hospital bed existed for every 24,000 rural residents, (Chinese Statistics Bureau,Important Statistics on China’s Agriculture, 1983, 13 & 92) and there was no preventive medicine to speak of. China had been known as the “sick man of Asia”, not to mention the sick women and sick children.

Infectious diseases were eradicated by relying on the masses. Mobile medical units toured the countryside and the cities explaining the nature of these diseases to people and persuaded them to change their sanitary conditions and personal hygiene habits in order to prevent them. Many mass campaigns were initiated to eradicate different diseases, along with mass campaigns to kill flies, mosquitoes and other carriers of diseases. People’s enthusiastic participation in these campaigns showed how they wanted to be in charge in changing their own conditions. By the end of the 1970s, even World Bank reported that despite of China’s low per capita GNP, its death rate had dropped to the level of developed countries. China’s crude death dropped from 27 per 1,000 in the 1930s to 6 per 1,000 in 1979, and during the same period its infant mortality rate dropped from 156 per 1,000 births to 56. Life expectancy at birth doubled within one generation. (Perkins and Yusuf, 133-134; and Sidel & Sidel, 92-93) China also did far better than almost all less developed countries in raising the percentage of children enrolled in primary school to 93% of the age group. (Sidel and Sidel, 92-93) China was able to accomplish this, because it devoted a lot of resources to make satisfying human needs as the goal of its development. China was “sick man of Asia” no more.

In contrast, when the Structural Adjustment Program has been imposed on heavily indebted countries during recent decades, these countries have been required to cut government expenditures. The first items to be cut are usually food subsidies and health care for the poor, which usually are already too low to provide any meaningful protection. In a US national public radio report, Michael Kremer, an economics professor at Harvard, said that in some parts of Africa, 90 percent of children carry intestinal worms which can be easily treated with medicine that costs about one dollar a year. The report added that still many countries could not afford the medicine. In the same report, Ronald Bayer from Columbia University, school of Public Health, said that diarrhea diseases and tuberculosis kill more than two million people a year, malaria more than one million, and measles almost one million – all diseases that are curable and/or preventable with vaccination. However, these professors from prestigious American universities are unable to really understand the devastating health problem faced by the poor in poor countries today. A few million dollars will not cure the ills of people, when they lack clean water supply, adequate nutrition and when they live in substandard housing. In the world of imperialism, a poor dependent country must forgo its priority of meeting even the most basic and urgent needs of a large number of its people. The ills that poor people suffer go far beyond x million dollars donated by kind-hearted people from rich countries. These ills are deeply rooted in the systematic exploitation they suffer under imperialism.

Another problem that caused great injury to people in many Asian countries became blatantly obvious during and after the 1997 crisis of international capitalism in Asia. The countries opened up their economies after several rounds of Asian Pacific Economic Cooperation (APEC) meetings, and those in high government positions gave their full support for the development of exporting industries. The creation of excess capacity is nothing new and has always been the byproduct of capitalism. The excess capacity of the Great Depression era destroyed by the Second World War only to reappear in the early 1970’s intensified in the 1980s and 1990s, and has lasted into the new century. To resolve the problem of excess capacity and the lack of new investment opportunities, monopoly capital with the help of international trade and financial institutions has been able to shift the cost of excess capacity to less developed countries. Before, during and since the 1997 crisis, people in many Southeast Asian countries have borne the double burden of paying the interest on foreign debt borrowed to build exporting facilities, and the cost of having these facilities destroyed as excess capacity. Now with the current economic crisis the problem, of course, has grown increasingly worse. There were just too many pairs of shoes, shirts, computer components, and house-wares that either had no place to go or could only be exported and sold at prices much below production costs. At the same time many people in these countries went hungry because there was too little food available at prices people could afford. While people in Southeast Asian countries have yet to recover from the 1997 crisis, the problem of building excess capacity has been shifted to China since the early 1990’s until the current economic crisis. This is a clear example which demonstrates that when people in less developed countries have no control over their political and economic destinies, a country’s resources can be shifted from meeting their needs to building export facilities, which inevitable will lie fallow and might never be used again.

In the mid-1970s, Thomas G. Rawski was commissioned by the World Bank’s Development Economics Department to research and write about China’s development. His book – Economic Growth and Employment in China – published in 1979 was an update of his 1977 World Bank report. Rawski’s book provided a wealth of information and analysis on China’s development. In his introduction he gives this summary:

Qualitative changes are less easily documented, but they have been of equal significance. China has made great strides in providing adequate food, shelter, health care, and other basic necessities to its entire population, including the lowest income groups. Mastery of modern technology has spread rapidly over a broad range of manufacturing industries and scientific disciplines. A nation that until 1957 could not manufacture tractors, power plants, or wristwatches now produces computers, earth satellites, oral contraceptives, and nuclear weapons. The technical skills required for industrial development are no longer confined within a few isolated urban enclaves. The spread of rural electrification, local industry, technical training, and publishing has brought modern science and technology to the doorstep of most of China’s 200-odd million households. Nearly universal participation by Chinese youth in primary education and the rapid expansion of secondary education ensure that the dissemination of knowledge will continue to broaden and deepen. (Rawski, 6)

China was able to accomplish economic development during the socialist period to vastly improve people’s well being by ensuring people’s basic necessities and then made further improvement in their standards of living including health and education. China built its industries, transportation and communication and it modernize its agriculture in a short span of twenty some years. China succeeded its economic development by mobilizing its own resources and by building an independent system of technology.

II. China’s Socialist Development Under the Proletarian Leadership Based on a Strong Alliance between Workers and Peasants

The previous section showed the meaning and significance of each of the two fundamental components of socialist development. The question that remains is why economic development with these components has to be socialist. In other words why is being socialist essential to achieving self-reliant development with the goal of satisfying peoples’ needs? Moreover, how did China pursue socialist development politically, economically, and socially?

Economically, socialist development must include public ownership of means of production and economic planning. However, State ownership and economic planning are only prerequisites for socialist development. China’s experience has shown that it is of utmost important politically that the State is under proletarian leadership and based on a strong alliance between workers and peasants. Moreover, socialist development has to be consistent with socialist values, which are the exact opposites of capitalist values.

First: Proletarian Leadership Based on Worker – Peasant Alliance

Phasing Out Commodity Production

According to China’s experience, only when the State was under the proletarian leadership was it possible to implement policies aimed at phasing out commodity production. In the process of phasing out commodity production, the goal of production ceases to be profit making – only then the goal can be changed to meeting the needs of people. In China this was made possible when ownership of industrial enterprises was transferred to the State in 1956 and the collectivization of agriculture was completed in 1958. Only then was the goal of production set to meeting the needs of the overwhelming majority of people. Economic planners set prices of basic necessities low so workers and peasants could afford to buy them. On the other hand, in order to conserve resources, prices of some “semi-luxury” goods were set high. For example, people had to save several months in order to buy a watch – a high priced “semi-luxury” item. Since “profit” or “loss” of each enterprise was the result of pricing policy, they did not reflect, nor were they used to judge the performance of the enterprise. Each enterprise was owned by the State and it was not considered a separate individual accounting unit. The State simply transferred “profit” from enterprises that made high priced goods to enterprises that made low priced necessities for consumption or agricultural machinery and equipment that were sold to communes at low prices. This is the true meaning of a State-owned enterprise. At no time could an enterprise use the excuse of losing money to lay off workers, because wage funds (including benefits) came directly from the State according to the number of workers and their wage scales plus benefits for that particular enterprise.

When State owned enterprise ceased using profit making as their goal of production, economic planning could then allocate resources according to the use value of different products. Only then would they stop considering workers’ wages as an expense (cost), which had to be met by their revenue. State guaranteed permanent employment for workers in State enterprises, when it directly allocated workers’ wages and benefits in the form of wage fund to each enterprise. The State enterprise could not use lack of revenue as an excuse to lay off workers. That was a necessary condition for phasing out labor power as a commodity. Additionally, beginning in the Cultural Revolution until the start of the capitalist Reform, workers in China’s State enterprises increased their participation in management, while managers engaged more in direct production. Labor power was in the process of being phased out as a commodity when workers were gaining more decision-making power in the enterprises they worked. (See Bettelheim.)

In China’s countryside during the socialist period, commune members produced grain not mainly for sale. Most of the grain they produced was distributed to members as quota grain and the rest was sold to the State or used to pay taxes to the State. The same was true for other agricultural products. Within the communes the production team was the accounting unit and each team set aside accumulation fund for investment and welfare fund for health care, education, and needy families from the cash it received. The team then distributed the remaining cash to team members according to the number of work points they earned. Team members used their cash income to buy consumer goods they needed. Therefore, the way the production and distribution in the commune system was set up not for the purpose of profit making but for meeting the basic needs of the commune members.

China’s experience shows that during the period of socialist transition the goal would have to be phasing out commodity production. When grain, other food items, medical care and other necessities of life, as well as labor power, have lost their major characteristics of being commodities, these products can be produced according to their use value to satisfy peoples’ needs.

For the majority of less developed countries that have pursued capitalist development, agricultural products and other necessities of life are commodities sold for profit. Large numbers of people go hungry, because they have no money to buy food. When many peasants never had their own land or lost their land when land was consolidated into large commercial farms to produce exporting crops, or appropriated to be used for other profit seeking activities, they were forced to sell their labor power as a commodity in order to survive. However, large mechanized commercial farms do not require many workers to operate, and the few people they do hire can only earn low wages. Thus, these former peasants lose their means to earn a living or are paid wages too low to buy the products they actually produce.

Moreover, if a country’s development is dependent on external financing, it thus is indebted to international capital and/or international financial institutions, then this country is compelled to export its agricultural and/or manufacturing products in order to earn the foreign exchange needed for the payment of interest. In this case food and other necessities of life are commodities on the international market and are sold to whoever has the purchasing power.

For example, Brazil is the largest exporter of soybeans, an important source of protein, at the same time many Brazilian children are malnourished. Most of the soybeans Brazil exports to developed countries are used in animal feed. The same is true for the many agricultural products the less developed countries export each year. Large quantity of tropical fruits exported by the Philippines deprived workers and peasants to use land and other resources of their own country to produce food to satisfy their own needs. According to Oxfam’s project report, since Chile’s fish and seafood exports took off in the early 1970s, the per capita consumption of animal protein in that country by the late 1980s fell by 15-25 percent, and caloric intake fell by 10-22 percent. The per capita consumption of fish and seafood of Chileans fell from 6.3 kg in 1973 to 4.4 kg in 1986. (Coote, 144) Fisher-folk who catch fish and workers who process fish are too poor to buy enough fish for their own consumption. Yet, a great deal of Chilean fish exported is ground into fishmeal for pet food and animal feed in developed countries.

Difficulties Encountered on Phasing Out Commodity Production

During the socialist transition, there is always a continuing struggle to move away from commodity production. Commodity production has to obey the law of value, meaning whatever is produced has to make the largest exchange value possible for profit. However, during the socialist transition, in many cases, commodity production has to continue. The challenge is how to restrict it so it will not take over every sphere of production. According to Mao, during the socialist transition, instead of following the law of value blindly (producing the largest exchange value) the State could take advantage of the law of value. Mao used the example of pork production to illustrate his point. He said that pork production in China still had commodity characteristics, because peasants produced pork mainly for sale13. Yet the quantity of pork produced was no longer regulated by the demand for and supply of pork. Rather, the State decided the quantity of pork needed according to the economic plan. However, in order for people in the cities to have pork to eat, peasants had to raise a certain number of pigs each year. When the State set the price it paid to the peasants for the pigs and the price of feed it sold to the peasants, it had to adjust the prices of both to make it worthwhile for the peasants to raise pigs. If the price of pigs was set too low and/or the price of feed was too high, peasants would simply refuse to raise pigs (Mao, 1967, 117).

The example of pork production illustrates the difficulty of phasing out commodity production, when pork is produced by the collective sector for sale, it retains its commodity characteristics. This would not change until farm production could be transformed completely into State ownership – and that would only be possible when productive forces could be further developed. Before that stage is reached, the law of value needs to be skillfully used and regulated as was done in China during the socialist period. This does not mean, however, China was always able to resolve the contradiction of how to develop and at the same time restrict commodity production. How to actually carry out these policies requires skills and experiences. The determining factor of the direction of the transition in the China’s case was the proletarian leadership based on workers-peasants alliance.

In the State owned sector the same challenge existed; however, here the State had much more freedom to allocate resources according to the economic plan. For example, when China made mechanization of agriculture one of its development priorities, the State was able to sell machinery and equipment to the agricultural sector at “prices” below production “costs.” (In fact both the “price” and the “cost” deviate from calculations used in a capitalist enterprise.) Another example is when the State transferred technology nationwide from more developed area of the east coast to less developed areas of the west. When China decided to industrialize the western provinces for a more even development geographically, the State relocated machinery and equipment as well as engineers and workers from the more technologically advanced factories in areas like Shanghai and the Northeast to the newly built factories in the west. China was able to disperse technology for faster and more even development all over the country, described by as the saying: “an old hen laying eggs all over the place.” This kind of technology transfer can only be done when each enterprise is not a separate accounting unit with a goal of maximizing its own profits.

Therefore, it was a major step when the Soviet Union went through its revisionist reform and when China started its 1979 reform to capitalism. One of first items on the Reform agenda was to make each enterprise a separate entity, which would be responsible for its own profits and loss. When each enterprise became an individual accounting unit and was charged with the responsibility of profit maximization, the socialist character of State owned enterprises was already lost.

Another difficulty China encountered during the socialist period was phasing out labor power as a commodity. As explained earlier, workers in State owned enterprises were no longer wage labor to be hired and fired by the management. The permanent employment status of workers in State enterprises was a necessary condition to phase out labor power as a commodity. However, those in the Communist Party who opposed socialism tried very hard to replace workers with permanent employment status in State enterprises with contract workers and temporary workers. As my co-author and I wrote in “Labor Reform – Mao vs. Liu – Deng,” Liu Shaoqi made several serious attempts to institute the contract labor system starting as early as the 1950s. In the early 1960s Liu was able to get State enterprises to adopt a “two-track system” so these enterprises could employ both permanent workers and temporary workers. Then, in 1965 just before the Cultural Revolution, the State Council went as far as announcing a new regulation on the employment of temporary workers. It was only after the Cultural Revolution that the permanent employment status of State workers was again restored. (Hsu and Ching, 1995) During the transition period in China the direction of the transition, toward socialism or toward capitalism, was a constant struggle between those the classes.

Socialist value vs. Capitalist Value

China’s model of development from 1949 to 1976 was carried out in accordance to socialist values. In other words socialist value was made to be an inherent part of development in this period. One of the most important socialist values is the commitment to end all exploitation – that means development must move towards a future when people receive all of the fruits of their labor. In the meantime during the socialist transition, distribution should be made according to the labor one contributes instead of the quantity of capital one possesses.

However, the socialist value of ending exploitation has to be grounded in the socialist economic base. In other words the means of production have to be changed from private to public ownership. In China, the State nationalized all industries in 1956 and from then until 1979, workers earned eight different grades of wages based on skills and seniority. The eight-grade wage system was applied nationwide and was only adjusted slightly according to the differences in the costs of living between cities. Between 1956 when the State nationalized industries and the Cultural Revolution, former capitalists still received some fixed dividends from the enterprises they had owned. After the Cultural Revolution dividend payments were stopped14.

During the early stages of socialist transition there are still differences in wages, because different kinds of labor still exist. However, all efforts have to be made to achieve equality. During its socialist transition, China made great strides, albeit with much resistance from its intellectual elite, in reforming its education system so that workers and peasants could have equal opportunity for all levels of education.

The socialist value of building a nation through reliance on the masses is opposite of the capitalist value of relying on a small number of elites. Moreover, under capitalism, capitalists alternately rely on carrots and sticks to get people to work. Under socialism it is the political consciousness of the working people that releases the great energy required to develop a country. China was able to develop rapidly because people believed they were in charge of their own destiny, and that they were part of the larger vision of building a new society. It was precisely this kind of spirit and vision that motivated peasants in Dazhai to overcome the most severe natural adversities to build a long-term sustainable agricultural base15. In the same spirit workers in State enterprises refused material incentive, such as paying bonuses and piece wage rates, as enticement for hard work.

Another important socialist value is cooperation – as opposed to the capitalist value of competition. The above example of technology transfers demonstrates the importance of cooperation. Even though the State had the power to relocate resources and people from more to less developed areas, the transfer of technology could not have taken place if people had not been willing to go. Under capitalist development, the direction of migration would be just the opposite. People would move to places where they could have a better chance of advancing themselves. Since the United States provides the best opportunity for the elite, it has a concentration of brainpower of people coming from all over the world. Another example mentioned above is the simultaneous use of different levels of technology, or the “Walking On Two Legs” strategy. Low-level backward technology along with advanced technology was used in China, when old machinery and equipment could still produce useful products. If, instead of cooperation, competition prevailed, newer and more advanced technology would drive out old and backward technology. This is exactly what has happened to the textile industry in China in the last two decades.

Henry Ford II once said, “Obsolescence is the hallmark of progress.” That is, the accumulation of capital depends on continuously making useful machines and equipment obsolete. The key to the process is competition. Andy Grove, president of Intel, said when Intel opened their new facility in New Mexico to make the new Pentium 5 chip, “This is what we do. We eat our children and do it faster and faster. That is how we keep our lead” (Byster). Capital accumulation depends on the constant phasing out of the existing technology. That is why it is so important for the international monopoly capital to protect its intellectual property rights and why it insists on putting Trade Related Intellectual Property Rights (TRIPS) in the World Trade Organization (WTO) rules and regulations. Major multinational companies have been able to use their new technology protected by the patent law so they can monopolize it, and use it to drive out older technology in less developed countries through competition. Then before their patents expire, they already have newer technologies to replace them. This behavior of producing only to destroy, of eating one’s own children and total disrespect of labor (living labor and dead labor stored in the equipment) and resources is the way to maintain monopoly control over its technological lead, essential to attaining high level of profits. This is not just happening in computer industry but it also in pharmaceutical, bio-technological, and other industries.

Since socialism stands for the sustainable future of human kind, another important socialist value is to conserve and to preserve. Thus, socialist values dictate that we value all resources from the earth as well as the products of labor and use them carefully, despite whether these resources and products have any attached price tags. When China changed production in the State sector from the production of commodities so that individual state enterprises could move away from the profit motive, it used a different set of standards to judge their performance. Each State enterprise set a production target for the year based on the quantity and quality of products made, as well as resources conserved – instead of maximizing profits16.

Capital accumulation requires planned obsolescence, which demands an abundant supply of cheap resources. Therefore, capitalist production must resist any effort to conserve or to preserve. Capital has to consume whatever resources are now available at faster and faster speed and to continue relentlessly exploring more cheap resources. Thus people in less developed countries suffer the consequences of having their natural resources continuously pillaged, and when more and more manufacturing production is relocated to these countries, people also suffer serious environmental disasters that require several future generations to clean up. Capitalist development has lasted this long because monopoly capital, with the help of their imperialist states, has been able to drain resources from less developed countries and dump them the garbage. There cannot be capitalism without imperialism and vice versa. Therefore, we cannot fight imperialism without fighting capitalism.

It needs to be emphasized that socialist values can only be encouraged and promoted in a society pursuing socialism. People would readily accept socialist values when they feel they are part of this large endeavor of building a better society for everyone. Also, when people at large can see that those in charge are not using their power to pursuit their own self-interest.

Part One of this paper explains what socialist development is and why only development under socialism is able to achieve self-reliance and setting a goal of meeting the peoples’ needs. Part Two below will explain how when the Reform in 1979 restored and developed capitalism, China became dependent on external finance and imported technology and subsequently, the goal of development was switched from meeting peoples’ needs to capital accumulation. Part Two will also explain the political support behind the capitalist development and the impact capitalist development has had on the majority of Chinese population.

Part Two: Reform and Capitalist Development, 1979 – Present

In the post-revolution China, there was no argument amongst its leaders that China needed to develop its economy to become a strong industrial modern nation, so China would never again have to suffer the aggression and humiliation inflicted by the foreign powers during the previous one hundred years. The question was how China should develop. From the mid-1950s, fierce arguments and struggles over how China should achieve economic development to become a strong and independent nation had begun within the Communist Party. There were two opposing ideologies within the Party on the course of China’s development. Mao Zedong and his supporters believed that the Chinese Communist Party was founded on the basis of Marxism and Leninism and its goal was to achieve first socialism and then communism. The CCP, as the vanguard of the proletariat, led and won the revolution with the support of workers and peasants based on the strong alliance between them. Therefore, China’s economic development could only be socialist. Mao and his supporters also believed that the masses, once liberated from their oppression would release their tremendous potential and build a strong and independent China.

On the opposite side were Liu Shao-qi and his supporters, including Deng Xiao Ping. Liu strongly disagreed that socialism could develop China’s productive forces to build a strong economy. Liu and his supporters believed that China’s productive forces would develop much faster if it were to adopt the capitalist strategy of development. Fierce political struggle began in the mid-1950s when China’s economy reached a crossroads, and leaders searched for a clear direction to move forward. Mao won the struggle and proceeded to transform China’s economy by State (and some urban collective) ownership of the means of production in industries and collective ownership of means of production in agriculture. In the process of the socialist construction, class relations in the new Chinese society were transformed. However, until Liu died, he never gave up his idea of developing China along the capitalist road, and so class struggle continued after the transfers of ownership to the State and to the communes. The struggle of which way China was going to go turned fierce during the Cultural Revolution. Finally, after Mao died in 1976, Deng Xiao-ping had the opportunity to carry out the capitalist Reform in 1979.

Deng Xiaoping seized power after Mao’s death and officially began his Reform

at the conclusion of the Third Plenary Session of the Eleventh Congress of the Chinese Communist Party in December of 1978. While in certain circles outside of China the debates about the nature (capitalist or socialist) of Deng’s reform lasted for a long time, the overwhelming majority of the people in China recognize the fundamental differences in their society before and after the 1979 Reform. The capitalist Reform attacked and continues to attack the fundamentals of socialist development, and it has aimed to change class relations in Chinese society by dissolving the proletarian leadership and the strong alliance between the workers and peasants. Most Chinese people know that they have lived in two fundamentally different societies, because they have experienced and are keenly aware the fundamental changes in the class relations between then and now. The Reform could not have proceeded the way it did had there not been that fundamental change.

Deng’s Reform program consists of “Gai-Ge” and “Kai-Fang”. The two components of Reform can literally be translated to: reform and opening up. What it meant was that China was simultaneously developing capitalism and connecting its economy to the world capitalist system. Deng’s domestic capitalist Reform, which is closely linked to opening up China’s economy, consisted of several parts and together they formed a well- integrated plan designed to deconstruct the socialist system built during the first 30 years of the People’s Republic. The capitalist Reform aimed to fundamentally and systematically change the relations of production by (1) dissolving the communes, thus breaking up the alliance between workers and peasants17; (2) dismantling the State and collective ownership of the means of production and turning them into profit making institutions and later privatize most of them; and (3) labor reform which would turn labor power into commodity and workers into wage labor, who could be hired and fired at will by new factory management teams. The Reform opened up China and connected it to the international capitalist system, by lowering import tariffs and eliminating import quotas to promote trade and by granting favorable treatment to attract foreign investment capital. China’s development today is dependent on foreign capital, imported technology and external markets for its exports.

Moreover, in order to deconstruct socialism and build capitalism, Reformers had to change the superstructure as well. They rescinded from the Constitution, workers’ right to strike and the basic rights of the masses18 that were newly gained during the Cultural Revolution. Mass movements, which had been encouraged and organized by the government as a way to resolve problems and contradictions in society since the beginning of the new Republic, were banned. In order to show that the new regime had no tolerance for any mass action from below, they brutally crushed the demonstrations and protests in many cities in China during the spring of 1989 by opening fire on the unarmed students and workers in Tiananmen Square.

I. The Domestic Reforms that Deconstructed the Socialist Development

Domestically Deng’s Reform is consisted of the following parts.

First: Economic Reform that Turned the State Enterprises into Profit Making Corporations and Labor Reform that Created the Reserve Army of the Unemployed

In China after 1979 new teams of management came on board in the “State owned” enterprises charged with the responsibility of profit making for its own enterprise. The new management was given the authority to hire and to fire and labor power once again became a commodity. Before the capitalist reform in the state sector, China’s new regime had already dissolved the commune system in the collective sector. This had been done to break the alliance between the workers and the peasants.

Labor Reform in State enterprises began in the early 1980s and its goal was to turn labor power into a commodity by getting rid of workers’ permanent employment status (breaking the iron rice bowl) in “State” enterprises and by taking away workers’ rights, including their right to strike19. As part of the Economic Reform of State Enterprises, new factory managers were given more and more autonomy to run the factories, including the right to hire and fire workers and replace permanent workers with temporary workers, as ways to maximize profits.

Throughout the 1980s workers in “State” enterprises resisted the Reformers’ efforts to change their permanent employment status – but their resistance eventually failed. In the early 1990s, China’s employment structure underwent thorough and drastic changes. The new management in “State” enterprises got rid of workers’ permanent employment status and laid off large number of workers. The percentage of workers in these enterprises and urban collectives decreased from 84.3% in 1992 to 47.5% in 1999. By 1999 only 56% of workers were considered to be working in the formal sectors (“State” and Private) of the economy, while the rest (44%) were in the so-called informal sector. (Hu, Table 1) These large numbers of people in the so-called informal sector were in fact the reserve army of the unemployed, which resulted from the Reform. By 2005 the number of workers employed in the former State enterprises decreased further by another 33% from 99.88 million in 1999 to only 66.38 million in 2005. (Bai Jing-fu)

The Labor Reform and the Economic Reform of State enterprises went hand in hand. As workers lost their permanent employment status, management gained full authority in these enterprises. In the early 1990s the Reform already transformed the so-called State enterprises into profit seeking corporations and dissolved many of the urban collectives. When the former State owned enterprises were changed into profit making corporations, the designation of “State owned” lost its meaning. The remaining workers in these profit seeking corporations lost their permanent employment status and all the decision making power they once had. Many of these workers suffered lower real wages and loss of benefits and hiring and firing became the will of the management. In other words, workers have become wage labor in the true sense and their continued employment is solely based on how the management chooses to run the enterprises.

According to my research, as these workers are laid-off, they find whatever odd jobs they can to support themselves and their families, and many of them live on or under subsistence levels of income. Some of them work as small vendors selling food or other low cost items on the street. Many others are hired as temporary workers for a few hours or a few days at a time. Temporary and casual jobs pay below subsistence level wages, which usually amount to about less than half of the lowest paid regular workers in the formal sector. Successful food peddlers earn a higher income, but they need initial capital and may have to pay exorbitant rent for a small space to do business. They also take big risks, and are at the mercy of local police or politicians looking for bribes or scapegoats.

I found very high unemployment rates in some major cities. For example, cities in the northeast, where China’s heavy industries were once located, saw unemployment rates skyrocket as a great number of previously State owned industries closed down, and large numbers of workers were permanently laid off. In the northeast city of Shenyang at least half of former State enterprises workers lost their jobs. The unemployment rate remains high today. People in cities in Henan, Sichuan, and Anhui and other provinces in Central China reported that more than 60% to 70% of the workers in former State owned industries were laid off. If those who work in the informal sector are counted as unemployed, the unemployment rates in cities located in Northeast and Central China could be as high as 40% to 50%. Laid off workers were either forced into early retirement and stopped working, or found whatever odd jobs they could in the informal sector. Large numbers of women from towns and cities in these provinces have migrated to coastal cities to work in export-related industries. They work under poor working conditions and earn low wages without any benefits, and many of them also suffer abuse from their employers. Other women migrate to large cities, such as Beijing and Shanghai to work as domestic workers for wealthy families.

Through rounds of restructuring, China’s corporations lay off large numbers of workers – they also cut wages and benefits for the remaining workers. Despite high rates of GDP growth, wages have stayed pretty much unchanged. Workers in large profitable enterprises in large cities earn the highest wages – around 1,500 to 2,000 RMB ($1 = 7.3 RMB) a month with some benefits – but they represent a very small portion of the total work force. Other workers in smaller enterprises, including those workers in export industries located in coastal cities earn much less –between 600 to a little over 1,000 RMB a month with no benefits. Many of these workers migrated to the cities from the rural areas during the last two decades. Some migrant workers in the construction industry earn even less. Most other workers in cities in northeast and central China, where the rates of unemployment are highest, earn about 600-800 RMB a month with little or no benefits. Workers who do odd jobs in the informal sector in these cities are only paid 300-400 RMB a month. These statistics reflected the conditions of workers before the current economic crisis. It has been reported that at least 20 million workers, who migrated from rural areas to cities to work in the exporting industries lost their jobs in the past few months welling the pool of the unemployed.

In addition to unemployment, unstable jobs and low wages, workers also lost their protection from illness. Workers who lost their health insurance benefits at their jobs or were laid off cannot afford to get medical attention when they get sick. After 20 some years of Health Care Reform, China’s health care system is in crisis. Even a top government think tank in China recently admitted that the Health Care Reform started in the early 1980s was a failure20. (The Economist, November 19th– 25th, 2005, 29) The whole network of preventive health care, built during the socialist period and successfully improved the health and wellbeing of the people, was totally eliminated. The majority of urban and town residents now do not have health insurance, because, as was mentioned earlier, almost all laid off workers from former State owned factories lost their health care benefits. Medical care in today’s China is a commodity and medical institutions’ goal is to maximize profits. Doctors charge high fees and receive kickbacks from pharmaceutical companies for prescribing expensive drugs. The doctors help hospitals earn high profits by ordering expensive but unnecessary tests with imported high tech equipment. The prices of doctors’ visits, medicine, and hospitalization have skyrocketed. People cannot afford the high cost of medicine, let alone hospitalization for serious illnesses. A major operation can cost 40,000 to 50,000 RMB, which is four to five times that of the annual income of better-paid workers. No medical treatment is given, including emergency cases, unless the patients and their families can make a total cash payment in advance, resulting in the deaths of countless people with treatable diseases literally on hospital steps.

At the same time workers lost their health insurance, they became increasingly subjected to hazardous and toxic working conditions. Many high tech firms relocated to China to take advantage of the low wages of Chinese workers and also to escape regulations in their home countries that put limits on workers’ exposure to toxic materials. Hundreds of thousands of young Chinese workers, mostly women, have flocked to the Pearl River Delta, and in the last few years to the city of Kun-shan near Shanghai, to work in electronics factories that assemble computers and other electronic products for the world’s major high tech companies. These workers work long hours with little or no protection from exposure to high toxin levels. Chinese workers also work to extract toxin metals from hazardous electronic waste exported by the United States21. In the small city of Guiyu, environmentalists found 100,000 people dismantling discarded electronics without any protection from the highly toxic waste materials22.

Even the mainstream press in the West has taken notice of the high numbers of coal miner deaths in mine accidents in China – known as the deadliest mines in the world. According to an online report ( 6,434 coal miners died in accidents in 2003. China produced 1.7 billion tons of coal that year and the report calculated that for every million ton of coal produced, 4 miners died. In contrast, the fatality rate (per million ton of coal) for Russian miners was .34 and for other developed countries the rate was 0.4, about one tenth of China’s fatality rate.

The Reform in education has deprived tens of millions people of their right to education and has further polarized Chinese society. There are now more opportunities for the city elite to obtain the education and training that leads to highly paid careers, at the same time the cost of education has increased so much that it is increasingly difficult for many workers and the unemployed to send their children to high school, much less college. Many young people from poorer families have to drop out of school in order to work and help support their families. The gender bias for education is also very significant; young women give up school for work in order to support their brother to go to school. Parents and female siblings often work extremely hard to support a son through college, which typically costs between 40,000 to 50,000 RMB by the time he graduates.

As tens of millions of workers lost their jobs, Reformers proceeded to privatize large numbers of previously State owned enterprises that had been turned into profit making corporations. Privatization was basically accomplished by contracting these corporations to those with political power. These power elites quickly proceeded to take whatever valuable assets there were and sell them off to form private corporations. Throughout the process of Reform the political powerful groups and those who were closely related to them amassed tremendous wealth.

Second: The Rural Reform that Broke Up the Communes and Resulted in the Great Leap Backward of China’s Countryside

The Rural Reform took several steps to break up the communes. By 1984 land had been redistributed to individual peasant households. China’s grain production23 increased 22.5% between 1979 and 1984, when the government increased the purchase price for grain by 20% with another 50% bonus for above quota grain purchases. During these earlier years, agricultural machinery and agricultural infrastructure, bought and built during the commune years, were still functional. The fertilizer plants built earlier increased fertilizer supply24. Later irrigation and drainage systems and other land infrastructure began to fall apart due to lack of maintenance. Agricultural machinery bought earlier by production brigades and communes aged, and individual peasant households had no money to invest in new ones.

Moreover, in some areas, such as the Yangtze Delta, where land has been subdivided into small strips25, it is no longer possible to use agricultural machinery. Peasants in these areas went back to old ways of farming their land, each with a simple farm tool, as they had done before collectivization. In central and northwest China, where individual land plots average around one mu (1 mu equals to 0.067 hectare) or more, major crops (wheat and corn) are still harvested by combines. Private individuals have invested in combines and they harvest (or hire drivers to harvest) crops from farm to farm, charging 40 –45 RMB per mu. Combine owners can earn as much as tens of thousands of RMB during harvest season, and after costs are deducted, make a substantial profit26.

For the 12 year period between 1984 and 1996, grain production increased by only 20.4%, (Wu, Appendix Table A-1), and then fell in 1998 for four consecutive years, from 392 million tons in 1998 to 322 million tons in 2003. Grain production recovered somewhat after 2003 but peasants’ income from farming has continued to stagnate. China has also started to import more grain and other agricultural products since 2003 as one of the conditions required for China’s ascension to the World Trade Organization. (See Ching, 2008)

Beginning in the late 1980s peasants’ lives, especially those whose main source of income depends on selling crops, have become poorer and more precarious. As the government took further measures to liberalize the agricultural market, the prices of crops fluctuated, while the prices of agricultural inputs continued to rise. Today many of the 320 million peasants who still depend on selling crops for their main source of income suffer low and unstable income and there is little hope for a better future. Nearly 200 million peasants had already been forced to leave their homes to work in cities and most of them are doing the hardest, dirtiest and most dangerous jobs, so they can send money home to support their families. These migrant workers have become the source of cheap labor that benefits foreign and domestic capital in the pursuit of profit by gaining a foothold in the international market. However, many of them lost their jobs in the past few months, when exports have dropped due to the global economic crisis.

While the younger and stronger family members left to find work in cities, the children, the old and the weak have been left behind, subsisting mainly on what their migrating relatives can send home. Peasants who migrate to the cities have no city resident permits and are often abused by their employers and harassed by police. Most male migrants work in construction and most female migrants work in the many factories in the export industries in coastal cities. Young couples often have to leave their children behind, but some take their children with them to work as food peddlers on the street. Since they have no residential status, their children are not allowed to attend city schools.

As stated earlier, during the commune years much effort was spent to preserve and improve land, but since the commune system collapsed in 1984, large areas of farmland have been lost and continue to be lost to industrial use, tourism, residential and commercial housing, and other development projects, such as highway construction. Land has also been lost to desertification. In more recent years many peasants have also abandoned their land, because it has become increasingly difficult to earn a living by cultivating a small plot, when the price of inputs continues to rise with the price of outputs either stagnating or dropping. Moreover, natural disasters, both floods and drought, and environment pollution have claimed large areas of land and made problems in agricultural production go from bad to worse27. Moreover, until recently the burden of taxes fell heavily on the peasant population. Even though the central government eliminated taxes on agriculture last year, local governments have continued to collect high fees and other levies. The burden of such collections is too heavy for the peasants to bear.

The cooperative hearth care system that had been set up as soon as the commune system was established collapsed as it was dismantled. After the breaking up of the commune system some 20 years ago, former commune members lost their health and other benefits that had carried them through hard times. As far as health care is concerned, peasants in the countryside suffer even more than city residents. According to the Status of Rural China – 2003 –2004, participation rates for peasants in any kind of insurance were very low. In 2002 the participation rate for rural population in old age insurance was 7.7% but only 1.4% of the insured actually received an old age pension. The percentage of people who received a minimum living expense relief was only 0.5%.28 Only about 5% of rural residents participate in cooperative health insurance. In 2002, 170 million people were affected by natural disaster, but only 9.4 million, about 5%, received any kind of disaster relief. (Li, 63)

The absence of any preventive medicine has meant that infectious diseases, such as tuberculosis and schistosomiasis, which had been under controlled in the 1950s, have returned in full force29. In addition, new infectious diseases, such as HIV/AIDS and SARS have caused suffering for tens of million people, not only from the effects of the disease, but also from government’s denials and cover-ups, and the low priority government places on public health. China’s countryside has borne the heaviest burden of environmental pollution. Seventy-five percent of all China’s rivers are heavily polluted. There are a large number of villages that have documented high concentrations of cancer as a result of water and ground pollution.

After the collapse of the communes, the rural education system also fell apart. The welfare fund, which supported elementary and secondary schools in the countryside, is gone. Support from the central government that had paid for building schoolhouses and teachers’ salaries, has also stopped. Some rich villages have built their own schools, but the many more poor villages do not have the funds. Even back in the early 1990s their schoolhouses were falling apart and were badly in need of repair. Many teachers continued to teach even when they did not get paid for many months, until schools in many villages closed down altogether.

II. Linking China’s Economy to the World Capitalist System

Linking China’s economy to the world capitalist system has been a major part of the Reform. China’s domestic Reform, which is closely coordinated with opening up China to the rest of the world, changed the basic class relations in China by passing legislation and imposing them on workers and peasants. Despite efforts made by workers and peasants to resist these reform programs, the Reform was able to accomplish all its aims as planned. On the other hand, during the fifteen years of negotiations to join the WTO, the reformers had taken major steps to open up China’s economy by significantly lowering tariffs, eliminating import quotas, and granting favorable treatment for foreign investment

Even a mainstream economist in the United States, Nicholas R. Lardy of the Brookings Institution, admitted, “By the time China entered the WTO it was already perhaps the most open of all developing countries.” In the forward of his book he also said, “…under the pressure from industrialized countries, China has granted WTO members unprecedented authority to limit imports of Chinese products.” (Lardy, vii)

When China opened its arms to welcome foreign capital the foreign multinationals from automobile, electronics, textile and clothing to shoes – all other kinds of light manufacturing and large retailing came running. They came with both the aim of occupying China’s domestic market and also relocating their production sites to China in order to utilize China’s cheap labor and take advantage of China’s lax environmental regulations.

After more than two decades of high rates of export growth, especially from 2001 to 2008, there are now serious imbalances between China’s domestic economy and the rest of the world – especially its imbalance with the United States. China’s foreign exchange reserves have continued to rise at an accelerated rate. By the end of March, 2007, China accumulated $1.202 trillion in foreign exchange reserves mostly from its trade surpluses in the past years. However, if surplus in the capital account was included, China’s foreign exchange reserves are estimated to be even higher. Total reserves have continued to accelerate and to reach almost $2 trillion by the end of 2008. The majority of the foreign exchange reserves are in foreign currencies (mostly US dollars), foreign stocks, bonds, and securities (mostly US government bonds and Treasury Bills), and other foreign assets, all of which is debt owed by foreign countries. Therefore, most of China’s trade surpluses from these past years were exchanged into foreign IOU’s and now sit as foreign exchange reserves in the Central Bank.

By the end of the third quarter of 2005, China became a net capital exporter. China received a total of $570 billion in foreign investment (capital imports), but had $769 billion in foreign exchange (capital exports)30. Due to the large capital exports of China and other Asian countries, Monique Morrissey and Dean Baker of the Center for Economic and Policy Research, concluded that by 2000, developing countries as a whole, became a net capital exporter to developed countries.31

China’s current account surplus (mostly from trade) was $249.9 billion in 2006, and it accounted for 9.5% of its GDP (as compared to 8.1% in the first half of 2005). Then for the first four months of this year (2007), the current account surplus increased to $63.3 billion, a jump of 88% from the same period in 2006. (, May 11, 2007) The 9.5% of GDP surplus means that in 2006, 9.5% of what China produced was not consumed domestically, nor was it invested in China, or spent by its government. That capital was simply exported (in net, after deducting imports) with nothing in return but more promissory notes which will supposedly to be paid sometime in the future. This is a serious imbalance between China and the rest of the world (especially the United States). China is still a poor country that needs capital for its own development and for the immediate needs of its people, such as clean water, basic health care, and basic education – but it is exporting capital, most of which goes to the United States, the richest country in the world, at an accelerating rate. Even though other economies, such as South Korea and Taiwan, have also exported capital, China’s capital exports, both in terms of the absolute quantity and relative to GDP, is astonishing.

China has not borrowed much from foreign banks or international financial institutions, and it has not suffered under the conditions in the SAP imposed by the International Monetary Fund. However, China has lost its autonomy in developing its economy just as other developing countries have. China is now dependent on the investments of multinational corporations and the foreign technology these corporations bring in. It is also dependent on the expansion of exports to the international market in order to maintain its high GDP growth. China is now so dependent on its exports of low priced industrial products, it has to continue loaning money to the United States (by buying US government bonds) to finance the annual large trade deficits US has with China.

The transformation of China’s textile industry gives a clear illustration of how self-reliant development was lost in the course of capitalist restoration. During socialist development, China’s textile industry used its own technology and equipment to produce clothing for the satisfaction of peoples’ needs. Since China’s Reform, it began phasing out the older capital equipment in almost the entire textile industry. On the surface it appeared that the overhaul of the entire industry was a sign of progress, but a closer look tells quite a different story. China’s textile industry has become dependent on external finance mostly in the form of direct foreign investment in order to import the newest technology to make products that can compete with Taiwan, South Korea, and many other countries in the international textile and clothing market. As many textile factories closed down and tens of thousands of workers lost their jobs, China’s textile industry has become dependent on the export markets, dependent on external finance and dependent on imported technology, all of which are tightly controlled by international monopoly capital.

When the Reform linked China’s economy to the international capitalist system and made rapid growth of exports its most important goal of development, exports claimed a very high priority in utilizing its domestic resources. Changes in the Yangtze delta area, the richest agricultural land, demonstrate how resources that had been used to produce food for area residents were converted into planting mulberry trees for silk worms in order to feed China’s silk exports. China has since exported such large quantities of silk products, that the price on the international market hit rock bottom. China’s silk is just like Brazil’s soybeans and Chile’s fish. When the quest for exports is the primary goal of development, resources will be taken away from meeting the urgent needs of the people in order to produce commodities for exports.

Although China was able to achieve high rates of GDP growth, the development of the past nearly thirty years has thrown tens of millions of workers out of the factories and has also ruined the foundation for long-term development of China’s countryside. The multinational corporations went to China to take advantage of the cheap labor and lax environment regulations. A large number of workers in the domestic and foreign factories of the export industry labor under deplorable conditions and earn low wages without benefits. The capitalist development of the past twenty some years has deprived a large portion of the Chinese population their basic necessities of life and has also ruined China’s fragile environment. China has had many environmental crises as a result, and many more are sure to come.

Initially the Reformers’ strategy was to use foreign capital and foreign technology to upgrade China’s own technologies of domestic firms. However, the original intent of using imported technology to upgrade domestic technological capacity was not realized. From 1999 to 2003, over a period of merely four years, China imported $75 billion worth of foreign technology – but the technological innovation and development of domestic firms since the beginning of the Reform has not improved significantly. In addition to technology imports, China has also imported most of the machines and equipment used to produce exports, as well as certain components, and parts. (Bai’s point 8)

The 2003 China’s Industrial Development Report stated that the development of the past decade (and more), especially in three years between 2000 and 2003, resulted in very serious structural problems in China’s industry. On the one hand, manufacturing has grown at a very fast rate. Yet the foundation of the industry that produces machinery and equipment has remained very weak. The Report went on to say, “The capacity utilization of the industry that makes machinery and equipment stays at only 50% on the average. The high demand for high tech and specialized machinery and equipment could only be met by imports.” The report’s footnotes lists some examples: 80% of the machinery and equipment in the synthetic fiber industry, 70% of the machinery and digital control equipment in the petrochemical and passenger car industry have to be imported. (The 2003 China’s Industrial Development Report, 28)  The same report also said that the positive impact of foreign technology on domestic industries has been very limited, and that in order to maintain their superior position in advanced technology, the multinationals have not exported their most current technology to China – and the technology they have exported to China is under strict controls to prevent dissemination. (Ibid.)

Both Bai’s report (point 8) and the 2003 China’s Industrial Development Report(56) concluded that foreign technology has helped very little in terms of domestic technological development. They also acknowledge China’s over dependence on foreign technology and that this dependence is not likely to change in the future. The less developed countries that have already become dependent on imported technology actually reached this same conclusion quite a long while ago.

III. The Political and Economic Interests of the Bourgeois State

After seizing political power in China, the bourgeoisie began to consolidate their power by pushing the Reform program through during the Third Plenary Session of the Eleventh Congress of the Chinese Communist Party in December of 1978. Throughout the Reform that followed, the bourgeois State crushed any opposition within the Chinese Communist Party. The State implemented policies to fundamentally change class relations, including dissolving the alliance between the workers and peasants. When the previously State owned enterprises were changed into profit making corporations, high-level State bureaucrats were dispatched as new management teams in these corporations.

These high-level State bureaucrats subsequently lay off tens of millions of workers in order to cut costs, and at the same time found different ways to siphon off profits into their own pockets. When the corporations they managed had losses, the State bank increased its loans to cover them. These loans more often than not were not paid and were simply written off. Legislation was then passed to allow these corporations to sell parts of their assets. The management then sold the profitable parts of the enterprises to themselves or to their relatives at low prices. As stated earlier, this was essentially a process of privatization. Thus through the process of Reform the bourgeois State consolidated their economic interests along with their political interests.

One important economic interest of the bourgeois State has been cooperating closely with the foreign capital. Opening up China’s economy, one of the two components of the Reform, already indicated that China’s economy was going to be linked with the world capitalist system, and that it had given up development based on self-reliance. However, until China’s ascension to the WTO, the Reformers in China were still hoping that China would somehow be allowed to protect the interests of its national capital. That explains why the negotiations to join the WTO did not go smoothly and that it lasted as long as fifteen years.

By the time China joined the WTO it was clear that the new bourgeois State had clearly given up any attempt to pursue independent economic development. In the world of imperialism China, like other client states, has to obey the rules set up and dictated by international monopoly capital and their imperialist states. China’s authorities finally understood that if China were to pursue capitalist development, it did not really have an alternative, and so they surrendered. One of the reasons behind their decision to give in the demands made by the powerful WTO members was the economic crisis of 1997. The world capitalist economic crisis manifesting in the form of the Asian Financial Crisis demonstrated the controlling power of international monopoly capital and imperialist states over the world economy, including their power to shift the burden of the crisis to the less developed countries in Asia. Even though China’s economy was not yet as connected to the world capitalist system as it is today, and its economy was not hit as hard as many other Asian economies, it had to spend a lot of its foreign exchange reserves to defend the RMB. China’s domestic economic growth slowed. The authorities realized that if China was to develop capitalism, its ability to fend off the international capital was rather limited. At the same time, it was clear that cooperating with foreign capital would yield handsome benefits to those in charge.

There were also political considerations. The current regime in China saw that the expansion of foreign corporations in China could provide a model for how to run a modern corporation. This consideration has been closely related to the reform of previous State-owned enterprises, including modeling how to discipline workers. Also, as indicated previously, Chinese leaders also believed that the superiority of foreign technology would help advance the level of China’s technology.

China’s bourgeois State also has ambitions to become a minor imperialist power. As China increased its export of light industrial products at a breakneck speed, it has had to acquire energy and other natural resources from abroad. China has expanded its investment in many Asian countries, as well as in Latin American and in Africa, acting very much like other imperialist powers in order to seek out resources and energy globally and to exploit workers wherever it has invested.

Part Three: Summary and Conclusion

The first part of this paper showed that during the socialist period from 1949 to 1976, China’s development based on self-reliance was able to make remarkable progress in agriculture, and industry, transportation and communication, and it raised the standard of living tremendously for workers and peasants. Despite the fact that China was a poor war-torn country, it developed quickly by mobilizing its own people and resources. During the period of socialist development, China achieved great advancements in science and technology and laid the solid foundation for further development.

Part two of this paper showed that the Reform, which began in 1979 fundamentally changed the relations of production in China and reversed its course of development from socialist to capitalist. The State that now represents the interests of the new bourgeoisie robbed the wealth of the industrial enterprises built before the Reform, and deprived tens of millions of working people of their basic necessities of life including food, clean water, clean environment, medical care and education. Those in control in the new bourgeois State have benefited from the domestic Reform and from cooperating with the foreign capital at the expense of China’s economic independence and the welfare of the majority of Chinese people. Today China, like many other client states, has lost its autonomy to develop its economy independently and people in China have consequently suffered.

The way China developed in the past twenty years by accelerating its exports and thus accumulating its foreign exchange reserves should be seen as the manifestation of how the international capitalist system has evolved and how this system is heading toward another crisis. It seems clear that international monopoly capital with the help of their imperialist states and the international financial and trade organizations, will again be able to shift the burden of this crisis to China as they had done during all of the other economic crises in the post World War II era. Chinese people, especially the poorest and weakest, have already suffered from the Reform and will have to bear the heaviest burden of this imminent crisis.

The conclusion we can draw from China’s experiences from the past sixty years is that socialism did not fail. The capitalist restoration in China since the 1979 Reform only means that the proletariat lost its political power. However, the bourgeoisie’s victory is not final and class struggle has not only continued but also has intensified. In 2005 there were nearly 100,000 reported demonstrations, of the size of 100 or more people, all over China and many more were not reported. As more and more people take their grievances to the street in daily protests, the President of China, Hu Jin Tao, has called for a “harmonious society”, as he and others in charge have realized that the Reform has created a series of crises, and that Chinese society is now anything but harmonious.




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